Suggest me Income Generating Plans

POSTED BY Michael John Britto ON May 1, 2013 10:49 pm COMMENTS (20)

As I am 52 years old and unemployed, I am in need of total annual expenses of around Rs 6-7 lakh. I therefore request for income generating plans as I am NRI returnee. At present all my investments are in mutual funds portfolio having current market value of Rs 1.6 crore approximately which are mentioned below along with their weightage.

1. Birla GSF LT-6%
2. HDFC MIP LT-20%
3. HDFC Top200-20%
4. L&T Equity-13%
5. Quantum LT- 22%
6. Reliance Balance-13%
7. Temp Income Opp-6%

Besides, please also suggest if any of my above funds need to be replaced or consolidated to meet my objectives. Many thanks.

20 replies on this article “Suggest me Income Generating Plans”

  1. Michael John Britto says:

    Dear Ashal,

    Thank you for your instant alert. Don’t worry. I have no intention to purchase any type of life cover. Earlier I was ignorant but now I am mindful of insurance concept and need. And thanks to wake up calls given by Manish and others.

    Regards

  2. Dear Michael, you do not need term cover as of now, so no need to purchase new. This old LIC policy is about to complete so it makes sense to let it continue.

    Thanks

    Ashal

  3. Karthik says:

    Nice inputs as usual from Ramesh and Ashal on asset allocation…

    Sorry to barge in and digress into a new topic on this…

    Now, if Mr. Michael has any term insurance on force should he stop or should he keep it running?

    Generally, this forum suggests to keep term insurance plan only until one is earning with the motto as per the main article in JI site by Manish.. “You don’t need it beyond your working life” and another 4 reasons he quoted in the article. https://www.jagoinvestor.com/2013/04/why-you-should-not-take-term-insurance-till-75-yrs.html

    Exactly, Mr Michael satisfies all reasons of Manish. So lets stick to Manish’s suggestion to stop his term insurance or should he keep it running?

    Regards
    Karthik

    1. Michael John Britto says:

      Dear Karthik,

      I have no issue of you barging in and asking any query for your understanding.

      For your information, I am not holding any term policy but only one traditional endowment policy of 20 years from LIC which was wrongly taken under suggestion from my wife’s friend just after my marriage. In any case it is expiring after 3 years and so I am not going to surrender now but will wait upto maturity to receive the lump sum amount of Rs 5 lakhs plus any bonus accrued.

      Thanks

  4. Dear Michael, let me answer for taxation of Hybrid funds on dear Ramesh’s part. Your investment in HDFC MIP LTP is having a normal portfolio like this 80% in Debt & 20% in Eq. Now the fund is qualified as debt fund for taxation. What dear Ramesh is mentioing here – Even the remaining 20% Eq. part of this fund, you are paying Tax like debt. This is not a god thing to do. better to have a same exposure created by you. For example The 80% money should be invested in HDFc High Interest Short Term Plan & remaining 20% in HDFC Eq. or HDFC top 200.

    in this case, the Eq. exposure ‘ll remain tax free after 1Y unlike HDFC MIP LTP.

    Thanks

    Ashal

    1. Ramesh says:

      Exactly. πŸ™‚

      Thanks Ashal. Saved me to type that.

    2. Michael John Britto says:

      Dear Ashal,

      Thanks for the clear explanation given. I have realized the difference now effecting the debt hybrid funds. Hence, I am not looking for that extra return if it benefits the taxman more at my risk. I am going switch in the fund advised by you.

      Regards

  5. Dear Michael, if you are comfortable with the higher Eq. Go with it. My reply was meant for a general statement. πŸ™‚

    Thanks

    Ashal

  6. Dear Ramesh, thanks for the inputs. I’m not at all disagree with you. πŸ™‚

    Dear Michael, after 2 different versions/comments on your portfolio, what’s your take?

    I want to know that. πŸ™‚

    thanks

    Ashal

    1. Michael John Britto says:

      Dear Ashal,

      I was always overweight in equity during my working period. It is only now I am concerned about my future. And so, I wanted to know whether to be cautious or not. Hence, I have decided at this stage to keep at least 50% exposure to equity and if possible go up to 60% maximum.

      Regards

  7. Dear Michael, generating 6-7L Rs. income from a corpus of 1.6Cr. Rs. as of now ‘ll not be a problem. Yes Problem ‘ll be there in future as the effect of inflation ‘ll impact your income requirement.

    From Taxation point of view, your 68% money is invested in Eq. oriented funds –
    HDFC Top 200
    Quantum Long Term Eq. Fund
    L&T Eq.
    Reliance Balance (It’s not pure Eq. but due to more than 65% eq. exposure, I’m considering it as Eq. fund)

    So 68% of 1.6C = 1.09C. Rs. are invested in these Eq. funds.

    Now remaining 51L Rs. are invested in the 3 debt funds (from taxation point, HDFC MIP is a debt fund although it’s having around 20% Eq. exposure)

    My observation – as you are a retired person & this amount is your sole help to sustain your living expenses in future, it’s a very aggressive portfolio. Please reverse the %age i.e. around 40% in Eq. & 60% in Debt. As you have already invested, you may wait for completion of 1Y from the date of investment to be eligible for tax free & load free redemption.

    Regarding the debt funds, again 3 funds are not required. Birla GSF can be redeemed after few months till the interest rates are coming down.

