I was recently quoted in Economic Times WEALTH (29 April to 5 May 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 and the answer –
Here is the text version of the query and the reply –
Q – My father and mother have recently retired, each receiving a pension of ₹4000 and ₹3000, respectively. They possess a medical cover of ₹15 lakh. Additionally, they own their house and two other residential properties, generating ₹23000 in monthly rent. They have ₹30 lakh each invested in SCSS, along with FDs worth ₹10 lakh. Their mutual funds in regular schemes amount to ₹51 lakhs, comprising a mix of small, large, and midcap funds. Moreover, they hold stocks valued at ₹1 crore. To plan for their retirement and ensure one domestic and one international vacation per year for the next 10 years, how should I invest this total corpus?
A – First let’s establish the monthly inflows for your parents. This includes pension of Rs 7000, rentals of Rs 23,000, SCSS interest of about Rs 40,000 and if we also consider the dividends (of about 1.25% based on Nifty50 Dividend Yield) from direct stocks, then another Rs 10,000 in dividend income. This totals to about Rs 80,000 in monthly income for them. And we have not even considered FD interest income assuming it is cumulative in nature and we leave FD as a sort of Emergency/Contingency Fund.
Now it is not clear from your query as to how much is the monthly expenses of your parents. Also, we can only make general estimates about the two annual vacation expenses (let’s say Rs 1 lakh for domestic and at least Rs 2-3 lakh for foreign vacation) but even this figure is unavailable. So, it is difficult to assess whether Rs 80,000 in monthly income (or Rs 10 lakh annually) from various sources will be enough or not for their regular expenses and vacations. Do note that we haven’t considered dipping into any savings/assets for this which your parents comfortably can if need be once in a while.
Coming to current portfolio and allocation. With SCSS of Rs 60 lakh, FD of Rs 10 lakh, Stocks of Rs 1 crore and Equity Funds of Rs 51 lakh, the total corpus of Rs 2.21 crore has an asset allocation of Equity:Debt-68:32. Now we don’t have any information about your parents’ risk appetite but we know that they are in post-retirement phase. In general, in the post-retirement phase, you need to prudently manage asset allocation of the portfolio with an eye on capital preservation and income generation and another on inflation-beating growth. So, while this kind of allocation (68:32 in Equity:Debt) will definitely help beat inflation in the long run, it may also be volatile in the short term. Please do ensure your parents understand this. More so as the recent years have been very kind to investors and hence, expectations from future returns should ideally be adjusted/normalized a bit.
If you think (or please check with a SEBI-Registered Investment Advisor) that your parents may not be too comfortable with an equity-heavy portfolio’s volatility going forward, then consider reducing equity allocation. Also assuming your parents aren’t very ultra-aggressive investors and the fact that they are in retirement mode, it is advisable to avoid having heavy allocation within equity in the non-large-cap space.
It is noted that they have health insurance coverage of Rs 15 lakh. While this should be sufficient for base case scenarios, you can consider super-top-ups for low-probability-high-impact larger bills.