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We all talk about staying invested in mutual funds. However, exiting mutual funds is equally important for your clients. This is where SWP comes into picture. It not only creates an efficient exit strategy for clients, it also helps them generate regular income in a tax efficient manner.
In this article, Cafemutual brings to you SWP strategy of India’s top MFDs to guide you how you can use this facility to generate regular income for clients. Let us look at them one-by-one:
Amit Bivalkar of Sapient Finserve, Pune
Amit believes that SWP strategy depends on the client’s requirement. He, however, believes in using a combination of debt, hybrid and equity to generate regular income for clients.
Ideally, clients who need regular income should invest 15% of the total corpus in money market funds, 35% in multi asset funds and rest in large cap funds, Amit added. He said, “Money market funds can create regular income for two years, giving adequate time to multi asset fund to grow money. After two years, money can be withdrawn and shifted to money market funds to generate regular income again for two years again. The rest 50%, which is invested in a large cap fund gets adequate time to multiply wealth and ensure longevity of the corpus.”
Hari Kamath of HGK Investment Avenue, Goa
Hari prefers aggressive hybrid funds, balanced advantage funds and multicap funds. He said, “I recommend my clients to invest 60% to 75% of the total corpus in aggressive hybrid and balanced advantage funds depending on their risk appetite. The rest corpus should be invested in a multi cap fund, as it invests across market capitalization and offers better risk adjusted returns. However, I tell my clients to put at least 12 months of their income requirement in low duration funds before starting withdrawal from BAFs. After a year, investors can start redeeming from BAFs to get tax efficient regular income. The money in multicap funds should remain invested for at least five years.”
Hemant Rastogi of WiseInvest, Mumbai
Hemant believes that MFDs should focus on giving SWP solution, which is tax efficient and ensures predictable withdrawal. He also believes that hybrid funds like aggressive hybrid funds and BAFs offer right risk reward when it comes to generating regular income.
He said, “While debt funds are safer, these funds can deplete the capital in the long run. Also, majority of debt funds have not performed well over the last few years. Hence, it is better to go with hybrid funds. However, investors need to be cautioned about the volatility that comes with these schemes.”
Sadashiv Phene, Individual MFD, Mumbai
Sadashiv feels that MFDs should consider inflation before strategizing SWP for their clients. He uses a mix of hybrid funds like multi asset funds and BAFs and equity funds like flexi cap funds to set up SWP for his clients.
Sadashiv believes that majority of corpus should be kept in equity funds for better inflation adjusted returns. He said, “Debt funds are no longer tax efficient irrespective of holding period. Also, returns from majority of debt categories are not that great considering the post-tax returns. Hence, it is better to keep some corpus in liquid funds and put majority of money in hybrid and equity funds. Investors can withdraw from equity if there is a profit as it will be tax efficient. Investors have to pay 15% on short term gain; still lower than debt funds (can go up to over 30%). If there is no profit or markets are volatile, money can be redeemed from liquid funds and multi asset funds.”
