Need periodic income before rejoining work? Here’s how to invest.
Published by Z-Connect by Zerodha
Abhishek Kumar's role: Wrote this article
Abhishek Kumar, SEBI RIA and founder of SahajMoney, wrote this reader Q&A, suggesting someone on a career break keep about two years of expenses in liquid funds with a monthly systematic withdrawal plan, alongside an emergency fund and health cover.
What Abhishek Kumar said
Where should I keep the money I will live on during a career break?
For a break of roughly one to two years, I suggest setting aside about two years of living expenses in a liquid, low-volatility place, such as a liquid mutual fund, and drawing a fixed sum each month through a systematic withdrawal plan. Keeping it out of the everyday savings account also makes it easier to resist spending on things you do not need. While income has paused, liquidity and managing risk matter more to me than squeezing out extra return.
Which product is right for generating periodic income during a break?
I would not look for one product that suits everyone. The outcome of any investment is unknown in advance, so what works for one person may not for another. I start instead from the need, the time horizon and the person's risk appetite. For someone whose income has paused and who needs a steady monthly amount, liquidity and limiting volatility become the main considerations, and the product follows from that rather than the other way round.
Why not use a conservative hybrid fund for the two-year income pool?
A conservative hybrid fund is an option some would consider, since it holds mostly debt with a slice of equity. For money that has to be withdrawn every month over the next two years, though, I would rather avoid even that slice. The equity portion can swing in value over a short window, and a dip at the wrong time would eat into the very pool meant to pay the bills. I keep the income pool in a liquid fund and leave equity to the longer-term part of the portfolio.
What should be in place before I set up the income plan?
Two things, before anything else. First, an emergency fund covering six to twelve months of living expenses, held separately from the withdrawal pool in a savings account or liquid fund, so a surprise does not derail the plan. Second, adequate health insurance: I suggest a base policy combined with a large super top-up that uses the base sum insured as its deductible. Claims may then run across two policies, but the total cover rises considerably for a relatively small extra premium.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on money management
A July 2024 Zerodha Varsity reader Q&A for someone who sold a business and needs about ₹50,000 a month during a 12–24 month break. The column suggests keeping around ₹12 lakh in liquid funds with a systematic withdrawal plan, a separate emergency fund of 6–12 months' expenses, and health cover through a base policy plus a super top-up.
Publisher source
Need periodic income before rejoining work? Here’s how to invest.
