[Saanil]

Originally Posted by SmartCat

- Invest Rs. 3 cr in a portfolio of equity funds

Originally Posted by graaja

What SmartCat means as debt funds are proper debt funds without equity exposure

Originally Posted by VWAllstar

Parag Parekh has a lock in of 2 years. I am not sure if it is applicable in case of SWP.

Hi,

I am not an expert here but just wanted to check - would your typical fixed deposits be an option here?

Assuming he puts 6cr in fixed deposits across banks and gets an average yield of 7%, he will get Rs 29.4 lakhs per annum (after deducting 30% tax) which translates into Rs 2.45 lakh per month. Would this not be sufficient? I understand that my assumed rate of 7% might not be constant for the next 30 years and can vary as inflation rate varies. My main focus here was on simplicity of investment plan.

[SmartCat]

Originally Posted by Saanil

I am not an expert here but just wanted to check - would your typical fixed deposits be an option here? Assuming he puts 6cr in fixed deposits across banks and gets an average yield of 7%, he will get Rs 29.4 lakhs per annum (after deducting 30% tax) which translates into Rs 2.45 lakh per month. Would this not be sufficient? I understand that my assumed rate of 7% might not be constant for the next 30 years and can vary as inflation rate varies. My main focus here was on simplicity of investment plan.

There is a small risk of interest rates dropping to very low levels, like in developed countries. There is no guarantee that we will NOT see 3% pa FD rates in the future. In 2004, Bank FDs were offering 5% pa I think. At that time, I bought my first car on a 5 year loan for 6% pa fixed interest.



However, this is a low probability event for a country like India. If the goal is simplicity, one should go all-in on debt funds, as they are more tax efficient than fixed deposits, despite the same tax treatment. Cross posting from another thread:

Originally Posted by SmartCat

Any debt fund is better than Fixed Deposits, because taxes are 'deferred'. Unlike FDs, you pay tax only when you sell units in debt funds.

Also, when you sell debt fund units, it is unlikely that you will need all the money in the debt MF portfolio. If you pull out Rs. 5 Lakhs out of your Rs. 20 Lakhs in debt funds, you pay taxes only on the gains made on that Rs. 5 Lakhs. The remaining Rs. 15 Lakhs will continue to compound, till you redeem them.

[rx100]

Originally Posted by Saanil

Hi,

I am not an expert here but just wanted to check - would your typical fixed deposits be an option here?

Assuming he puts 6cr in fixed deposits across banks and gets an average yield of 7%, he will get Rs 29.4 lakhs per annum (after deducting 30% tax) which translates into Rs 2.45 lakh per month. Would this not be sufficient? I understand that my assumed rate of 7% might not be constant for the next 30 years and can vary as inflation rate varies. My main focus here was on simplicity of investment plan.

Although it is the safest bet, the biggest risk would be inflation, say after 10-15 years, 2.45 lakh per month(pre tax) may be not sufficient enough to feel like having financial independence. Another issue with FD and withdrawing regularly means, the principal is always stagnant at the initial amount.

[VWAllstar]

Originally Posted by Saanil

My main focus here was on simplicity of investment plan.

Above two posts covers in detail on why Debt Funds are better than FDs. However, I understand with such corpus and at the age of retirement, one would look for simplicity in returns and spend time living a good life.

The permutations and combinations could be many and the investor would take atleast 12-18 months to automate the desired monthly return.

With simplicity as priority then even I would suggest to go for an all in debt fund. May be mix it with SGB, NPS and few Retirement specific plans of LIC. Take a higher medical insurance cover with some investment to offset the yearly high premiums.

The only reason why most suggest some percentage of equity investment is to take advantage of a bull run. With a developing country like ours, equity investments are risky but returns could be higher than any other asset class.

