How to Fund you Goals smartly??

You have saved and invested wisely towards your financial goals. As you move closer to a particular goal, you need money to fund the same and it is imperative that you have chalked out a strategy of withdrawal or payout.

You will have several options to do this and is largely dependent on the financial goal and whether the payouts are onetime or ongoing.

One Time Payments

1. Sell all investments and move the investments in either a Floating Rate Fund or a Fixed Maturity Plan. It is advisable to move your equity funds into a Fixed Maturity Plan or Floating Rate Funds atleast 12 months before you are to incur an expense towards a major goal. (eg. Funding your child’s education, making down payment for a property). Now this is not a standard and would depend on various factors like whether the market is overvalued or undervalued, is it in a corrective phase or an upward phase, and the prevailing situation at that point of time.
2. Sell Investments in a staggered manner depending on the market situation at that point of time. Suppose you need the payout over a period of 5 years for annual vacations. The amount that you require after 5-6 years (i.e. for the 4th or 5th Annual Vacation) can still be in equity and the amount that you need in the next 3 years can be withdrawn and kept in Floating Rate Funds. Here it will make more sense to start moving the investments gradually. This would again be based on your risk tolerance and your ability to sleep well during market upswings and downswings.

Ongoing Expenses (Monthly Income)

1. If the goal is monthly income on retirement, then besides pension, part time income and other guaranteed income from bonds, Senior Citizens Schemes, Post Office Savings, PPF Withdrawals and Monthly Income Plans, you should take out a certain portion of your equity investments based on your need on a systematic basis every month and leave the rest of the money invested in more conservative equity options such as Balanced Funds, Large Cap Stocks, Diversified Equity Large Cap Funds, High Dividend Yielding Stocks and Dividend Yield Funds or other hybrid options .

This can be achieved with a Systematic Withdrawal Plan. With a Systematic Withdrawal Plan you can withdraw a prefixed amount every month from your mutual fund investments. This amount can be a fixed amount every month like Rs 10000 or whatever capital appreciation has happened in that month or quarter (Generally capital appreciation options are offered every quarter). So for example if you invest Rs 15 lakh and wish to withdraw around Rs 10000 per month, you have 2 choices either withdraw a fixed amount of Rs 30000 (or say Rs. X) every quarter or whatever appreciation has happened in a quarter. The appreciation withdrawal option also acts as an automatic profit booking mechanism. If there is no appreciation in a quarter then there is no payout made to you. However if you compulsorily need a payout every month opt for the fixed option.

The tax implications for both options are different and will be based on whether the payout comes from your principal or from capital appreciation. If the payout comes from capital appreciation, then the payouts that come in the first 12 months will be subject to Short Term Capital Gains Tax of around 10% whereas the payouts that come from capital appreciation after 12 months are tax free as per current tax laws.

An important decision to be made here is the payout ratio so that there is enough money to meet your needs as well as grow the corpus. If you withdraw a huge amount from your payouts initially and if the returns are not high in the initial period or the market tanks, then your corpus will not last a long time. If your payout rate is 8% and your investments grow at 9% compounded, then you will never run out of money but if your payout ratio is high at around 15% and if you are earning around 8%, then your money will last only 10 years.

Consider an example of a Systematic Withdrawal Plan:

1. Initial Investment: Rs 15 lakh
2. Date of Investment: April 1, 2002
3. Amount of Withdrawal: Rs 10,000 (This person receives a pension and income from Bonds. He needs to supplement this income by another Rs 10000).
4. Date of First Payout: May 1, 2002
5. Total Amount Withdrawn till date: Rs 1,20,000 (per year) *5 years = Rs 6,00,000

The table below gives the present value of the investment for different schemes after withdrawal of a fixed amount every month.

Scheme	Amount	Amount	Present Value (Rs)	Yield
	Invested (Rs)	Withdrawn (Rs)		(%)
Reliance Growth (G)	1,500,000	600,000	14,645,832	61.41
Reliance Vision (G)	1,500,000	600,000	12,261,256	56.18
SBI Magnum Contra Fund (G)	1,500,000	600,000	11,233,343	53.83
SBI Magnum Global Fund (G)	1,500,000	600,000	10,601,850	52.20
HDFC Equity Fund (G)	1,500,000	600,000	8,063,147	44.74
HDFC Top 200 (G)	1,500,000	600,000	7,985,792	44.49
DSP ML Opportunities Fund (G)	1,500,000	600,000	8,275,409	45.43
Franklin India Bluechip (G)	1,500,000	600,000	6,728,373	40.06
Franklin India Prima Plus (G)	1,500,000	600,000	7,009,048	41.10

You will not get such returns from investments going forward but even if one were to assume a decent rate of return in line with corporate earnings and GDP growth, you will do well during your golden years.

What if the investment was done in April 2006 before the May Crash?
Even if you had done the lump sum investment in April 2006, and withdrawn Rs 10000 every month, your current value in these schemes would have been

Scheme	Amount	Amount	Present Value (Rs)	Yield
	Invested (Rs)	Withdrawn (Rs)		(%)
Franklin India Bluechip (G)	1,500,000	120,000	1,627,238	15.74
Franklin India Prima Plus (G)	1,500,000	120,000	1,742,659	23.02
HDFC Equity Fund (G)	1,500,000	120,000	1,646,297	16.95
HDFC Prudence Fund (G)	1,500,000	120,000	1,680,568	19.11
HDFC Top 200 (G)	1,500,000	120,000	1,607,055	14.47
Reliance Growth (G)	1,500,000	120,000	1,659,441	17.83
Reliance Vision (G)	1,500,000	120,000	1,632,983	16.15
SBI Magnum Global Fund (G)	1,500,000	120,000	1,693,975	19.95
SBI Magnum Contra Fund (G)	1,500,000	120,000	1,668,583	18.35

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