53 year old Surajit is selling his Kolkata flat for 64 Lakhs. How to invest smartly?

Ans: At 53, you are close to retirement. You plan to sell your flat for Rs 64 lakh and aim to secure a regular income post-retirement. Your goals are clear: minimize tax liability, generate a surplus after retirement, and have Rs 50,000 to Rs 60,000 per month for living expenses. To achieve these, a well-structured investment strategy is essential. This will involve carefully balancing between growth, income generation, and tax efficiency.

Reinvesting in Real Estate or Bonds

To save on LTCG tax, you have options like reinvesting in another property or investing in specific government bonds under Section 54EC. Reinvesting in another property can help defer or avoid LTCG tax. However, since you are nearing retirement, tying up funds in real estate may not be ideal.

Investing in Section 54EC bonds is another option. These bonds are issued by the government and have a lock-in period of 5 years. The interest earned is taxable, but your capital gains will be exempt from LTCG tax. However, these bonds may not offer the liquidity or returns you need for retirement.

Creating a Retirement Corpus

Given your goal of generating Rs 50,000 to Rs 60,000 monthly, you should focus on creating a diversified retirement corpus. The Rs 64 lakh can be split across various asset classes to balance risk, returns, and liquidity.

Investing in Debt Instruments

A significant portion of your Rs 64 lakh should be allocated to debt instruments. These provide stable and predictable returns, which are crucial for regular income post-retirement.

Senior Citizen Savings Scheme (SCSS): Once you retire, this scheme offers a safe investment with a good interest rate. The interest is taxable, but it provides regular income. The current interest rate is around 7.4% per annum, and the scheme has a 5-year lock-in period.

Monthly Income Plans (MIPs): These are mutual funds that invest predominantly in debt instruments and a small portion in equity. They offer regular income and some capital appreciation. Choose a conservative MIP for lower risk.

Bank Fixed Deposits (FDs): Though they offer lower returns, FDs are safe and provide guaranteed returns. Spread your FDs across different banks and tenures to maintain liquidity and safety.

Investing in Balanced Funds

To counter inflation and ensure your corpus grows, invest a portion in balanced or hybrid mutual funds. These funds invest in both equity and debt, offering growth potential with moderate risk.

Balanced Hybrid Funds: These funds generally invest around 40-60% in equity and the rest in debt. The equity portion helps in capital appreciation, while the debt portion provides stability. These funds can offer better returns than pure debt funds over the long term.
Systematic Withdrawal Plan (SWP)

To generate your monthly income, consider a Systematic Withdrawal Plan (SWP) from mutual funds. With SWP, you can withdraw a fixed amount regularly, which suits your need for Rs 50,000 to Rs 60,000 per month. SWP from equity-oriented funds is tax-efficient as only the capital gains portion is taxed, and that too at a lower rate.

Maintaining Liquidity

As you approach retirement, maintaining liquidity becomes crucial. Ensure a portion of your corpus is in liquid funds or short-term FDs. These will act as an emergency fund and provide easy access to cash without disturbing your long-term investments.

Evaluating Your Risk Tolerance

Since you are 5 years away from retirement, assess your risk tolerance. While equity offers higher returns, it also comes with higher risk. A balanced approach, with more weightage towards debt, is advisable. As you near retirement, consider reducing your equity exposure further.

Tax Planning for Regular Income

Your monthly withdrawals will be subject to tax. To minimize tax, consider the following:

Utilize Tax-Free Instruments: Senior Citizen Savings Scheme (SCSS) and interest from tax-free bonds (if any) can reduce your tax liability.

Opt for SWP from Equity Funds: As mentioned earlier, SWP from equity funds is more tax-efficient than regular withdrawals from debt funds.

Plan Withdrawals: Withdraw smaller amounts from different sources to stay within a lower tax slab.

Review and Rebalance Regularly

Your financial situation and market conditions may change. Regularly review your portfolio and rebalance it to ensure it continues to meet your income needs and risk profile. Consider consulting a Certified Financial Planner periodically to make informed adjustments.

Finally

Your plan to sell the flat and create a retirement corpus is a wise move. By carefully selecting and balancing your investments, you can minimize tax liability, ensure regular income, and maintain financial security during retirement. A combination of debt instruments, balanced funds, and systematic withdrawals will help you achieve your retirement goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in