Facing unemployment? Here’s some advice

A young reader is looking at being retrenched from the workforce. Here is some advice on how he needs to manage his money.
By Morningstar |  14-10-20 | 

I am 27 years old. I am an engineer and employed on an offshore drilling rig. I am on the verge of a lay off due to the oil industry downturn, where I am employed. The future looks bleak and I do not have the slightest idea how long I will stay unemployed. Or, if I should try my hand at another profession.

Good news: I own the family house I reside in. I have no debt. I am servicing no loans.

Bad news: I may have to stop my SIPs. I have no income coming in.

Monthly expenses: Rs 30,000

Value of my current portfolio:

  • Rs 40 lakh in 5 equity mutual funds
  • Rs 20 lakh in fixed deposits, which gives me 7.5% interest tax free
  • Rs 4 lakh in my savings account

My withdrawal is Rs 30,000/month. I shall stick with my current monthly expenses and assume a 3% annual increment on the current expenses. I am looking at Rs 12,000 as interest from fixed deposits and Rs 18,000 as withdrawal from my funds.

Will I run out of money?

Am I correct in assuming that my equity portfolio generates 9-10% per annum?

A reader wrote in with that query and listed both, the positive and negative.

SUNIL JHAVERI, founder of Misterbond.in - a B2B Platform for advisers in the mutual fund space, offers his advice.


His monthly expense requirement is on the modest side which can be covered from his current investments. But that is for now. What about the future? He has assumed very low incremental increase in his yearly expenses @3%. This, according to me, is a very conservative estimate and not practical.

Asset Allocation

The current portfolio of Rs 40 lakh is in 5 equity mutual funds.

Since he is going to be dependent on some cash flow creation of approximately Rs 18,000 per month from this portfolio, he needs to protect this from volatility in the market – which, according to me, is imminent.

As he fears unemployment, he should now have a mindset of an individual who is retired or a senior citizen. What do I mean by that? He must think about his finances as an individual who has no other source of income and has to solely rely on income from his investments.

Capital preservation is of prime importance. He must protect the current investments and move away from an aggressive asset class like equity to a conservative asset class like Dynamic Asset Allocation Funds, or DAAF.

This asset class is not only conservative but also offers:

  • Downside protection
  • Buy Low – Sell High based on market valuations
  • Constant profit booking due this strategy
  • Lower allocation to Equity at expensive valuations

Action Plan 

Leave the current fixed deposits untouched.

Keep aside money for an Emergency Fund so that he need not touch his other investments should he be in urgent need of cash.

Switch his equity schemes to DAAF schemes. As I am unaware as to which equity schemes he has invested in, I am not in a position to guide him as to whether he should opt for a DAAF within the same AMC or not.

From these DAAF schemes, he can generate regular cash flow @5.5% p.a. on Rs.40 lakhs = Rs.2,20,000 p.a. = Rs.18,333/p.m. (which is his current requirement).

He can assume returns of 7-8% p.a. from these DAAF schemes over longer periods of time. This will start building a cushion in his portfolio even after his systematic withdrawal plan (SWP) @5.5% p.a. and his corpus of Rs.40 lakhs will grow accordingly.

This will ensure generating a higher cash flow requirement at incremental additional expenses of 3-5% p.a.

I have provided a more detailed explanation of DAAF schemes in Have you considered dynamic asset allocation funds?.

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