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Ramalingam Kalirajan |7201 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Nov 04, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Nov 02, 2024Hindi

I have FD money in banks upto 42 lakhs. Iam retired. I want to generate income from this amount bbu banks give low interest. I have my own house and pension

Ans: Since you have Rs 42 lakh in fixed deposits, let’s explore income-generating options that balance safety and growth. Fixed deposits provide stability, but their low-interest rates may not meet your income needs. Here are several ways to maximise returns on your retirement corpus while maintaining an acceptable risk level.

1. Assessing Your Current Financial Needs and Safety Preferences
Your FD corpus serves as a safety net, so let's assess your comfort level with alternatives. Given that you have a house and pension, you may not rely entirely on FD income. We’ll look at ways to boost returns while retaining the overall safety of your investments.

Define Your Income Requirement: Calculate your current expenses and determine how much additional monthly income you need.

Consider Risk Tolerance: Understand that alternatives to FDs may have higher returns, but also come with varying degrees of risk.

Recommendation: A mix of safer and slightly riskier options can help generate a reliable income without exposing the full corpus to market fluctuations.

2. Senior Citizen Savings Scheme (SCSS) for Guaranteed Returns
The Senior Citizen Savings Scheme is an excellent choice for guaranteed returns. It offers higher interest rates than standard bank FDs and is government-backed, making it very secure.

High Interest: SCSS rates are generally higher than traditional FDs, making it an ideal option for retirees.

Quarterly Interest Payouts: SCSS provides regular income, which is helpful for monthly expenses.

Recommendation: You can invest up to Rs 30 lakh in SCSS, providing a substantial and safe income. Ensure you’re comfortable with the five-year lock-in period.

3. Monthly Income Plans for Regular Cash Flow
Monthly Income Plans (MIPs) can be a reliable source of regular income. These hybrid funds invest in debt and a smaller portion in equities, aiming to generate monthly payouts while preserving capital.

Moderate Risk: MIPs are less volatile than pure equity funds, which is suitable for risk-conscious retirees.

Tax-Efficiency: MIPs are more tax-efficient than bank FDs, especially if you hold them long-term.

Recommendation: Allocate a portion of your FD corpus to MIPs. They offer a mix of stability and the potential for higher returns compared to bank FDs.

4. Balanced Advantage Funds for Growth and Stability
Balanced Advantage Funds (BAFs) dynamically manage equity and debt based on market conditions, aiming to minimise risk while ensuring growth.

Adaptability: These funds adjust their exposure to equities and debt, providing stable returns over time.

Potential for Higher Returns: BAFs typically outperform FDs in the long term, making them a suitable option for retirees who want moderate growth.

Recommendation: Invest part of your corpus in a BAF to benefit from both stability and moderate returns. Consult your Certified Financial Planner to choose funds suited to your income needs.

5. Systematic Withdrawal Plans (SWP) for Monthly Income
With a Systematic Withdrawal Plan, you can invest a lump sum in a balanced mutual fund and set up regular withdrawals. This allows you to customise the frequency and amount of withdrawals based on your monthly needs.

Flexibility: SWPs let you decide how much and when to withdraw, giving you control over your income stream.

Tax Benefits: Unlike FDs, SWP withdrawals are more tax-efficient, as long-term capital gains taxes apply.

Recommendation: Consider placing a portion of your corpus in an SWP for tax-efficient income. This method also allows your principal to grow over time, providing a steady income source.

6. Post Office Monthly Income Scheme (POMIS) for Consistent Returns
The Post Office Monthly Income Scheme (POMIS) is another safe, government-backed option for generating monthly income.

Monthly Payouts: POMIS provides fixed monthly interest payouts, ensuring a consistent income stream.

No Market Risk: As a fixed-income scheme, POMIS is not affected by market fluctuations, adding security to your investment.

Recommendation: You can invest up to Rs 9 lakh jointly in POMIS. This is suitable if you prefer assured returns without any market risk.

7. Diversifying Across Mutual Fund Categories
While FDs ensure safety, diversifying into debt and hybrid mutual funds can increase income potential. Debt funds, in particular, offer better returns than FDs and remain relatively stable.

Debt Funds for Low Risk: Consider short-term and ultra-short-term debt funds. They carry lower risk compared to equity and provide higher returns than FDs.

Hybrid Funds for Balanced Growth: Hybrid funds are a mix of equity and debt, balancing stability with moderate growth.

Recommendation: Allocate a portion of your FD corpus into a combination of debt and hybrid mutual funds, keeping risk low but returns above typical FDs.

8. Avoiding Over-Reliance on Fixed Deposits
Fixed deposits are safe but may not suffice for long-term income. Diversifying into alternative income-generating options offers a balanced approach.

Lower Interest Rates: FDs provide lower returns than alternative debt or hybrid mutual funds, especially after taxes.

Capital Preservation with Moderate Growth: Diversifying your corpus beyond FDs can help in maintaining the purchasing power of your retirement income.

Recommendation: Avoid keeping your entire retirement corpus in FDs, as inflation could erode your wealth over time. A diversified strategy will help balance risk with growth.

Final Insights
To generate a steady income, consider a mix of safe investments and low-risk mutual funds. SCSS, MIPs, and POMIS offer stability, while Balanced Advantage Funds and SWPs provide income with moderate growth. By balancing these options, you can increase monthly income and preserve wealth in retirement.

Best Regards,

K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.