Balanced Funds: Systematic Withdrawal Plans



Are you nearing retirement or planning to take a sabbatical from work – maybe, just a break to bring up your children or to pursue some other passion, for a while. As great as it may sound, have you planned how you are going to meet your monthly expenditure during the years of retirement or your break from work?

All your work life, you would have heard of best investments to build a corpus that you can use later on in life. But what if you want to build a corpus that you can use to fund your monthly expenditure for a period of time?

Of course, you can invest in FDs, Post Office Monthly Income Scheme or Monthly Income Funds, but again, most of these offer dividend payout which is not a fixed monthly amount, and may end up being much lesser than what you need.

A good option for many investors would be to invest in Systematic Withdrawal Plan or SWP. The opposite of the very popular Systematic Investment Plan (SIP) where one invests a fixed amount of money in mutual funds to build a corpus, in SWP, one withdraws a fixed amount of money at fixed intervals (monthly, quarterly or annually) from a lumpsum amount invested in a fund.

SWP in balanced funds:

Balanced funds or hybrid funds are good options for investors looking for less risky but modest returns. Spreading the risk between debt and equity, balanced funds are also considered to give better returns for SWP where the investor stays invested over longer period of time. Balanced funds invest 65% in equity and remaining in debt, averaging out the market risk to quite some extent. Over time periods longer than 5 years, they have historically performed better in terms of SWP than debt as well as equity funds.

SWP in balanced funds is a great option for retirees who can party invest in fixed income schemes such as Post Office Monthly Income Scheme and partly in balanced fund SWP.

Taxation on SWP in balanced funds

SWP allows you to pay tax only on the amount withdrawn. In debt funds, if money is withdrawn before 1 year, short-term capital gains tax may be applicable. However, long term capital gains tax which is applicable later is much more tax effective at 10% or 20% with indexation. Withdrawals from equity funds after 12 months are tax free as long-term capital gains from equity are exempt from tax. Balanced funds with 65% exposure to equity are taxed similar to equity funds, making them much more tax effective than debt funds and less risky in nature than equity funds.

Whether you are planning to retire, taking a break or starting out on your investment journey, getting in touch with India’s financial doctor, Dr. Celso, author of “Who says money doesn’t grow on trees?”, can give you the exact guidance you need to propel in the right direction.


Want vs Need

The distinction between wants and needs is taught to us quite early in life, however, we tend to forget the thin line of difference between them as we grow up.


So, let’s take a walk back in the childhood to brush up the concept of needs and wants.

Remember, looking forward to a glass of cold water and some biscuits after a long game of cricket with friends under the blazing sun? You needed water and nourishment to replenish your body.

However, when you pestered your parents for that expensive toy gun? You wanted it.

As we grow up and start earning, we tend to splurge more and more money to satisfy our wants. Of course, as you grow in life and position, you require certain things to go by; some materialistic things to live a comfortable life.

But more often than not, these requirements are nothing but want in the garb of need.

The real basic needs of a person are housing, food, clothing, and security. It is true that different people perceive different meanings out of these basic needs. For some, it is a need to live in a sprawling house, eat the best quality of food, and wear elegant clothes. Is it wrong? Of course, not!

However, it is important to indulge in these elevated needs only if they form a small fraction of your income. For most of us, satisfying these elevated needs costs more than our means – and that is when these elevated needs turn in to wants.

Warren Buffet, one of the world’s richest men says, “If you buy things you do not need, soon you will have to sell things you need.”

Often in hyper stores and mega malls we find ourselves surrounded by heaps of products that we don’t need, but can’t avoid their allure – eventually spending way more on our groceries than the budget allows. This repetitive overspending on items that we don’t actually need, leads to financial woes.

And with the advent of online shopping websites offering mega sales, luring buyers with irresistible offers across categories of products, we lose complete sense and spend precious money on things we might not even wanted!

Leading financial advisors and investors swear by the age old philosophy of spending well within the means, and investing before spending.

Every time you feel like splurging on things you don’t need, just ask yourself if you really want it. The same money, if invested properly, can help you kickstart your very own roadmap to riches. Simply sacrificing a Friday night outing for a small monthly SIP payment can build significant savings in the future. So, do you really want what you don’t need?

Once you have sorted out your needs from wants and ready to pursue the road to riches, get in touch with Dr. Celso, India’s first financial doctor and author of “Who Says Money Doesn’t Grow On Trees” to begin your journey towards wealth creation.




Tax Benefit on Home Loan

While you prepare to buy the house of your dreams, there is an added benefit of tax rebate when you subscribe for a home loan. Tax benefits on home loans are provided under three key sections of the IT Act – namely, Sections 24, 80EE and 80C.


Home loan repayment can be divided into two parts – repayment of principal (or the actual amount you borrowed) and the repayment of interest on home loan. The IT Act allows for deductions on both these components under different sections.

Tax deductions for repayment for home loan principalSection 80C allows for a deduction of a maximum amount of INR 150,000 (inclusive of other schemes we have discussed before) on principal repayment, provided the house is already completed and a completion certificate has been provided. No deduction is allowed for the period when the property is under construction. Further, if the property is sold within five years of purchase, no deduction is applicable and the aggregate previous deductions are treated as part of the annual taxable income of the borrower for the year in which the property is sold.

Under Section 80C, home buyers can also claim stamp duty and other registration charges in case a home loan has not been availed.

Tax deductions for interest repaymentSections 24 and 80EE are the two sections under the IT Act dealing with tax benefits on home loan interest repayments.

Section 24 allows for a maximum deduction of INR 2 lacs for interest repayments for a home loan for a self-occupied property. In case the loan is for reconstruction or renovation of the property, maximum deduction of INR 30,000 is allowed under this section. Further, if the property is not constructed within 5 years from the year in which the loan was taken, the max deduction allowed will be INR 30,000 instead of INR 2 lacs.

For a property that is not self-occupied (meaning you own more than one home), there is no upper limit on maximum deduction and entire amount of interest can be claimed as deduction.

 Unlike Section 80C, deductions under this section must be claimed yearly as the deductions are applicable on accrual basis and not payment basis.

Pre-construction Tax – Section 24 does not allow for pre-construction tax deduction. If the home loan is for renovation or reconstruction, no interest payments can be claimed before completion of the property. For purchase or construction of a new property, the interest paid until the year of completion will be divided into 5 equal parts that will be allowed as tax deduction for 5 subsequent Financial Years from the year of completion.

First Time BuyersSection 80EE – From FY2016-17, first time buyers get another reason to rejoice in terms of additional INR 50,000 tax deduction under Section 80EE for properties with a purchase price of less than INR 50 lacs (and loan value of less than 35 lacs). The benefit of deduction is applicable throughout the repayment term if the loan is sanctioned in FY2016-17.

Now that you have your hard earned yearly bonus in your bank, would you rather invest in a home or equity? If you are confused about where and how to invest your money, get in touch with Dr. Celso, India’s first financial doctor and author of “Who Says Money Doesn’t Grow On Trees” to begin your journey towards wealth creation.