I am often been asked about how to invest the lump sum amount. Recently one of my blog readers wants to know how to deploy 1 Cr so that he can earn monthly income out of it as well he wants to protect his capital. My reply to his query is as follows:
Great to know that you have 1 Cr as lumpsum to invest. From your question, it seems you need regular outflow from this corpus.
Other information like your age, per month withdrawal amount, other monthly income sources, and how long you need the monthly withdrawal are missing. These are important information so as to let you know how long this corpus will sustain.
Without this information, I can just guide you on how you should manage this corpus.
- Kindly understand, even initially 1 Cr looks like a good amount but it may not last long if you take out more amount than the return you earn from its investment as in this case you are digging out the capital.
- That’s why you should not invest whole this amount in the debt instrument only in fear of losing capital.
- As traditional debt products are taxable and their rate of return is decreasing day by day sometimes you may get a negative post-tax return. In this case, your corpus is not increasing rather it is decreasing.
- Some Debt funds’ returns are also badly affected since last year like a liquid fund, overnight funds even short-duration funds which are most suitable for SWP. So even if they are tax-efficient than traditional debt products you should wait to start withdrawing from these funds so that they can get some time to grow.
- You have to divide this 1 cr into 3 buckets first one for 2/3 years immediate withdrawals, the second one for 10–12 years withdrawal, and then the third one for the remaining time.
- In ratio wise, it can be 20:60:20 approximately.
- The first 20 % can be parked in a saving account, Linked/sweeping FDs, and arbitrage/overnight funds. Post office monthly saving scheme.
- The next 60% can be parked in liquid funds, money market funds, Post office monthly scheme, 5-year National saving certificate, Arbitrage funds, and hybrid equity fund.
- Next 20 % must be invested systematically in equity mutual funds in the ratio of 50% index funds, 30% in flexicap funds, and 20% in mid-cap funds keeping a long-term view.
- Every year when bucket three earns more than expected return, that much-increased profits can be booked and transfer to the first and second bucket to take care of your monthly expenses.
- This way you can make sure that you get a monthly withdrawal, as well as your corpus, earned some return which is inflation hedged.
- Try to withdraw only that much amount that is needed for monthly expenses after due diligence si that your corpus is left to grow in the future.
This advice is a generic one. You may say that this is a way shown to invest the amount, which will fit most of the investors. But one should go for personalized advice when you have such a huge lump sum to deploy. Personalized advice will be helpful to plan your future meticulously.