Q. I am 84 years old. I have a 45-year-old, speech-impaired and intellectually-challenged son. He needs assisted living all his life. I have built a corpus of ₹60 lakh for him. At present, this is split and parked as fixed deposits in a few banks in my and my wife's names. His monthly requirements towards food and accommodation in an institution, wages for full-time caregiver and other needs works out to ₹30,000 per month at present. This is likely to go up to ₹40,000 and more in future.
I would like to invest the corpus as a single unit, if advisable, in a secure scheme yielding maximum possible returns. Is there any special deposit scheme in any central government programmes for such persons? This fund, to be created in the beneficiary's name, will need to be operated after my time by my other son who is settled abroad.
Varadarajan
A. Unfortunately, there is no special scheme catering to this very critical need of dependent persons like your son. You may also be under-estimating his monthly requirements based on your current experience. Even at a 5% inflation rate, the expenses towards his food, accommodation and caregiver, would rise from ₹3.6 lakh a year (₹30,000 a month) currently to over ₹5.6 lakh (roughly ₹47,000) in ten years’ time. If possible, therefore you should try and supplement your current savings of ₹60 lakh towards his future with additional contributions from either your family or any assets that you will leave behind (such as land or property) which can be sold to add to these savings.
Though you are looking for a high return, the problem is that any investment product that would give a high return would also come with the risk of a capital loss. Given this constraint, to secure regular income for him for the rest of life (say 25 years), you can examine the following options:
One, you can invest a part of the money you have saved (say, one-third) in an immediate annuity plan in your son’s name. An immediate annuity plan will pay a lifelong monthly income to your son (or his guardian), based on an upfront payment made by you. Immediate annuity plans with insurers like LIC offer completely guaranteed returns and may suit special investment needs such as this because once you make the investment, you will not face any reinvestment risk or the need to actively manage the money.
But the flip side of immediate annuity plans is their unattractive returns after taxes. Currently, for instance, for a 45-year old LIC’s Jeevan Shanti offers a lifelong annuity of ₹74,300 a year (or ₹6,131 per month), for an upfront investment of ₹10 lakh. This works out to an effective return of just 5%. You will have to pay GST on your initial investment.
Two, you can also invest part of the money (about 50%) in the combination of a fixed deposits from a scheduled commercial bank and highly-rated NBFCs such as Sundaram Finance, Bajaj Finance and Mahindra Finance, diversifying your money across many such FDs. These can fetch you a better return of 7.5-9% currently. But these investments do carry some risks.
Should interest rates in the economy fall sharply over the next 5, 10 or 15 years, your son will have to make do with lower income than he started with.
Three, to better the returns from this portfolio over the next 10 or 15 years, you will also need an equity component of say 15%. This will allow your son to earn a higher income in the long run but can lead to volatility in your portfolio in the short run.
Depending on your risk perception, you can use the three options mentioned above in different proportions to invest your corpus of ₹60 lakh. Do ensure that another relative, like your second son, takes the responsibility of monitoring this portfolio and changing the choices if the returns change dramatically.