[sagarpadaki]

Originally Posted by LonelyPlanet

I need to park 6Cr in funds for my retirement in 2 years time and start SWP. need 1.5L/ month and looking for a 30 yr time horizon
What are the best alternatives to meet my daily needs and still account for the inflation for the time horizon.
Have no other debt / commitments

I would suggest you get the services of a fee only financial advisor. They will work with you and suggest you what are the options you can look at after having a few sessions of discussions. Asking for advice here is fine. Members will suggest you options that you can consider. However, in addition, avail the services of financial advisor before you finalize.

You can get the details of them below

https://freefincal.com/list-of-fee-o...ners-in-india/

[lapis_lazuli]

Originally Posted by sagarpadaki

I would suggest you get the services of a fee only financial advisor.

You can get the details of them below

https://freefincal.com/list-of-fee-o...ners-in-india/

How much do they typically charge for their services? Ballpark. Is it on the hours of service provided or assets managed percent or how? Kindly let us know if possible.

Edit: sorry I read the article. It's clear. Asking for deletion of the post

[sagarpadaki]

Originally Posted by lapis_lazuli

How much do they typically charge for their services? Ballpark. Is it on the hours of service provided or assets managed percent or how? Kindly let us know if possible.

I do not know. It varies from advisor to advisor.

[androdev]

Full disclosure: I have zero personal experience when it comes to investing in stocks and mutual funds. I just feel the most common sense thing to do in any deal is to ensure that incentives and risks for both parties are properly aligned.

Given the large corpus involved (6cr), I do not think a "flat fee" based service is the right option for at least two reasons I can think of:

1. The service provider has zero incentive to grow your wealth.
2. In this day and age, it's hard to find highly talented professionals working with such a payment model. To put it differently, a person with 6cr corpus might want to look at a different service offering.

For someone with a large corpus like 6cr - there will be more high end investment professionals who would be interested in offering their services. Almost a decade ago, I know of a case where an accomplished HNI investment professional floated an LLP along with other investors (only through strong references I believe). The investment professional himself makes a significant contribution (actually the largest %) to the pool of investment to demonstrate his skin in the game. I'm sharing the fee structure snippet here:

The First Party will draw fees (Fees) annually based on performance. The Fees will be computed as under:

3.5.1 No Fees will be due for Returns (as computed in clause 3.6) up to 9%.

3.5.2 For Returns of more than 9%, Fees amounting to 20% of Returns in excess of 9% will become due and payable to the First Party. This will be further subject to the highest Closing Value of the portfolio of any year. For purposes of computation of fees, the share capital or Net Asset Value of the First Party shall also be included.

3.5.3 If the Fees exceed the limits prescribed in Section 40(b) of the Income Tax Act, 1961 or any such tax laws subsequently prevailing, such excess shall be paid to the First and Third Party as additional remuneration net of firm’s tax on the same and profits shall be distributed to the partners in accordance with clause 9 of this deed after reducing this amount.

I have no first hand information about this but I hope you get the gist of the arrangement: high level investment expertise, shares the same risks as you, incentives are strongly linked to performance.

[SmartCat]

Originally Posted by androdev

Given the large corpus involved (6cr), I do not think a "flat fee" based service is the right option for at least two reasons I can think of. 1. The service provider has zero incentive to grow your wealth.

I'm with sagarpadaki on this one. If one is finding it difficult to identify the right mutual funds, fee based service provider is the way to go. The service provider should NOT have an incentive to grow the wealth beyond a reasonable level. Because, if he does, he will be taking higher risk. This is called 'risk-return tradeoff'



Ergo, you cannot have higher returns without taking higher risk.

I just feel the most common sense thing to do in any deal is to ensure that incentives and risks for both parties are properly aligned. The investment professional himself makes a significant contribution (actually the largest %) to the pool of investment to demonstrate his skin in the game. For Returns of more than 9%, Fees amounting to 20% of Returns in excess of 9% will become due and payable to the First Party.

With this performance incentives based plan, the risks and rewards are skewed hugely in favor of the service provider, and not the retiree.

