I was recently quoted in Economic Times WEALTH (3-9 June 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 – Recently, after retirement, I received a sum of Rs 70 lakh. However, I lack knowledge about investing properly. I have health insurance. Please advise me on how to utilize this amount so that my money remains safe and provides good returns.
A – The only information that you have provided (availability of Rs 70 lakh as post-retirement payout) is not enough to make proper recommendations. Many key factors are missing (like – availability of pension or rentals, required monthly income/expense, details of other assets/investments, existing asset allocation, how existing assets are spread across different liquid and comparatively-illiquid instruments, etc.).
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. But here are a few specific thoughts to help you decide and achieve your aim of keeping ‘money safe and provide good returns’.
If you primarily have income requirements, then parking a part of the corpus in SCSS, RBI FRSBs, can be considered. For this, if you put Rs 30 lakh in Senior Citizen Savings Scheme (SCSS), it will generate Rs 2.46 lakh in annual interest income (at 8.2%) via quarterly payouts. If this isn’t sufficient, then more money can be parked in SCSS under your spouse’s account. If SCSS option isn’t available for your spouse, then you can use RBI Floating Rate Bonds. Do note that while FRSBs currently offer 8.05%, the rates may float down lower when cycle turns down. You can also consider bank FDs offering around 7.5% for more interest income.
The overall proportion of money (from Rs 70 lakh corpus) being parked in these interest-bearing instruments will depend on your monthly income requirements. So hypothetically, if Rs 30 lakh is parked in SCSS, and another Rs 10 lakh each is parked in RBI FRSB and Bank FD, then a monthly interest income flow of Rs 33-34,000 can be easily established.
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.
The remaining Rs 20 lakh can be invested with some equity allocation to grow and generate inflation-beating returns. But this should be done only if your risk appetite allows for it. The money can be diversified and put into 2-3 schemes from categories like Large cap Index funds, Flexicap funds, Aggressive Hybrid funds. A suggested approach is to have 30% in Largecap Index funds, 30% in Flexicap Funds and remaining 40% in Aggressive Hybrid funds. And this deployment can be done in a staggered manner over the next 1 year to average out the entry into equity allocation. 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.
You have mentioned that you have health insurance but the coverage details are unavailable. Please ensure that you have at least Rs 15 lakh+ coverage. If you have a smaller base cover, then you can further enhance it with super-top-ups for low-probability-high-impact larger bills.