I was recently quoted in Economic Times WEALTH (8-14 January 2024) in the Q&A section where a panel of experts answers readers’ questions related to various aspects of their personal finances.
The exact question is given below –
Here is the article page where the query is answered:
Here is the text version of the query and the reply –
Q – I am a retired (Age 62) with an EPF pension of Rs 3,400. I have invested Rs 15 lakh in PMVVY, Rs 30 lakh in Senior Citizen Savings Scheme (SCSS) and Rs 9 lakh in Post Office MIS. I have substantial exposure (about 30%) to mutual funds and I do not want to invest more in shares or mutual funds. I am likely to get about Rs 60 lakh in the next 15 days and I want to invest 50% of this for monthly income and balance 50% for growth. Please advise about where I can invest this amount with minimum income tax. My current income is through PMVVY, SCSS, PO-MIS and FD interest on about Rs 5 lakh.
A – Your sovereign debt portfolio comprising of SCSS (Rs 30 lakh), PMVVY (Rs 15 lakh), POMIS (Rs 9 lakh) and FDs together generate about Rs 5 lakh in annual interest income. Now you wish to further deploy 50% of the incoming Rs 60 lakh towards income generation. That is, assuming an average 7%, the extra Rs 30 lakh will generate a further Rs 2+ lakh in annual interest which will augment the current Rs 5 lakh interest income.
If there is no possibility of increasing SCSS via your spouse (as SCSS limit per person is Rs 30 lakh), then you can alternatively consider investing the remaining Rs 30 lakh in a combination of RBI Floating Rate Bonds (FRB) and additional bank FDs. While FRB currently offers 8.05%, the rates may float down lower when cycle turns down. For senior citizens, bank FDs will easily offer more than 7% so the in the current high-interest rate scenario, it is advisable that you lock in these high FD rates for longer durations.
You also wish to deploy the balance 50% (of Rs 60 lakh) for growth. But on the contrary, you have also said you don’t want to invest more in mutual funds or shares. But growth is best delivered for most investors via increasing equity exposure. So if you are open to increasing the equity allocation further (and adjusting your risk appetite accordingly), then consider this remaining Rs 30 lakh towards increasing equity allocation. It should not be done in a lumpsum manner at the current time. Instead, stagger the amount over the next 2 years or so to average the entry price. For this, you can invest in a combination of large/flexicap funds, aggressive hybrid/dynamic allocation funds. But do note that, ideally, if investing in equity funds, you should be willing to wait for at least 5-7 years to allow equity to deliver decent returns.
The FD portfolio can also act as an emergency / medical contingency fund and as an ongoing liquidity reserve. While renewing, please divide the FDs into several smaller FDs so that you don’t have to break one large FD in case of small requirements.
Also, please make sure you have a decently large health insurance cover in place.