Q. I am asking this on behalf of my retired parents. What would be the ways to invest in a pension fund ? Please mention any schemes where we can get returns higher than 10%? Also please mention any SWP schemes where we can invest.
A. We’re assuming that you are looking at various means to getting regular income and not just a pension fund. For retired people, income streams such as Senior Citizens’ Savings Scheme, LIC’s Vaya Vandhana Yojana (Both ₹15 lakh is limit per head per scheme) and RBI’s Floating Rate Savings Bond 2020 (no limit on investment) all offer over 7%. Please remember that any option that gives way higher than a bank FD cannot be without risks or will be unregulated. If you need returns in excess of 10%, no annuity products will give that. There will be privately-placed bonds that generate such returns but carry very high risks and require high corpus deployment. They are risky especially if the corpus is meant to be preserved and the capital needs to generate income.
Q. I am a salaried employee aged 27, and I earn ₹1,15,000 per month. I do not have any loan. I am planning to start investments and savings for my retirement. At the age of 45 and 48 I would like to plan my children’s education. At the age of 60, I would like to retire with a corpus of ₹12 crore to ₹15 crore. I have shortlisted SIP, NPS, and PPF. Could you please suggest how to and how much to invest in them? I would also like to include an inflation rate of 6%.
Vivek G. Ravindranath
A. First, congratulations on being an early mover in planning and investing for the long term. You have stated how much you would need for retirement. You have not stated what is your ballpark requirement for education. For now, we will assume ₹15 lakh each for the 2 goals at the age of 45 and 48. We assume a 6% inflation for this, but take it that the ₹12-15 crore you need for retirement is already adjusted for inflation.
At a return of 10% (IRR) for the retirement goal, you will need to invest ₹40,000-50,000 per month to achieve ₹12-15 crore, 33 years from now. Given the long-time frame, it is better to temper return expectation. For education you will need about ₹7,000 each for the two goals, totalling ₹14,000 per month. You need not worry too much about this high saving. You can start off low for retirement and up it later when income rises.
If you wish to have low maintenance, it is best to go with index funds such as Nifty, Nifty 500, Nifty Midcap 150 and any U.S.-based passive fund for your equity exposure. Keep midcap exposure to a maximum of 15-20%. You can use NPS for your debt allocation — with a combination of both Gilt and Corporate bond. PPF is also fine but not a must, based on your tax needs. Debt NPS and PPF can be a minimum of 20-30% for your goals and can be marginally higher if your risk appetite is low. Consider about 5-10% in gold funds if you would like some exposure to it to hedge against equity.
Q. I am a 26-year-old Air Force employee with gross income of ₹60,000 a month. I have about ₹12 lakh in PF account with an addition of ₹20,000 monthly; an RD of ₹5,000 for 5 years maturing in October 2022; an SIP of ₹5,000 whose present value is ₹3.5 lakh. I have future commitment towards my own wedding within two years and I want to build a house (on my own land)/take a flat in a good society. I also want to build a corpus of ₹20 lakh. Please advise for these short-term and long-term plans.
A. We do not know what you wish to spend towards your marriage. But save up your RD and present SIPs for the same. For the ₹20 lakh corpus that you have mentioned, we assume you can give up to 5 years of time since you will be spending for your wedding as well in 2 years. Assuming a conservative 11% return (IRR) over 5 years, you will need about ₹25,000 per month to meet this corpus. You can use mutual funds with a 60-70% allocation to equity and rest in debt. If you are short of savings, reduce your PF contribution and increase in mutual funds, since your corpus requirement is high.
Q. I am a 22-year-old graduate. Since I am unemployed, I want to make judicious use of my saved money — ₹3,000. Very often I feel the fund crunch since I’m appearing for job-related exams. How can I go about it? How I can make it grow? Also, what can be a possible way to earn money which will go well along with my preparation?
A. We have to assume ₹3,000 is your monthly savings. If it is a lump sum, it is not meaningful enough to save. It is best parked in your savings account or in a liquid/ultra-short-term debt fund if you want to avoid spending it. There are no shortcuts to growing money even though you might get such an impression from social media influencers. The most judicious thing to do would be to cut down on impulse spending and postpone any other short-term goals you may have. I would not recommend ‘earning’ money by trading in the stock markets etc. At this juncture, it is a distraction that you can well avoid and instead focus on your interviews. You may also lose money when you dabble as a novice in stock markets. Look for a part-time job if you think you have the time; there are many freelance/work-from-home options these days. Check them out in sites that allow you to register as a freelancer and look for assignments. If you want to save for the short term, invest in ultra-short term debt mutual funds. This way, it will earn some sum and allow you to take out money whenever you want. If you are thinking long term (like 5 years and above), you can consider equity index funds like Nifty index funds.
(The adviser is Co-founder, Primeinvestor.in)