I am 50 and plan to retire next year. I live in my own apartment and donât have any liabilities. My investments in mutual funds, PF, superannuation, PPF, FDs etc, will yield a corpus Rs 1.5 crore. I would like to deploy this whole amount towards my retirement. I want to withdraw Rs 50,000 per month in the initial years, with 5% increment each subsequent year. How should I deploy the money? Will it be a good idea to split the funds between me and my spouse to save tax?
Naveen Kukreja, CEO and Co-Founder, Paisabazaar.com replies, “Follow the bucket strategy for generating your post-retirement income. Invest at least Rs 50 lakh of the corpus in ultra short-term debt funds for 7 years and withdraw monthly through SWPs. Invest the rest of the corpus in equity funds to ensure growth. The amount invested in debt funds, assuming an annualised return of 7%, will ensure significant balance at the end of 7th year after enabling monthly withdrawals of Rs 50,000 and a 5% increase in it after the end of each year. Meanwhile, the Rs 1 crore invested in equity funds should grow to about Rs 1.94 crore in 7 years assuming an annualised return of 10%. Withdraw about Rs 60 lakh from your equity fund corpus and invest it in ultra short-term debt funds after the end of 7 years. The increased investment in debt funds will help you sustain higher monthly withdrawals during the next 7-year cycle. Meanwhile, the remaining Rs 1.34 crore in your equity corpus should grow to about Rs 2.60 crore in the next 7 years, assuming an annualised return of 10%. Repeat this cycle after every 7 years. You can invest in direct plans of ultra-short debt funds for your debt fund exposure. For your equity exposure, invest in the direct plans of any of these large-cap fundsâAxis Bluechip Fund, ICICI Prudential Bluechip Fund and IDFC Large Cap Fund. Splitting the funds between you and your spouse may not work as the income generated from the investment in your spouseâs name will be clubbed with yours. Instead, you can invest a part of your retirement corpus in ELSS funds each year to reduce your income tax liability.”
I am 42. I have been investing through SIPs for the past few years. I want to continue these SIPs for at least 10 years as I want to create a retirement corpus of Rs 5 crore. I have an SIP of Rs 10,000 each in Axis Focused 25 Fund, Axis Bluechip Fund, Invesco India Contra Fund, IDFC G-Sec Fund and ICICI Prudential Ultra Short Term Fund. I have an SIP of Rs 5,000 each in Motilal Oswal Nasdaq 100 Funds of Fund, Motilal Oswal Nasdaq S&P 500 Index Fund and Mirae Asset Tax Saver Fund. Besides these, I also have an SIP of Rs 11,000 in Mirae Asset Emerging Bluechip Fund. Will this help me to achieve my goal in10-15 years?
Vidya Bala, Co-Founder, PrimeInvestor.in replies, “You have roughly a 75:25 exposure to equity and debt, which is fine. If we assume a return of 11% on your equity and 7% on debt, at your current rate of saving you will reach Rs 5 crore in about 20 years. Your expectation of 10 years is too short a time unless you raise your investments to Rs 2.5 lakh per month. Focus on increasing savings steadily. When planning for goals, tweaking the portfolio to make it aggressive is not a lever to use as what is aggressive today may start yielding less in 10 years as the economy matures. Your fund choices are fine. Consider using an alternative like ABSL FLoating Rate instead of ICICI Pru Ultra Short Term.”