    Thanks

    Ashal

    1. Michael John Britto says:

      Dear Ashal,

      I agree and accept your analysis of my portfolio. Yes it is very aggressive. I had taken this position while I was working abroad. But since now I have returned back I have decided to keep my portfolio in line with my requirements and future inflation effect.

      Now in order to reduce the high equity exposure to about 40% in the portfolio, please let me know according to your opinion:

      1. Which equity fund I must redeem? (Note: 1 year completion period is already over for L&T Equity & for Hdfc Top 200 whereas Reliance Balance Fund time is in Nov 2013).

      2. Redeemed equity fund should be invested in which debt fund?

      3. Am I missing investment in any other type of debt instruments, like FDs, etc. for there is no advice coming from your end.

      About Birla GSF, yes I will redeem for it is volatile and the investment is made only for temporary period in order to taste the return of the interest rates falling down. As of now I have already gained over 12% return in a period of 14 months.

      Regards

      1. Ramesh says:

        Why do you think 40% is better than 60%?

        Not to oppose Ashal, but I am trying to understand why would you want to change your asset allocation pattern just because someone on a forum asked you that 60% is aggressive. I would say 80% is aggressive, 60 is decent and 40 is too conservative. Everybody has a different stomach. So first understand which one is better for you. Of course, you need not listen to me too.
        eg. using Ashal’s calculations, 50L in debt plans means 8-10 years of your expenses are there in those. So let them be in debt funds (SB/FD/short term/income funds). While let the rest of the money have a full run while remaining in equities. After 3 years, re-check the situation.

        The 4-5% withdrawal rule requires you to invest a decent amount in equities to retain the purchasing power.

        Other suggestions:
        1. Avoid debt hybrid plans. HDFC MIP – LT is not the best solution (even though, it is a very good fund in its category). Reason: You are paying tax even on the equity component.
        2. L&T equity plan is not the same one which was there under Fidelity’s management. So my suggestion would be to remove that.
        3. Templeton Income Opportunities fund is a decent long term income fund.
        4. Get a short-term / ultrashort term / Liquid fund instead.
        5. Work out to choose 2 AMCs for all your work and invest Directly. You will save a lot of money by doing that, because of the size of your corpus.

        In short:
        2 AMCs
        Direct Funds ASAP (on a corpus of 1.6 crores and 0.5% distributor expense, you will save 80k per year on this feature alone).
        2 equity funds (HDFC Top 200 and Quantum LT are good. Franklin Bluechip is another good option).
        1 income fund, 1 short-term/liquid fund.
        All growth options. No dividend options.

        Think on your own and decide.

        1. Michael John Britto says:

          Dear Ramesh,

          Appreciate your response.

          In fact, even I was surprised of Dear Ashal suggesting me to reduce my equity exposure way down to 40% but then I tend to agree to him on account of his better knowledge and experience in the field of finance, etc. than me.

          Actually, my earlier thinking was to keep at least 5 years of expense money in debt funds and anything over that to be in equity funds. Then, rebalance the debt/equity when there is a shortfall.

          Since I was a bit confused and wanted to be certain about my future plans I had to post this query in this forum to get some opinions.

          However, I do know and understand that One man’s food is another man’s poison (may be).

          Thanks

          1. Ramesh says:

            I support your strategy, in case you failed to see that. But I would want you to take it even further to 8-10 years, if not 15 years.

            Check this out:

            http://freefincal.wordpress.com/2013/03/28/the-retirement-bucket-strategy-simulator/

            And the theory behind it (with practical results as well).

            And for implementing debt funds for 8-10 years (or 5 years or 15 years), use this:
            http://freefincal.wordpress.com/2013/04/10/income-ladder-calculator/

            And keep things simple for management instead of many many funds. There are so many other things to do as well!!

        2. Michael John Britto says:

          Dear Ramesh,

          Thank you very much for providing the links. I will study it thoroughly and also other suggestions and makeover my portfolio.

          Next, can you please provide me further clarification of your comment on debt hybrid funds? I wanted to know in what way taxation has effect in such type of hybrid funds. Is the tax different for pure debt funds?

          Broadly, as per my knowledge and understanding, one gets auto rebalancing and two additional returns on equity during market up move.

          Regards

        3. Michael John Britto says:

          Dear Ramesh,

          As you have suggested me to remove the L&T Equity Fund due to change in fund management which I too agree for it but I am in 2 minds and that is stated below:

          Is it better to shift the redeemed amount in Franklin India Blue Chip Fund or in Franklin India Prima Plus? The reason to ask is currently I have 2 funds (HDFC and L&T) both benched marked to BSE 200 and 1 fund (Quantum LT) to Sensex in the portfolio. So, for the sake of variety, would it not be suitable to have 1 different type of fund benchmarked to CNX 500 say in case of Franklin India Prima Plus which covers the whole market probably. I am just trying to learn the composition of well diversified portfolio without being overweight in any one fund or increasing the number of funds. Let me know your comments please.

          Thanks

          1. Ramesh says:

            Yep.
            I prefer FIPP too because of more options for the fund manager.

  8. Dear Michael, do you not have any FDs or liquid cash in SB account, other these MF investments? Please clarify.

    thanks

    Ashal

    1. Michael John Britto says:

      Dear Ashal,

      I do not have any FDs at all, be it in bank, company, or anywhere except in my wife’s bank account of Rs 1 lakh only.

      But I have kept liquid cash in my bank account for a period of 7-10 months to run my house expenses.

      Any further queries, please do not hesitate to ask.

      Regards

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