Retiring soon and in the top slab. Switch to direct or wait?

For people who are on the brink of retirement (about four years) now at the highest tax slab, isn’t it prudent to withdraw first after retirement from regular via SWP or move to direct? - Abdul Varushai

Dhirendra Kumar: Absolutely. For one, when you need the money, prioritise that.

Ashutosh Gupta: When you mention the tax slab, it makes a lot more sense for a debt investment. Suppose you hold debt investments in regular plans, and you expect to move to a lower tax slab after retirement. Then, by waiting out that period before you redeem and switch, you can meaningfully reduce the tax outgo.

The other point is that the difference between a regular and a direct plan, the opportunity cost of staying in regular, is relatively lower here. The expense-ratio gap between regular and direct is smaller in a debt fund than in an equity fund. So the cost you bear over these four years is relatively low, while the tax saving after retirement can be higher. Combined, what you are describing can make sense.

One more thing. Plan your redemptions or switches from regular to direct in the context of your asset allocation. As you near retirement and look to rejig your portfolio, use the same opportunity to review your allocation. When you make these switches, keep in mind how you want your portfolio positioned after retirement, so you can address two important decisions at once.

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