I am 69 years old and like to have a monthly fund of Rs. 50,000 after one year by STP from debt fund to balance fund to avoid long term capital gain tax. Considering the annual return of the existing balance fund and the inflation rate of 5% what would be the initial debt fund corpus required to get the same fund flow of Rs.50,000/- for 10 years after a lapse of initial one year?
The initial part of your query is bit confusing as you have mentioned ".. after one year by STP from debt fund to balance fund to avoid long term capital gain tax".
To get a fixed amount after one year, you need to opt for SWP route. STP route is for transferring fund from one scheme to another in the same fund house. For example, in case of STP, you can park the lump sum amount in a debt fund and transfer a fixed amount weekly, fortnightly, monthly or quarterly to an equity or balance fund.
The amount so transferred will attract short term capital gain tax (all the transfers within 3 years).
However, in case of SWP, you can invest directly in the fund from which you want to withdraw the fixed amount after one year. In your case, it is balance fund (as mentioned by you). The SWP withdrawals from balanced fund after one year are tax free under long term capital gains taxation (same treatment as that of equities or equity funds).
To get a monthly fixed amount of Rs. 50,000 from balanced fund, if we have understood your query right, then you should ideally invest around Rs. 60 Lakhs and draw Rs. 50,000 per month i.e. assuming @10% annual return after one year.
If the market conditions are good and your fund is performing well, then you can increase the withdrawal rate by 5% every year. We have a research tool for this purpose and you can try that to see how a balance fund performed in a case like this?
SWP with annual increase - https://www.advisorkhoj.com/mutual-funds...
Hope the above answers your query well. Thanks for writing to Advisorkhoj : )
