My father aged 73, has a lumpsum of 25 lakhs. He needs a regular monthly income. Kindly suggest a better way to invest without affecting the corpus

Ans: Hello, ideally the SWP amount should be 5% annually of the total corpus. In order to receive 75K per month, the corpus should be 1.8cr. Since you have a corpus of 2crs, you can easily withdraw 75K per month and also increase the SWP 3% annually.
The funds can be diversified into mid caps, small caps, equity hybrid, multi cap, large and mid cap and consumption fund.
Please note that these suggestions are based on your stated goals and the information you provided. It is always a good idea to consult with a financial advisor in person to better understand your time horizon and fund selection.

Ans: For a 73-year-old looking for regular income without risking the principal amount, here are some investment options:

Senior Citizen Savings Scheme (SCSS): Offers high interest rates and tax benefits with guaranteed returns. The scheme has a maturity period of 5 years, extendable for another 3 years.

Post Office Monthly Income Scheme (POMIS): Provides a fixed monthly income with a maturity period of 5 years. Interest rates are set by the government and are relatively higher.

Bank Fixed Deposits (FDs): Opt for FDs with higher interest rates, especially for senior citizens. Choose cumulative FDs to reinvest the interest or non-cumulative FDs for regular income.

Pradhan Mantri Vaya Vandana Yojana (PMVVY): Offers guaranteed pension income with a policy term of 10 years. It's specifically designed for senior citizens.

Debt Mutual Funds: Consider investing in short-term debt mutual funds for potentially higher returns than FDs with low risk.

Dividend Option in Balanced Funds: Invest in balanced funds with a dividend option to receive regular income while also participating in equity markets.

Remember to consider the tax implications and liquidity needs before choosing an investment option. Consulting with a financial advisor can help tailor the investment strategy to your father's needs and goals.

Ans: Given your father's priorities of low risk and beating inflation, here are a couple of good options for him to consider investing his Rs 10 lakh corpus for monthly income:

1. Senior Citizen Savings Scheme (SCSS):

• This is a government-backed scheme specifically designed for senior citizens (above 60 years).
• It offers a relatively high and stable interest rate (currently 8.2% per annum).
• Interest is paid quarterly, but can be used to generate a monthly income by dividing it into three parts.
• There is a maximum investment limit of Rs 15 lakh.
• The scheme has tenure of 5 years, with an option to extend for 3 more years.

2. Pradhan Mantri Vaya Vandana Yojana (PMVVY):

• This is another government-backed scheme specifically for senior citizens. Do note that the scheme's availability may be limited based on the date of your inquiry (April 10, 2024).
• It offers a fixed interest rate (currently 7.4% per annum) for a 10-year policy term.
• The interest can be paid monthly, quarterly, half-yearly, or yearly.
• There is a maximum investment limit of Rs 15 lakh.

Additional factors to consider:

• Tax implications: Interest earned from both schemes is taxable as per your father's income tax slab.
• Liquidity: SCSS offers more flexibility as the principal amount can be withdrawn prematurely with a penalty. PMVVY has limited liquidity options.

Recommendation:

Both SCSS and PMVVY are good options for your father depending on his preference for interest rate (higher with SCSS but not fixed) vs. guaranteed income (PMVVY with a fixed rate for 10 years).

It's advisable to consult a financial advisor for personalised advice considering your father's overall financial situation and risk tolerance.

Ans: Dear UKM,

Thank you for sharing details about your son’s financial situation. Your son’s proactive approach to investing is commendable. Creating a long-term investment strategy will help him build a substantial corpus over the next 15-20 years.

With a monthly investment of Rs 50,000, a disciplined approach will ensure he achieves his financial goals. Let’s explore the best way to allocate his investments in mutual funds for maximum growth and stability.

Evaluating Current Financial Position
Your son has a stable job with a CTC of Rs 35 lakhs per annum. His wife is also employed, and they have no children at present. They live in a joint family-owned flat, which reduces housing costs. The EMI of Rs 13,000 till December 2025 is manageable.