1) The most obvious thing here that the advisor takes 20% of the gains made over the hurdle rate. But he is not compensating the investors 20% of the losses made in a year. So the scheme is good example of "Heads I win, Tails You lose"

2) If a portfolio is up 30% in a year, it is probably because index has gone up 20% in a year. It usually has very little to do with the stock or mutual fund picking prowess of the service provider (beyond certain basics).

3) Over a very long term, 20% profit sharing over hurdle rate will drastically kill his overall returns. Think of it as additional 20% income tax on investments.

4) Although the service provider has skin in the game, we have to remember that this is not a pre-retirement plan, but a post-retirement plan. The service advisor can take higher risks than somebody who has already retired. So there is misalignment between risk taking ability of the two parties.

5) During the bull market, service provider keeps accumulating 20% of gains made over hurdle rate from all the customers. This greatly reduces his risks when the portfolio/strategy starts underperforming after a few years. If his customers have lost 50% cumulatively (after including incentive fees paid), service provider might have lost just 25% cumulatively (after including incentive fees received). After all, stock markets can rise continuously for 5 years, and then give it all up (and more) in the next year.

[androdev]

^
Obviously risk appetite is very personal but given the context of a large corpus of 6cr with 30 more years of investment horizon, I would be open to have some risk exposure for a portion of the corpus. I feel the amount of the corpus and time horizon involved should certainly influence the strategy.

The model I posted above is just another option for people to evaluate, especially those who have no time or interest in DYI. An alternative or a parallel channel to wealth management services offered by commercial banks.

If somebody like you with a proper know-how and a sound investment philosophy decides to run a "friends & family" investment portfolio with performance-based incentive such as the above, I would think it makes a very good option for many people and the fee would be well justified.

Here is a sample performance data (don't know if it's good or bad) just for reference:

[SmartCat]

There is a website called PMSBazaar that lists out the performance of all PMS and AIFs:
https://pmsbazaar.com/

They come out with post-fees performance reports of each service provider (see attached PDF). As we can see, PMS/AIF returns performance of all service providers collectively is as random as that of equity mutual funds. Just scan through 'since inception returns & date'. The percentage mentioned in the report is cagr returns (after fees).

Glossary:

PMS = Portfolio Management Schemes
AIF = Alternative Investment Funds.

[vj_torqueaddict]

Originally Posted by LonelyPlanet

I need to park 6Cr in funds for my retirement in 2 years time and start SWP. need 1.5L/ month and looking for a 30 yr time horizon
What are the best alternatives to meet my daily needs and still account for the inflation for the time horizon.
Have no other debt / commitments

As shared by someone already here : check out Bucketing strategy from Pattu on Freefincal. There is a detailed explanation on how Bucketing strategy works. Advantages and disadvantages. There is also a Robo advisor sheet which is paid. I have the paid version where you can crunch some numbers on your own. Excellent tool. Do check out the fee only advisor. I have opted for fixed fee advisor who s very professional. The charges are however are based on your net worth and residency. There are some really good advisors on that list who also have some great public blogs.

Edit : As recommended by Pattu on all his blogs. See if you can invest somewhere to generate secondary source of income. Ex: Franchisee etc. He always insists on planning secondary source of income before you retire , rather than planning after retirement. I think your query is more suited for Retirement thread rather than Mutual funds thread.

[FAIAAA]

Originally Posted by LonelyPlanet

I need to park 6Cr in funds for my retirement in 2 years time and start SWP. need 1.5L/ month and looking for a 30 yr time horizon
What are the best alternatives to meet my daily needs and still account for the inflation for the time horizon.
Have no other debt / commitments

Hi, first of all, Congratulations on being able to create and invest a lumpsum corpus.

