How have you parked the cash in bank? Aren’t you paying tax on the interest or you don’t need to since there is no active income source?
Good job on all the savings!!
Which bank do you use for parking your money?
Around same time last year, I had close to 80 Lakhs in my Savings account ay IDFC First due to their higher interest rate. Had the same anxiety as you about investing such a large amount in the market at once.
Since the tax on interest sucked, and debt funds are now taxed at slab rate (35% for me), it didn't make sense to park money there.
Arbitrage funds are a great alternative, taxed like equity only on redemption, almost as safe as liquid funds, and have been giving me XIRR of 8.3% which is better than bank.
Can look at those temporarily and slowly move your money into equity.
I would highly suggest fixing some asset allocation between Equity, Debt + Cash, Real Estate and maintaining that.
Once you fix the allocation, it gets easier to let the money slowly flow into the market instead of being in decision-paralysis.
Currently I am using HDFC, Axis and SBI.
Can you provide me some more details on Arbitirage funds ?
I am very tempted to buy T-Bills but concern is of money being blocked.
My asset allocation is biased towards FD but I have money in debt fund which is being transferred to equity MF using SWP.
I need to invest some in debt fund for safety purpose.
The issue with T-bills is at max 364 days of investment, so you end up redeeming all your money at the end of every year and pay tax on that at your Slab rate.
Same for Debt Mutual Fund - When you end up redeeming, you pay tax at your Slab rate. With the change in their taxation since 1st Apr 2023, they no longer make as much sense as they used to.
Online articles and conventional wisdom haven't adapted the strategy according to this taxation change.
Personally, I prefer liquidity and keep my money in 3 places
1. About 5 lakhs in Savings account (No FD since the difference in interest rate on such small amount is paltry).
2. Arbitrage Funds as my Deby component of portfolio
3. Equity Mutual Funds as Equity component.
General rule of thumb that i have seen on this forum is that you should have ~3 years of expense in your bank account to account for any fluctuations in the market... This amount comes out to be ~20L in your case which you could possibly retain in your bank account or keep 10L in bank and move 10L into FD which matures in 1 year..
As for the rest of 1.1 Cr, i would recommend figuring out a time horizon which makes you comfortable and invest in equal chunks every week to ultimately invest the whole amount...
Eg. If you are okay with a 1 yr horizon, you can start investing 2L every week so that ultimately you are able to invest everything by the end of the year. This will give you enough time to average out your investments and also give you time to become comfortable with the proposition.
All the best mate.
This is what I will do:
1. Three years of expenses in debt MF/FD.
2. Two years expenses in BAF.
3. 5 years expenses in an index fund (N50).
4. Rest in mid/small cap funds.
If the market does not crash and as my liquid funds deplete, I will withdraw from N50 and continue the BAF investment. If the market goes down the BAF will provide the required cushion (that is what it is supposed to do).
I will gradually glide from the small/mid cap funds to higher funds in the list in such a way that I don't need these risky investments in the next 10 years.
Meanwhile, I will rent out the additional home I have for a steady cash flow.
In these calculations, I will include inflation and be aware that anything can happen in the market. But over a long period of time, I am bullish.
Generally moving lumpsum amounts from anywhere to equity is done over a period of 6 months to 1 year or so. Move it to a short term debt fund and STP it to equity over a period of time. I do that when I get lumpsum payouts like bonuses.
MFs are simple to invest and manage. Risk assessment too is easy with a plethora of sites giving detailed inputs. You can look at stepping up your MF SIP for now. Split your cash into reserves, discretionary money and long term invest money.
Long term investment is the money you want to move to say MFs. Shift this to a liquid fund and setup an STP to your preferred MF.
The discretionary fund, use to buy more when the stocks /MFs have lows. You can use it also for short term investments like Tbills, etc
I would advise you to invest part of FD amount into Parag Parikh Dynamic Asset Allocation fund which is launching on 20th Feb. This will be safer than equity funds and will give better post tax returns compared to fd. Calculate the emergency fund required plus money needed for routine expenses for next 60 months. Rest money invest into this fund. Start withdrawals after 5 years from this fund.
Congratulations! Can I know what’s your age?
+1
How have you parked the cash in bank? Aren’t you paying tax on the interest or you don’t need to since there is no active income source? Good job on all the savings!!
I am, yes and that sucks.
Of all the taxes I pay, I hate that the most!☹️
Ikr !!
I used to pay 30% till 2023.
And you are not paying anything now ?
