Client Profile:
👤Mr. Ramesh (Age: 61) – Recently retired professional
💼Current Corpus: ₹2 Crore in Fixed Deposit (earning ~7% p.a.)
🎯Goal: Generate ₹1 Lakh/month for life with capital preservation & low-to-moderate risk
The Challenge
“My FD gives safety, but the returns barely cover inflation. I want ₹1L/month income, want to preserve my corpus as much as possible, and keep risk low. Is there a smarter alternative?”
The Solution: Bucket-Based Mutual Fund SWP Strategy
We recommended Mr. Ramesh move from a single FD into a 3-bucket Systematic Withdrawal Plan (SWP) strategy using mutual funds. This allows him to:
- Earn regular monthly income
- Grow his capital
- Minimize tax
- Preserve liquidity and reduce volatility
Portfolio Strategy: Split ₹2 Cr Into 3 Buckets
| Bucket | Purpose | Amount | Suggested Funds (Illustrative) | Usage |
|---|---|---|---|---|
| Bucket 1: Income Bucket | Generate ₹1L/month for first 3 years | ₹36L | ICICI Prudential Savings Fund or Kotak Equity Arbitrage Fund | SWP source |
| Bucket 2: Stability & Income Growth | Medium-term growth, low volatility | ₹64L | HDFC Balanced Advantage Fund or ICICI Balanced Advantage Fund | Rebalance to Bucket 1 every 2–3 years |
| Bucket 3: Long-Term Growth | Capital appreciation for future | ₹1 Cr | Parag Parikh Flexi Cap or SBI Equity Hybrid Fund | Untouched for 5+ years |
How SWP Works in Practice
- Start with ₹1L/month SWP from Bucket 1 (₹36L)
- Every 2–3 years, replenish Bucket 1 from Bucket 2 or 3
- Annual review ensures the balance between returns, withdrawals & tax planning
- Over 15–20 years, this setup can continue with minor tweaks
Tax Efficiency
- You’re taxed only on gains, not the full ₹1L withdrawn
- Arbitrage & Balanced Advantage Funds: Taxed like equity (10% LTCG over ₹1L/year)
- Debt funds (post-2023 rules): Taxed at slab rates, so careful selection matters
- No TDS on mutual fund SWP if below ₹5K/month per fund
Bonus Tip: Emergency Reserve
Keep ₹5–10L in a Liquid Fund (like HDFC Liquid Fund) for any unexpected needs.
Projected Outcome (Illustrative)
- Monthly Income: ₹1L, growing slowly with inflation
- Corpus Stability: Likely to last 20+ years with prudent rebalancing
- Capital at end of 20 years: Potential ₹2.5–₹3 Cr (if market returns average 10–12%)
Summary: Why Mr. Ramesh Chose SWP Over FD
| FD Route | SWP Route |
|---|---|
| Fixed return (~7%) | Flexible growth (10–12% avg) |
| Fully taxable interest | LTCG tax only on gains |
| Rigid lock-ins | Liquidity + flexibility |
| No growth | Growth + Income |