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How to invest lump sum payouts? Answers to your personal finance queries

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Indian Rupee Concept - 3D Rendered Image  

Readers can send in queries on personal finance and investing to moneywise@thehindu.co.in

Q. I have invested money in an insurance-cum-savings scheme. The payout will be in five years’ time. I will be getting a lump sum amount of ₹30 lakh.

This money is tax-free, which means that I don't need to pay any tax when I get this money. I am concerned about where to invest it once I get the lump sum.

Can it be put in an annuity scheme? Will the income from the same be taxed? Please suggest what else to do with the lump sum and how to save tax on it.

Vandana Sahay

A. Your age and whether you need income regularly are the two key inputs we need to know to suggest investment avenues. If you need regular income, you may invest the money in an immediate annuity plan. This will basically provide you deduction of up to ₹1.5 lakh under Section 80CCC (limit clubbed with Section 80C deduction) in the year of investment.

However, the pension/annuity you receive will be fully taxable in your hands in your income slab rate. If you are in the high-tax bracket, this will leave less on the table for you. The returns too are lower than FD options.

If you will be above the age of 60 when you receive this money, then your first option should be the Post Office Senior Citizens’ Scheme. This will provide you with a deduction of up to ₹1.5 lakh under Section 80C in the year of investment. The annual interest income (along with all other bank interest income) will be allowed as deduction up to ₹50,000 per annum. The rest of it will all be taxable in your slab rate. But this is the best and safest.

If you are not a senior citizen, then go with a simple Post Office Time Deposit and some bank deposits. Here again, the ₹50,000 per annum deduction for interest income, mentioned earlier, will kick in.

The other option would be for you to go with liquid/short-tenure quality debt funds. If earning income is not a priority and you can let at least a part of the money remain untouched for another five years, then consider investing 20-30% in consistent equity funds and the remaining in the debt options we mentioned above.

Whichever way you look at it, income from an investment will be taxed. It is more efficient in a mutual fund route and less so in a regular deposit route. Do not consider the insurance route simply to avoid tax. Safety, returns (if you are investing for long term) and liquidity should receive priority in investment decisions.

Q. Both my parents are retiring next year from government service and they will be getting about ₹50 lakh (together). Please throw light on some investment plans for a regular monthly income of ₹15,000.

Gagan

A. The first option for your parents would be the Post Office Senior Citizens’ scheme. Together, they can invest up to ₹30 lakh in this option. This will fetch them a comfortable 8.6% per annum.

This will be a quarterly payout, but they can withdraw from the post savings any time after the first quarterly payout. If they are less than 60 years (and more than 55 years), please ensure they invest their retirement proceeds within a month by opening this account.

Such a restriction does not exist if they are 60 years or above. Let them keep around ₹10 lakh in short-term FDs and some amount in savings banks account of large public or private sector banks to meet their emergency needs.

The balance can be invested in LIC’s Pradhan Mantri Vaya Vandana Yojana, a pension policy with 8% interest paid out monthly, quarterly, half yearly or annually.

(The author is co-founder, Primeinvestor.in)

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Printable version | Feb 26, 2020 4:12:15 AM | https://www.thehindu.com/business/how-to-invest-lump-sum-payouts-answers-to-your-personal-finance-queries/article30368751.ece

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