Mutual Funds Investing Strategy: Debt to Equity in 25 months + 12 months cooling period — 48% ROI…
If you are someone who has not invested a single rupee into equity market, then let me explain the easiest way to do so. If you are in your 20s, then directly starting with equity investing won’t hurt you either because you have a decent 40+ years of “active income” possibilities. Again, this is with the assumption that you wish to retire in your 60s and will have a steadily rising income till then.
What if you are in your 40s or late 30s?
What if you were a busy person building your career that you could not focus on investing in stock markets?
What if your entire investments are in real estate (land, villas, apartments) or gold or fixed deposits?
Investing in stocks or equity mutual funds may expose you to a high amount of risk. There could even be stages of negative returns, especially when the markets are at their all time highs and further upside looks tricky.
The best way to start investing is via a debt fund or hybrid fund which has nil or low exposure to equity markets. These alternate funds will lower your volatility and increase your returns (much more than a fixed deposit).
Read the different types of mutual funds here:
https://viswaram.com/mutual-funds-day-19-multicap-fund-3c820cdd5524https://viswaram.com/mutual-funds-day-19-multicap-fund-3c820cdd5524https://viswaram.com/mutual-funds-day-19-multicap-fund-3c820cdd5524
What is the exact strategy?
The best way to handle this situation if you have a lower risk appetite is to invest a decent lump sum (say a minimum of 1 crore) in a debt or hybrid fund (low risk). Most of these funds may have a 1 year lock-in period wherein a premature withdrawal comes with an exit load. Exit loads are usually 1% for premature withdrawals.
Stay invested in the hybrid/debt fund for the entire year and then from the 13th month onwards put in a systematic withdrawal request for 4,00,000 rupees.
Refer to the table below to see how the fund allocation works.
In the above example, I have only mentioned how the principal (original capital) is getting distributed. In the ideal case, you need to calculate that as well.
Let me show you how the SWP calculator works.
The assumptions are
- Annual returns from the hybrid/debt fund is at 10%
- The original capital would have appreciated by 10%, hence the capital at the 13th month = 1,10,00,000.
- Withdrawal is in 24 months (as the tool does not have the option to specify 25)
What this figure says is that you will still have an excess of 27.57 minus 4 (24+1 months) = 23.57 lakhs as capital appreciation. This could even fund the SWP for the next 6 months too.
What this really means is that you were able to contribute for a total of 31 months even though you initially started with a plan of 24.
Now let us take a look at how the SIPs in equity work.
The assumptions are
- You were able to invest for 31 months as your capital appreciated in the duration
- Equity returns estimated at 14%
As per the figure above, your total capital has now grown to 1.48 crores in 12+25 = 37 months which is a 48% ROI in 37 months ~ 13.5% annualized. At the end of 3rd year, you are fully invested in equity, but at a risk scale you were comfortable with. I am sure in this journey of 37 months, you will equip yourselves with all the tools required to handle equity investments with a lot of maturity & wisdom.
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Disclaimer: Calculators are for illustrations only and do not represent actual returns. Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.