Q. My father is retiring on July 31. He wants to invest ₹5 lakh. Please advise.
Rishabh Dubey
A. The investment recommendation would depend on his goals. Assuming his main objective is to protect his capital while receiving a good return from this investment, he should consider the post office Senior Citizens’ Savings Scheme, which allows individuals to invest up to ₹15 lakh of retirement proceeds. The scheme has a five-year lock-in period and pays interest at a fixed rate every quarter. The interest rate paid by it is announced by the government at the beginning of each quarter. For July to September 2019, the interest rate stands at 8.6% per annum. If your father invests before the end of September 2019, he stands to receive 8.6% interest throughout his five-year holding period. The account can be opened at many leading banks apart from the post offices. This scheme is absolutely safe, being a Government of India borrowing. If your father does not need regular cash flows, he can perhaps consider debt mutual funds investing in high quality bonds. But they carry market risks and pose some risk to capital.
Q. My husband and I want to support my parents and in-laws with a fixed monthly amount. Please suggest investment plans that would yield ₹10,000 per month.
Soundarya N
A. Immediate annuity plans from life insurers are usually the best way to secure a fixed (and relatively risk-free) regular income for those who cannot actively manage their money. Under these plans, you pay a lump sum to an insurer who undertakes to pay a lifelong annuity (pension) as long as you live. However, the key disadvantage is they offer very low returns (about 6-6.5%) compared to bank deposits or debt mutual funds. If you are interested in such plans, do check out LIC Jeevan Shanti, LIC Jeevan Akshay VI and HDFC Life Immediate Annuity plan.
However, if you are targeting a ₹10,000 per month payout for the next ten years, you should consider the Pradhan Mantri Vaya Vandana Yojana offered by the LIC. The scheme is currently open until March 31, 2020. Senior citizens, who have completed 60 years of age, can invest up to ₹15 lakh in the scheme to secure a monthly pension of ₹10,000 for the next ten years. While the pension is calculated at prescribed rates, the effective return works out to about 8% per annum. A ₹15-lakh investment fetches you a pension of ₹10,000 per month.
On the policyholder surviving 10 years, the initial investment is refunded. On his or her death within 10 years, the beneficiary receives this refund. The scheme allows premature surrender under exceptional circumstances. The pension received will be taxable if your parents fall in the taxable income bracket.
Q. I am an informal sector worker earning ₹16,000 a month. I can save ₹4,000. What kind of investments should I make?
Rahul Dhani
A. Where you invest will depend on two things – how much risk you are willing to take and what is the goal for which you are investing. If you would like your capital to remain completely safe while you earn a guaranteed return, you can consider recurring deposits (RD) with banks or a Public Provident Fund account (PPF).
An RD will be best if you would like to have greater flexibility to withdraw your money as and when you need it.
A PPF account will lock in your money for 15 years but is an excellent option to save for your retirement.
If you are willing to take risk to your capital and don’t need your money for the next five years, you can consider starting Systematic Investment Plans in aggressive hybrid mutual funds. These funds invest 65% of the money in stock markets and up to 35% in bonds and can get you to a double-digit return over time periods of five years-plus.
But you should invest in such funds only if you can take a capital loss of 10-20% in some years when the stock market isn’t doing well. Choose funds with a good 10-year track record or take an adviser’s help to choose them.
