Skip to main content

Use SWP for Regular Income

Best SIP Funds Online 

My greatest joy as a financial planner comes from working with senior citizens. Planning their finances is challenging and gratifying at the same time. Challenging, because it often takes months to change their outlook about the way they have managed their money thus far. Gratifying, because when they see the difference it makes to their fortunes, their appreciation and delight is heartfelt. 

When X and his wife came to meet me last year, they were resigned to being financially dependent for the rest of their lives. Apart from the house that they lived in, they owned no other significant assets. Their children provided them a monthly allowance to meet their routine expenses. Neither the children nor the parents liked this dependency, but saw no other way out of the current predicament. 

After meeting Mrs and Mr X, we determined that the only way they could be financially independent was if they sold their property. It took us several weeks to convince them that this move would place them in a better situation than where they were today. Selling their property was a big first step, since any planning for the future would require liquidating this large, illiquid asset.

Once the money was in the bank, we had the flexibility to plan their retirement in a way that not only allowed them to meet their basic needs, it also opened the prospect of a whole new lifestyle that they never imagined possible. 

Subsequently, we embarked on their financial plan, where we determined their risk profile, asset allocation, time-frame for income generation, and expense patterns. Meeting essentials like rent, food, utilities, domestic help, medical expenses (including medical insurance premiums), and clothing were a breeze. In fact, not only would the couple meet their basic expenses, they would also leave behind a sizeable asset for their children if they continued with their current, frugal existence. 

We then examined an alternate expense set, an extravagant dream budget, which they thought would be impossible to fund. This budget would enable the couple to splurge on non-essentials like vacations, gifts, hobbies and entertainment. A luxury for Mrs X was a monthly visit to a beauty parlour and a cab or auto for her local travels. She despised having to commute by public transport at her age. She hoped that we could enable these indulgences through a carefully structured plan.

I remember Mrs X's jaw drop when I told her that not only were these expenses doable, she could also spend up to Rs3 lakh a year on holidays and yet remain financially independent. 

Even after assigning aggressive inflation numbers and conservative portfolio returns, the elderly couple would be financially independent, albeit with lesser assets to bequeath to their children. The couple chose this option—to spend more and leave a smaller inheritance for their children—a mindset that is common in the West, but still not widely embraced in India. 

We structured their portfolio into three silos. The first consisted of liquid or money market funds that would meet immediate expenses over the next year-and-a-half. The second set consisted of high-quality debt funds that would bring stability to the portfolio, and render returns that would beat fixed deposits on post-tax basis. The third, smaller set consisted of balanced funds to enable the portfolio to stretch for a longer period and beat inflation comfortably. By organizing the portfolio in this manner, we were able generate a regular monthly income that was mostly tax-free. 

A systematic withdrawal plan (SWP) was set up from a liquid fund to meet immediate expenses and to create an emergency fund. An SWP is the reverse of a systematic investment plan (SIP). While an SIP takes away a fixed amount of money from your bank to invest in a certain fund, an SWP redeems a fixed amount of money from your investments and deposits it into your bank account. While SIPs can be used to create wealth over time, SWPs are used to distribute accumulated wealth across a length of time. 

After the liquid fund gets exhausted, we planned to generate an income either from the debt or the balanced fund portfolio, bearing in mind the existing market conditions and the required asset allocation at that time. We assumed that the assets will grow at a certain rate over a period that will not only generate a steady income, but will also sustain inflation. The income drawdowns will also be a certain percentage of the assets, so that the rate of drawdown is lower than the rate of growth of assets. Clearly, the SWP strategy is best executed if the portfolio is carefully monitored so the assumptions made on portfolio return, inflation and income generation hold true. 

Through the SWP, we fixed a predetermined level of income in the beginning of the year and revisited expenses frequently to check if the income funded those expenses comfortably. When expenses for the same basket of goods rose with inflation, we opened the tap a bit more, and increased the income flow. The income was tax efficient too, since the total drawdown could be staggered across years to manage tax liability effectively. Also, all income drawn from balanced funds could be generated tax-free after a year of investment. All income from debt could be indexed to inflation and taxed at 20%, if drawn after 3 years. 

We structured the entire retirement portfolio for Mrs and Mr X with mutual funds. I haven't yet found a more elegant or optimal method of income generation and wealth creation than through mutual funds. Generating an income through an SWP is tax efficient, flexible, factors inflation, and compounds the portfolio better than traditional investments like fixed deposits and annuities. 

With the average lifespan increasing by 1 year every 3 years, and retirement ages dropping to the early 50s, we need to open our minds to alternate investments that help our portfolio stretch till the end of our lifetimes. Else, forget about leaving money at the end of our lives, we may end up with too much life at the end of our money. 




SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now