I am 54 years old and I just left my job. I want to invest Rs 50 lakh in mutual funds to earn a monthly income of Rs 50,000. Please advise.
Prableen Bajpai, Founder, Managing Partner, FinFix Research and Analytics replies, “To earn a monthly, pre-tax income of Rs 50,000 from an investment of Rs 50 lakh, you need to earn a return of 12% per annum. While equity-oriented mutual funds have the potential to deliver such returns, they tend to be volatile and are thus riskier. You can earn a regular income by investing the amount in debt funds and opting for systematic withdrawal plans (SWPs). An SWPallows the investor to choose the amount of money that is withdrawn from the scheme on a monthly basis. Remember, if your withdrawal rate is more than the fund’s return, your capital will start depleting. If you go for low-risk products—liquid or short-term debt funds—you can expect around 7-7.5% return. This will allow you to start an SWP of around Rs 30,000 without eroding your capital. Only the capital gain will be taxed and not the entire SWP amount. Overall, the amount of withdrawal and the choice of the schemes for SWP depend on factors such as other sources of income, liabilities, taxation-slab and risk appetite which haven’t been mentioned by you.”
I have been investing in the following funds for the past two years via monthly SIPs: Rs 3,000 in Franklin India Taxshield, Rs 2,000 in Mirae Asset Tax Saver, Rs 1,000 each in Axis Long Term Equity and SBI Equity Hybrid, and Rs 1,500 in HDFC Mid Cap Opportunities. My investment horizon is 15-20 years. Should I make any changes?
Dinesh Rohira, Founder and CEO, 5nance.com replies, “Investing via SIPs is the best way to build wealth over time. The funds you have selected have been good performers in their respective categories. This portfolio can see a compound annual growth of 12-14% over the long-term. Remember, investing in tax-saving funds will lock-in each SIP investment for three years. So, you may initiate systematic transfer plans out of these tax-savings funds after the three-year lock-in is complete and invest in diversified equity funds of the same fund house. Considering the tenure of your investment, you may reconsider your investment in SBI Equity Hybrid Fund and switch to SBI Magnum Multi-cap. Keep evaluating these funds annually and make a tactical shift, if needed.”