Should I invest the balance fund SWP amounts in ELSS SIPs

My query is I am doing SIP in BSL Equity 5K & Reliance Small Cap 2K, since last 3 months for wealth creation for long term as I have some amount which will left with me after all my monthly expenses taken care. Along with sip done ELSS - investment too lump sum for tax saving. But the thing is after calculating all the SIP amount and money required for ELSS - investment upto March 2018. I found that I may be in short of money for continuation of SIP. So after reading SWP on your website thought of investing lump sum of 10 lacs in well balanced fund like Birla or ICICI and start SWP after 1 year to get rid LTCG for my withdrawals and will withdraw 8% annually as per your advise which will suffice me in continuing my sip and met with some other expenses. Lump sum amount which is in bank FDs maturing next month and interest rates are 7% so not willing to continue in FDs. Purposely avoiding investing in debt funds as I don't want to get into taxation mess like STCG with indexing or without indexing and all. I am moderate risk taker and want to build wealth for long time. Chosen equity balance funds for SWP as I read in your article that for long time horizon balanced funds are better than debt funds as saw in article for SWP for ICICI balanced and Birla Balanced 95 fund published on your website. Lastly appreciate the work and knowledge your site providing to understand mutual fund insights with simple understanding language. Kindly suggest the right thing?

May 21, 2017 by Ravi B, Kolhapur | Mutual Fund

At the outset, we thank you for the kind words about Advisorkhoj. Glad to note that you found our website useful as it is spreading knowledge about mutual funds and the language used by us is simple and understandable to all. Truly appreciate this.

Currently you are investing in good funds. Birla Sun Life Equity Fund and Reliance Small Cap Funds are among top performing in their respective categories.

We are coming straight to your query as to how to fund your ELSS investments? Should you invest in balanced funds and plough back the withdrawals after one year to ELSS funds. We think your idea is good as you will be investing the fixed deposit amount into a balanced fund which matches your risk profile. However, please note 2-3 things in this context -

1) Investments in balanced funds should be done while keeping an investment horizon of 5 years in mind. 2) It is not sure that you will have capital appreciation after one year in your balanced fund investments. Therefore, if you are drawing through SWP, the total investment value might go down below the initial investment amount. 3) Why draw through SWP, you may even withdraw as and when wanted after one year, and invest in ELSS funds 4) Alternatively, instead of SWP or redemption, you can straightaway switch to the ELSS fund of the AMC in whose balanced fund you have invested in!

Hope, we could answer your query well. Thanks for writing to Advisorkhoj.

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