His current investments in Gold ETFs and stocks amount to Rs 5 lakhs. These provide some diversification and a good start.

Benefits of Mutual Fund Investments
Investing in mutual funds offers several advantages:

Professional Management: Fund managers use their expertise to select and manage a diversified portfolio.

Diversification: Mutual funds spread investments across various assets, reducing risk.

Liquidity: Mutual funds can be easily converted to cash.

Flexibility: Investors can choose from a wide range of funds to suit their risk appetite.

Disadvantages of Index Funds
Index funds track market indices and lack active management. They mirror the market’s performance, which can be limiting. Active fund managers strive to outperform the market, providing the potential for higher returns. This adaptability is particularly beneficial in volatile markets.

Benefits of Actively Managed Funds
Actively managed funds offer:

Expertise: Fund managers actively select and manage investments to outperform the market.

Risk Management: Active funds can adjust holdings based on market conditions, potentially reducing risk.

Higher Returns: With skilled management, actively managed funds often aim for superior returns.

Direct vs. Regular Mutual Funds
Direct mutual funds have lower expense ratios but require investor expertise. Regular mutual funds, managed through a Certified Financial Planner (CFP), provide professional guidance. The additional cost of regular funds is justified by the expertise and peace of mind they offer.

Creating a Balanced Portfolio
To build a robust corpus over 15-20 years, a balanced portfolio with equity and debt mutual funds is recommended. Equity funds offer growth potential, while debt funds provide stability and reduce overall risk.

Systematic Investment Plan (SIP)
A SIP in mutual funds helps in rupee cost averaging and disciplined investing. Investing Rs 50,000 per month through SIPs in diversified equity mutual funds can leverage the power of compounding.

Suggested Asset Allocation
Based on your son’s risk profile and investment horizon, the following allocation is advisable:

70% in Equity Mutual Funds: For growth potential over the long term.

30% in Debt Mutual Funds: For stability and risk mitigation.

Equity Mutual Funds
Equity mutual funds can be further diversified into:

Large-Cap Funds: Invest in well-established companies with stable returns.

Mid-Cap Funds: Offer higher growth potential but with increased volatility.

Small-Cap Funds: High growth potential with higher risk.

Sectoral/Thematic Funds: Focus on specific sectors or themes with potential for high returns.

Debt Mutual Funds
Debt mutual funds can be diversified into:

Short-Term Debt Funds: Provide liquidity and lower interest rate risk.

Corporate Bond Funds: Invest in high-rated corporate bonds for stable returns.

Government Bond Funds: Offer safety and moderate returns.

Monitoring and Rebalancing
Regular monitoring and rebalancing of the portfolio are crucial. This ensures the investments align with your son’s financial goals and risk tolerance. A CFP can provide valuable insights and make necessary adjustments.

Tax Planning
Mutual funds offer tax-efficient investment options. Equity funds held for more than one year qualify for long-term capital gains tax at 10% on gains exceeding Rs 1 lakh. Debt funds held for more than three years qualify for long-term capital gains tax at 20% with indexation benefits.

Emergency Fund
An emergency fund equivalent to six months’ expenses should be maintained. This ensures financial stability during unforeseen circumstances and prevents the need to liquidate long-term investments.

Insurance Coverage
Adequate life and health insurance coverage are essential. This protects against financial risks and ensures peace of mind.

Additional Considerations
Your son’s EMI will end in December 2025. Post-EMI, this amount can be redirected towards investments, increasing the monthly SIP amount. Regular increments in income can also be partially allocated to SIPs, accelerating corpus growth.

Summary of Action Plan
Invest Rs 50,000 per month in mutual funds via SIPs.

Allocate 70% to equity mutual funds for growth.

Allocate 30% to debt mutual funds for stability.

Regularly monitor and rebalance the portfolio with a CFP’s guidance.

Maintain an emergency fund for financial stability.

Ensure adequate insurance coverage.

By following this plan, your son can build a substantial corpus over 15-20 years, ensuring financial security and growth.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in