Have over Rs 1.50 crore in mutual funds? Expert explains how to plan a Rs 16,000 monthly SWP in retirement

As retirement approaches, investors must prioritize sustainable income from their portfolios. Take, for example, a 59-year-old managing Rs 1.51 crore, seeking Rs 16,000 monthly via a systematic withdrawal plan. Experts suggest portfolio reallocation and asset diversification among fund houses. By structuring investments into three distinct categories based on cash flow, investors can better navigate withdrawals, reducing the risk associated with liquidating assets during market dips while ensuring dependable income.

Planning for retirement involves more than building a large investment corpus. Investors also need to ensure that their savings can provide a regular income after retirement without running out of money too soon. A systematic withdrawal plan (SWP) from mutual funds can help investors withdraw a fixed amount every month, but the portfolio needs to be structured carefully to balance regular income, market volatility, inflation and long-term growth.

A 59-year-old investor with a mutual fund portfolio worth around Rs 1.51 crore who wants to withdraw Rs 16,000 every month through an SWP reached out to ETMutualFunds and sought an expert review of the portfolio.

The investors' mutual fund portfolio includes some names such as Quant Small Cap Fund, HDFC Flexi Cap Fund, SBI Contra Fund, ICICI Prudential Gold ETF FoF, HDFC Mid Cap Fund, Edelweiss Midcap Fund, HDFC Balanced Advantage Fund, ICICI Prudential Large Cap Fund, ICICI Prudential Multi Cap Fund and Nippon India Small Cap Fund.

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Jasmeet Singh, Executive Director at Anand Rathi Wealth Limited analysed the portfolio and told ETMutualFunds that the investor should consider reviewing the portfolio's fund concentration, market-cap allocation and exposure to different asset classes, while creating a separate arrangement for regular withdrawals and long-term growth.

The investor's proposed monthly withdrawal of Rs 16,000 amounts to Rs 1.92 lakh a year, or around 1.27% of the current portfolio value. According to Singh, this withdrawal is within the range suggested by a commonly used retirement planning guideline.

Singh points out that an annual withdrawal rate of 4-6% from a retirement corpus of Rs 1.51 crore would translate into approximately Rs 50,511-Rs 75,767 per month. Against this benchmark, the investor's planned withdrawal is relatively modest.

However, a withdrawal rate should not be treated as a guarantee that the money will last throughout retirement. Actual sustainability will depend on market returns, inflation, the investor's expenses and how the portfolio is managed. A prolonged market downturn, particularly in the early years of retirement, can also affect how long the corpus lasts.

Since the investor is only a year away from retirement, Singh suggests increasing investments or stepping up contributions this year, to the extent feasible, to strengthen the retirement corpus before regular withdrawals begin.

Portfolio restructuring before retirementThe investor holds investments across several equity, hybrid, multi-asset, gold and silver schemes. While the portfolio has generated gains in several funds, it is spread across multiple schemes and has a substantial concentration in HDFC Mutual Fund.

Singh recommends reviewing the number of funds and limiting exposure to any single scheme to around 10% of the portfolio to avoid overconcentration. He also highlights the investor's high exposure to HDFC Mutual Fund, which accounts for around 69% of the portfolio according to his assessment. Diversifying this exposure across fund houses could help reduce dependence on a single asset management company.

The expert's suggested market-cap allocation is 55% to large-cap stocks, 23% to mid-cap stocks and 22% to small-cap stocks. According to his assessment, the investor is currently overweight large caps by around one percentage point and mid caps by six percentage points, while underweight small caps by seven percentage points.

This allocation needs to be considered alongside the investor's retirement timeline and ability to withstand market declines. Small- and mid-cap funds can experience sharp fluctuations, so the investor should not increase exposure to these categories merely to match a target allocation without considering the risks.

Which mutual funds should the investor hold or exit?Singh's review identifies HDFC Flexi Cap Fund, HDFC Mid Cap Fund, HDFC Value Fund, ICICI Prudential Flexi Cap Fund, ICICI Prudential Large & Mid Cap Fund, Nippon India Small Cap Fund and Quant Small Cap Fund among the schemes to retain.

The suggested list includes funds across flexi-cap, mid-cap, value, large-and-mid-cap and small-cap categories. However, retaining these schemes does not mean that the investor should allocate equally to each of them. The final allocation should reflect the overall portfolio mix, overlap between schemes and the investor's retirement income requirements.