I have done something similar for myself a year back and so in a position to share my experience and some pointers. (Let me clarify I am neither a financial expert nor affiliated with any AMC/Financial service provider so sharing this in good faith for everyone's benefit on this forum)

In general , Equities do provide best returns over long periods of time. However the price of those returns is to be able to live with Uncertainty and Volatility(Do read "Psychology of Money" by Morgan Housel and also study/understand MF metrics like Alpha, Beta, Sharpe, Sortino , Capture Ratio etc.).

At the same time, it's important to have an asset allocation strategy in place. Hence a couple of questions -
1. Does this corpus include PF component ? put another way, is this all of your corpus or do you have PF , real estate etc.?
2. What is your attitude towards investing - returns & risk. Are you someone looking at
a) Highest returns possible with, say a, 30% downside to your corpus during a market correction (in 2018, large caps corrected 5-10%, Mid Caps corrected 30%. In 2007, Small caps corrected 65% and took 10 years, around 2017 to come to baseline. Many Small Caps in fact didn't even survive as Small & Micro Caps see the max churn on the index. Of course for someone entering in 2007, they saw a 3x gain!)
b) Reasonable risk adjusted returns
c) Minimal volatility in your portfolio.

Options to consider for each of the Options
Investment style A - high returns & risks - Multi Cap funds (At least 25% each in Large, Mid, Small Caps), Mid & Small Cap funds , Momentum investing, Sectoral/Thematic funds (provided you get the sector and cycle and hence your timing right).
Investment style B - Reasonable risk adjusted returns - Large Equity diversified mutual funds ( Flexi Caps) with a proven risk adjusted return record & hybrid funds (with >65% in Equity & Equity like securities and hence Equity type taxation - Aggressive Hybrids, Equity Savings, Balanced Adv/Multi Asset funds with Equity taxation) for tax efficient asset planning ( the allocation between equity, debt , arbitrage, commodities etc, is done by the fund manager and hence you don't need to constantly track & churn your portfolio and incur STCG/LTCG)
Investment Style C - Minimal moderate risk- Style B with greater salience for Debt focused Hybrid funds ( Conservative hybrids)

Your expectation of a 6% drawdown (1.5 lacs X 12 months = 18 lacs /3 Crores) is reasonable as Equity MFs give 12-18% CAGR over long periods of time. However, since I don't know you, your total investments and more importantly your psychology towards Money, Investing , returns and risks , I won't offer advice to you. Instead let me share how I approached this -