Not for the current year
Which bank do you use for parking your money? Around same time last year, I had close to 80 Lakhs in my Savings account ay IDFC First due to their higher interest rate. Had the same anxiety as you about investing such a large amount in the market at once. Since the tax on interest sucked, and debt funds are now taxed at slab rate (35% for me), it didn't make sense to park money there. Arbitrage funds are a great alternative, taxed like equity only on redemption, almost as safe as liquid funds, and have been giving me XIRR of 8.3% which is better than bank. Can look at those temporarily and slowly move your money into equity. I would highly suggest fixing some asset allocation between Equity, Debt + Cash, Real Estate and maintaining that. Once you fix the allocation, it gets easier to let the money slowly flow into the market instead of being in decision-paralysis.
Currently I am using HDFC, Axis and SBI. Can you provide me some more details on Arbitirage funds ? I am very tempted to buy T-Bills but concern is of money being blocked. My asset allocation is biased towards FD but I have money in debt fund which is being transferred to equity MF using SWP. I need to invest some in debt fund for safety purpose.
The issue with T-bills is at max 364 days of investment, so you end up redeeming all your money at the end of every year and pay tax on that at your Slab rate. Same for Debt Mutual Fund - When you end up redeeming, you pay tax at your Slab rate. With the change in their taxation since 1st Apr 2023, they no longer make as much sense as they used to. Online articles and conventional wisdom haven't adapted the strategy according to this taxation change. Personally, I prefer liquidity and keep my money in 3 places 1. About 5 lakhs in Savings account (No FD since the difference in interest rate on such small amount is paltry). 2. Arbitrage Funds as my Deby component of portfolio 3. Equity Mutual Funds as Equity component.
I am intrigued by arbitrage funds. Never considered them before
OP's older post: https://www.reddit.com/r/FIREIndia/comments/12cn73g/forced_fire_my_experiences/
In the last one it seems like there were kids in the picture, now it's mentioned kids as 0. Maybe kid expenses are separately accounted for?
Better late than never! https://www.youtube.com/watch?v=2YwC4Vsm5h0
>kids : 0 It doesn't say expenses, so maybe ...
General rule of thumb that i have seen on this forum is that you should have ~3 years of expense in your bank account to account for any fluctuations in the market... This amount comes out to be ~20L in your case which you could possibly retain in your bank account or keep 10L in bank and move 10L into FD which matures in 1 year.. As for the rest of 1.1 Cr, i would recommend figuring out a time horizon which makes you comfortable and invest in equal chunks every week to ultimately invest the whole amount... Eg. If you are okay with a 1 yr horizon, you can start investing 2L every week so that ultimately you are able to invest everything by the end of the year. This will give you enough time to average out your investments and also give you time to become comfortable with the proposition. All the best mate.
Thanks! This sub is awesome. I did connect with a financial advisor and She almost had the same recommendation as yours.
This is what I will do: 1. Three years of expenses in debt MF/FD. 2. Two years expenses in BAF. 3. 5 years expenses in an index fund (N50). 4. Rest in mid/small cap funds. If the market does not crash and as my liquid funds deplete, I will withdraw from N50 and continue the BAF investment. If the market goes down the BAF will provide the required cushion (that is what it is supposed to do). I will gradually glide from the small/mid cap funds to higher funds in the list in such a way that I don't need these risky investments in the next 10 years. Meanwhile, I will rent out the additional home I have for a steady cash flow. In these calculations, I will include inflation and be aware that anything can happen in the market. But over a long period of time, I am bullish.
Thanks mate. Those are some great pointers.
Generally moving lumpsum amounts from anywhere to equity is done over a period of 6 months to 1 year or so. Move it to a short term debt fund and STP it to equity over a period of time. I do that when I get lumpsum payouts like bonuses.
That's what I am currently doing for a smaller amount but I am finding it mentally hard to move big money from fd to debt. Purely mental paralysis.
MFs are simple to invest and manage. Risk assessment too is easy with a plethora of sites giving detailed inputs. You can look at stepping up your MF SIP for now. Split your cash into reserves, discretionary money and long term invest money. Long term investment is the money you want to move to say MFs. Shift this to a liquid fund and setup an STP to your preferred MF. The discretionary fund, use to buy more when the stocks /MFs have lows. You can use it also for short term investments like Tbills, etc
Spoken like my man. This is exactly my path.
Guys, you all are awesome. I am grateful for such practical suggestions. Thank-you from the bottom of my heart.
I would advise you to invest part of FD amount into Parag Parikh Dynamic Asset Allocation fund which is launching on 20th Feb. This will be safer than equity funds and will give better post tax returns compared to fd. Calculate the emergency fund required plus money needed for routine expenses for next 60 months. Rest money invest into this fund. Start withdrawals after 5 years from this fund.
Thank you