The expert has identified several schemes for exit, including Axis Multi Asset Allocation Fund, HDFC Balanced Advantage Fund, HDFC ELSS Tax Saver Fund, HDFC Silver ETF Fund of Funds, ICICI Prudential Aggressive Hybrid Fund, ICICI Prudential ELSS Tax Saver Fund, ICICI Prudential Gold ETF Fund of Funds, SBI Contra Fund, Edelweiss Mid Cap Fund, HDFC Large Cap Fund, ICICI Prudential Large Cap Fund and ICICI Prudential Multi Cap Fund.

He has also suggested considering Quant Large Cap Fund, Bandhan Large & Mid Cap Fund, Invesco India Smallcap Fund, Kotak Multi Cap Fund, Canara Robeco Multi Cap Fund and UTI Gold ETF for fresh investments.

These are the expert's suggested changes, not a guarantee that the recommended funds will outperform or that the funds identified for exit will necessarily deliver poor returns. Investors should also assess the tax implications and the reasons for each change before acting on the recommendations.

Should the investor continue with ELSS funds?The portfolio includes investments in HDFC ELSS Tax Saver Fund and ICICI Prudential ELSS Tax Saver Fund. Singh's recommendation on these schemes depends on the investor's tax regime.

Investors who follow the old tax regime and are eligible for deductions under Section 80C may consider continuing to hold ELSS investments for tax benefits, subject to their individual circumstances. Under the new tax regime, Section 80C deductions are generally unavailable, so investors may consider exiting ELSS schemes after the mandatory three-year lock-in period.

However, the decision should not be based on tax treatment alone. Before exiting, the investor should consider the fund's role in the portfolio, capital gains tax and whether the proceeds need to be reinvested elsewhere.

Singh also recommends phasing out exits over a few years, where appropriate, rather than selling all the investments at once. Spreading redemptions across financial years may help distribute capital gains and potentially reduce the overall tax burden. The actual benefit will depend on the gains, the investor's tax position and the applicable tax rules.

Should the investor keep gold and silver funds?The portfolio has investments in both gold and silver fund-of-funds schemes. Singh suggests that gold can form part of a diversified portfolio, with an allocation of up to 10% for investors with a long-term investment horizon. He does not recommend silver for this portfolio, citing its higher volatility and less predictable price movements.

He also cautions against domestic fund-of-funds schemes because they can add another layer of expenses, potentially reducing long-term returns. Investors considering gold exposure could evaluate a gold ETF, subject to suitability, costs and the overall asset allocation.

The expert further advises against relying on multi-asset and hybrid funds when the objective is to maintain direct control over how much is invested in equity, debt and gold. Holding separate investments in these asset classes can make it easier to adjust allocations according to retirement needs.

How should the investor plan monthly SWP withdrawals?Rather than withdrawing money indiscriminately from the entire portfolio, Singh suggests dividing retirement investments into three baskets based on when the money is likely to be needed.

Basket A: Money for immediate expenses. The investor should keep two years of planned SWP withdrawals in debt funds. At Rs 16,000 a month, this amounts to Rs 3.84 lakh. Keeping this money in a relatively lower-volatility allocation can help meet regular cash-flow needs without forcing the investor to sell equity funds during a market downturn.

Basket B: Investments for medium-term needs. Singh suggests an allocation of 60-70% to equity funds and 30-40% to debt funds for this basket. At the end of each year, the investor can transfer enough money from this basket to replenish Basket A for the next period's withdrawals. The remaining investments can continue to participate in potential market growth.

Basket C: Investments for long-term growth. For money that will not be required for several years, Singh suggests an allocation of 80% to equity funds and 20% to debt funds. This basket can remain invested for longer-term growth, although the investor must be prepared for market fluctuations and review the allocation periodically.

The three-basket approach separates money needed soon from investments that can remain invested for longer. It can also reduce the likelihood of having to sell equity holdings at unfavourable prices to meet immediate expenses.

Which debt funds can the investor consider?The choice of debt fund should depend on the time horizon and tax situation. Singh suggests considering arbitrage funds for investors in the highest tax bracket, target maturity funds when the investment horizon is defined, and ultra-short-duration funds when the money may be needed within two years.

The investor should not select a debt fund solely on the basis of recent returns. Liquidity needs, credit risk, interest-rate risk, taxation and the maturity of the investment should also be considered. The money set aside for near-term withdrawals should be accessible when required.

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