Let's take each of the investing elements one by one -
1. Direct vs Regular plans - you save 0.5-1.5% on commissions which do add up to a lot on 6Cr over 30 years. With Apps like Groww etc, you can make the investments yourself. I went with Groww and direct plans.
2. Active vs Passive Index funds - the easy part of bull run in Indian stock markets for this phase (2020/21 till date) is over . During this time , there was a general tail wind and hence Index based funds (passive) did similar or even better than most Actively managed funds. However we are now in that phase of the bull run , where directionally we should see growth over next 3-5 years but it will need active stock picking and navigating through volatility/ corrections etc. Also, Passive funds invest all their cash as they receive while Actively managed funds take cash calls (eg. Parag Parikh Flexi Cap is sitting on around 15% cash to invest in case of correction). Hence I went with actively managed funds.
3. Diversification & professional fund management - If the idea of investing in Mutual funds is to leave the stock picking and portfolio construction to the fund manager, why take sectoral/theme/cap based calls yourself - Hence I w excluded Large/Mid/Small/Sectoral/Thematic/Multi Cap funds. Flexi Caps are a good way to invest as the fund manager can buy any stock across Caps and sectors.
4. I have a PF corpus which is my pure debt component and will earn ~8%/whatever the Govt decides till i turn 58.
5. I don't intent to retain additional pure debt as Pure debt instruments (6-8%) post taxation either don't beat or barely exceed inflation. As a short term/closer to a goal investment, yes. Not for the long term.
6. There are 3 objectives of investing - 1. Returns through compounding (PE, Alpha) 2. Volatility protection (AUM in Rs Cr, SD, Beta, Sharpe, Sortino, Capture ratio etc.) 3. Liquidity management
7. Portfolio concentration/overlap risk - <25% exposure to any AMC/MF and also checking for portfolio overlaps across MFs . Also benefit from Investment thinking of different AMCs (most funds from same AMC will have same stock choices - eg. check equity component overlap across ICICI - Bluechip, Equity & Debt, Balanced Adv, Multi Asset etc.)
8. # of MFs - in general, they say 4-8 is a good number, as long as they pass the above test.
9. Geographical diversification - Given US and India have the best dollar returns in last decade and India is projected to grow fastest ( Size X Growth), one can decide 90-100% India or and 0-10% in US equities.
With this , let me share my MF portfolio with you -
1. Portfolio Construct - Equity MFs (40%), Hybrid MFs (60%)
2. For long term returns through equity compounding
#1-Parag Parikh Flexi Cap - 25% (5 star by Value Research, 1st in Flexi Cap category by ET Money, highest risk adjusted returns over 5 years/lifetime, best Capture ratio 1.7 odd across MFs. It's downside capture is 47 meaning, if market (Nifty 500) falls 100, this fund falls 47. Uses Value Investing approach)
#2- SBI Contra -15% ( Contra investing approach)
3. For volatility protection and tax efficient asset allocation-
ICICI Equity & Debt Aggressive Hybrid fund (automatically reallocates between Equity & Debt 75/25) - 25% (You could also consider ICICI Multi Asset fund . Equity & Debt choices are the same. In addition, it has commodities - Gold, Silver - and REIT)
#3- HDFC Balanced Advantage Fund - 15%
#4 - Kotak Debt Hybrid -20% (Conservative Hybrid fund - 75% in debt and rest in Equity/Arbitrage etc.)
4. Liquidity management
Keep 12-18 months expenditure in an Equity Arbitrage fund. That way you don't need to draw down from your core corpus when markets are down. (I have crossed that time duration in my holding and hence have monies in Cons hybrid > 1 year for that purpose)
5-15 Lacs in Bank FD for quick/emergency withdrawal (MF redemption usually takes 2 days but sometimes can take 5-6 days if there are holidays/weekends in between. FD withdrawal is within 30 min.)
In my case, above MF allocation + PF corpus gives me following asset allocation - 57% Equity, 36% Debt and 7% Cash/others. You can decide your asset allocation strategy and work out the MF allocations accordingly.
Hope this helps. Happy to discuss live , please PM me if required.

In the end , to quote Naval Ravikant - Wealth, Health & Time allow us freedom to be , choose the life we wish - what we wish to do/not do, the people we wish to be around or not, the things we wish to do (or not) and how we spend our time in general.
Ultimately, listen to everyone but follow a strategy/plan that feels good to you and allows you good sleep at night so that you don't have to worry about your investments.
Wish you the best !

[century]

Hi fellow BHPians,

I have 10L in my accounts ready to invest. I would prefer mutual funds (my father is insisting on SBI PSU Fund, SBI Contra Fund and SBI Infrastructure Fund).

My queries:

Are these funds any good?

Is this right time to invest (bullish times)?

If I increase investment size like 50L and above, is SBI wealth good?

If wealth managing services are good, then which one is best? I have long time standing with SBI and most of my accounts are in SBI whether C/C, C/A, S/A.

Any other suggestions?

[Fx14]

Originally Posted by VWAllstar

Parag Parekh has a lock in of 2 years. I am not sure if it is applicable in case of SWP.

IIRC, there is no lock in period in the specific scheme, rather there is an exit load applicable on the units redeemed before 2 years, as follows:
a. No exit load on redemption of "Upto 10% of the units invested".
b. Exit load of 2% on balance units held for less than a year.
c. Exit load of 1% on balance units held for between 1-2 years.

Do share the relevant communication on lock in, if you have any.