Is it wise to invest my entire retirement corpus in mutual funds and use SWPs?

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: April 12, 2025 at 6:00 am

A reader wanted to know if he could invest his entire retirement corpus in mutual funds (of varying risk) and draw an income from them via systematic withdrawal plans — a discussion.

Short answer: It is silly to put 100% of a lifetime’s effort, toil and hard work into capital market-linked products. Diversify keeping safety and peaceful sleep in mind. Tax is not a priority.

The first step is to find out how strong a retirement corpus is. Is it capable of generating an income that can increase with inflation in retirement? Should you buy a pension with most of your assets, or can you afford to put them in different buckets and manage them actively? You can use the freefincal robo advisor tool backed by years of research and practical assumptions to find out.

I can also run fancy backtests to show how well a SWP have grown capital and given income. Things are very different in real-time. Investors seem to think a few years of poor equity returns are impossible after looking at recent returns. Trust me, a bad turn is right around the corner regarding the capital markets.

Many “experts” recommend using a balanced advantage fund or an aggressive hybrid fund, or a diversified equity fund for parking part of the retirement corpus and starting a SWP.

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If a poor sequence of returns hits, the SWP (fixed sum or units) will deplete the corpus faster because the NAV keeps falling or does not grow enough. Sure, in a backtest, the NAV will “eventually” move up, but until it does, the retiree is in financial and emotional trouble.

So, if you “must” start SWPs, do so from liquid funds or money market funds with stable NAV. Such a SWP can be used to fund regular expenses partially. You can use an RBI bond insurance annuity or your company pension plan for the rest. See:  I need a pension. Should I buy an annuity or a govt bond?

A part of the retirement corpus (if the corpus is large enough – to be determined rigorously by the retiree or an expert without any conflict of interest) can indeed be invested in equity or hybrid funds.

This should be for growth and future use. It makes little sense to keep withdrawing from these regularly. If there is a bumper return, one could withdraw for discretionary spending occasionally.

In any case, even for regular withdrawals, a SWP is not necessary. We can redeem manually at will.

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