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I am 56 years old and want to invest 25 lacs and wish to withdraw 30000 per month

I am 56 yrs. old, and I wish to invest 35 lacs at a time right now, and I wish 30,000 per month from April 2016, till life time, So When and where to invest? Please guide me?

Dec 12, 2015 by Mukesh Bhatt, Ahmadabad  |   Mutual Fund

We do not give specific investment advice in Advisorkhoj. However, we can discuss some broad guidelines, which can enable you to make your investment decision in consultation with your financial advisor. Your investment plan will depend on your financial situation and risk tolerance level. Given your age, your asset allocation to equity should be around 40% and the balance allocation should be in debt, based on rule of thumb guidelines. However, you can go for higher equity allocations, if you have income from other sources like business income, on a long term basis. You want an income of Rs 30,000 per month or Rs 360,000 annual from your investment of Rs 36 lacs. This implies that you need an annual return of around 10%. If you can take a higher exposure to equities, you can invest in balanced funds. Balanced funds are hybrid equity oriented funds, with more than 65% allocation to equities and the balance to debt. The taxation of balanced funds are similar to equity fund taxation, which means dividends are tax free and long term capital gains (holdings for over 12 months) are tax free. Top performing balanced funds, Tata Balanced Fund, HDFC Prudence Fund, HDFC Balanced Fund, Canara Robeco Balanced Fund, Birla Sun Life 95, Reliance Regular Savings Fund Balanced Option etc have given returns in excess of 13% over the last 10 years. You can opt for annual or monthly dividend options of these funds. You can see the highest dividend yield balanced funds, by going to, Top Dividend Paying Mutual Funds - Balanced Funds Equity Oriented. Top dividend paying balanced funds has given more than 10% dividend yield. However, you should note that in mutual funds, dividends are not assured, both in terms of amount and timing. If you want a fixed monthly income from your investment, then Systematic Withdrawal Plan (SWP) is a better option. In SWP you can withdraw a fixed amount every month, while your balance units remain invested and continue to grow in value. However, purely from the perspective of exit load and taxation consideration, you should begin your SWP, 12 months from the date of investment. If you want to opt for SWP and still need cash flows from April 2016 onwards, you can invest a portion of your investible corpus in liquid funds, so that you have enough liquidity from April 2016 onwards till the time you can start an SWP from your balanced fund without incurring exit load or short term capital gains tax. Accordingly based on your income needs, assuming 8% pre tax returns from liquid funds, you can invest Rs 2.3 to 2.4 lacs in a good liquid fund for the monthly income needs till December of 2016, and the rest of your investment amount in a balanced fund. We have discussed good liquid funds in our article, Top Liquid Funds: Better options than savings bank for parking your surplus cash.

If you want a lower risk profile for your investment and lower allocation to equities, you can invest in mutual fund Monthly Income Plans. Monthly income plans are debt oriented hybrid mutual funds, with around 75% allocation to debt and 25% allocation to equity. Top performing mutual fund MIPs have given returns in excess of 10%. While many good MIPs have monthly dividend payout options, the possibility of getting 10% annual dividend yield is quite low, given the past dividend track record of these funds. You can opt for SWP from mutual fund MIPs, but you should note that, from a tax perspective, the minimum holding period for long terms capital gains taxation is 36 months. After a holding period of more than 36 months, debt funds are taxed at 20% after allowing for indexation benefits, whereas bank fixed deposit interest is taxed as per the tax rate of the investor. You should consult with your financial advisor and take a decision that is best suited for your investment objectives.

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