Typical but STUPID advice
Dear Sir,
I have just retired. I do not have any pension and have got my provident fund settlement from company of Rs. 25 lakhs. I would like to invest it in a safe, risk-free instruments and also get good returns.
Pooja Jayaraman
Typical Media answer:
This is your life time saving, and you are correct, YOU SHOULD NOT TAKE RISKS. We suggest you invest the same in a bank fixed deposit or a post office savings scheme. You may be able to get a better return in mutual funds, but we think you should stick to this, because of the risk involved.
THIS WAS PERHAPS THE ANSWER EVERY media expert (Television, Web, blog, magazine,…) would give.
However the answer is PLAIN STUPID and DUMB advice. The correct answer is much longer…would love it if any ‘NON-EXPERT’ can answer this question! Will answer it in a few days…
Pattu
Having read your book, I will say:
Create an annuity for essential expenses with post office MIS and Senior citizen saving scheme and put the rest in Equity MFs or at least a balanced fund and let it grow. You could use to beat inflation or any emergency expenditures.
ps. I cheat a bit since to Shurbra reg. this. I have left out portions of his advice though. Curious to see what others say.
Pattu
oops I meant:
I cheat a bit since I wrote to Shurbra reg. this.
KalpK
Putting myself in her shoes, what i see is, her needs for the next 30 years are: Medical expenses(policy + helper during old age for 5 years) and daily expenses and vacations if possible. Assuming she only has to spend for herself, with a standard expenditure for middle class woman, 50k/year is enough. I am not sure of insurance premium cost for a 60 yr old, but assuming its 15k per year, the total annual expenses come to Rs,65k. Manual help for final 5 years of life, Rs. 3lac) Thus total, amount = Rs 22.5 lac. She needs to invest atleast this amount in a couple of balanced funds and withdraw as and when required. Rest she can spend on a very good vacation as she has just retired!!
Debashish
Before answering the question , I’ll need to ask a lot more questions to her like :
1-Do you have any other Savings apart from the PF
2-Do you have own a house to live in
3-Do you have any other income (Rental or some thing else )
4-Do you have any loans
5-Do you have insurance
and more …
Only after getting the answer , one can give advice , even attempting to advice before that is not just stupid its wrong
Digamber
Hi,
I can recommend Pooja, to put her amount different products. please do not put your money in FD
She can invest her money in 2-3 MF-Debt and balanced fund. (say 40 to 45%)
if she can take risk, then she can choose ELSS fund also for 25% amount. and rest (~30%) amount she can invest through SIP
Regards
Digamber
subra
Debashish,
please make some assumptions (please state them) and suggest a solution…any reasonable assumption is fine
KalpK
My assumptions are: no dependents, own house, no liabilities, almost no other savings and no other income
Radical
Assuming that she has no dependents, lives in her own house & has no liabilites & no other savings & no other income to support her, following would be my advice :
– A Rs 25 lac retirement corpus will only be able to provide you with a very modest monthly income. In order to protect your self against inflation & a situation where you do not run out of this corpus, you will have a invest this corpus in a very balanced way.
– One thing to keep in mind while investing in a retirement corpus is how much (if at all) of the principal amount you should be drawing. This will determines the rate of returns your investments must yield to protect you against inflation and keep your corpus from dipping. You will need to invest in a mix of debt options and mutual funds to maximize the age of your corpus.
– Invest Rs 8 Lacs in Post office SSC, 9% assured income, though taxable but will not impact you as your total income will be below tax slab for senior citizens.
– Invest Rs 4.5 lacs in Post office MIS, assured 8% + 5% bonus on maturiry.
– Invest Rs 5 Lacs in HDFC MIP, will help beat inflation, go for growth option & do not sell for 5-6 years.
– Invest 6 lacs in Templeton Liquid Fund, use it as a feeder fund & transfer Rs 5000/- into an Eq fund ( say HDFC Top-200 ), opt for growth option.
– Invest Rs 1.5 Lac in Bank FD, sweep in account for emergencies.
Interest accrued on Post Office MIS / FD / SCSS willbe in the range of Rs9875/- a month & could be used for monthly expenses.
Your house hold expense requirements will increase over a period of next 3-5 years on account of inflation & accrodingly, withdrawls from the liquid funds will be necessary. Over the next 5 years, with Rs5000/- withdrawls to Eq fund & your personal expense withdrawls, the liquid fund would deplete to approx Rs 1.5 lacs, this is when the MIP will kick in & you can start withdrawls from the MIP.
– Will need you check your medical insurance status & will need you to get insured for mediclaim.
KalpK
Subruji, waiting for you advice!
Manoj
For monthly expenses –> Fixed income plans (PO products best). My estimate of this corpus = 13L
For emergency expenses –> FD in the nearest bank branch. Corpus 1L at least(keep renewing with interest added each time).
Growth (& inflation hedge) Part –> Invest in balanced fund (6L) + Invest in equity MF (2.5L) + Invest in Index Fund (2.5L). With age, need to change this profile from EQ to balanced to pure debt.
(Assuming own house (in good condition so that maintenance is low!), no dependents therefore annual household expenses 1L, medicines/medical consultation cost borne by employer upto a decent% like 75% or more)
Ashal Jauhari
Dear Pooja, My advice ‘ll start from here. As you are just 60Y old (My assumption for retirement age). Go & search for a job like a consultant/advisor where you can use your expertise to earn an income, till your health permits or you are inclined to do so. At least till age 65 or so. The job should be of the part time nature & not the usual 9 to 5 office time. So that you need not to run here & there. In case you are able to manage from your own home it’s icing on the cake. On a conservative basis, Even if you are getting just 7K Rs. mly it’s a worth.
Here comes the second part to invest your PF corpus.
1. Invest 3L*4 accounts in SCSS. The objective is to minimize the impact of penalty, in case of extreme emergency if you need to liquidate from SCSS. The equivalent mly. income ‘ll be 9K Rs.
2. Invest 4.5L Rs. in POMIS. The Eq. mly. income ‘ll be 3K Rs.
3. Keep 1.5L Rs. in a SB account having sweeping FD facility to have the liquidity
4. Invest 1L Rs. each in 1Y, 2Y & 3Y bank FDs to earn differential rate of interest offered on these FDs. Keep renew it as & when these FDs mature.
5. Invest 2L Rs. in Birla MIP II Savings 5 growth option.
6. Invest 2L Rs. in HDFC MIP LT plan Growth option.
From the part time job & from SCSS & POMIS the total mly. income ‘ll be 19000 Rs. or 228000 Rs. With the addition of FD interest, the total Annual Income ‘ll be around 2.6L Rs.
As you are age 60, Invest 20K Rs. next year in PPF & 25K Rs. in ELSS & use 15K Rs. to purchase mediclaim policy for you.
After the total investment, the net taxable income ‘ll be 1.9L Rs. (Zero Tax limit for a lady age below 65Y).
That’s my take.
Dear Subra, plz. do tell me how you like it?
Thanks
Ashal
Manoj
I encourage more people to put in solutions. ‘Wisdom of crowds” really works! When you assimilate the views of the individuals in a crowd, quite likely that we will be very close to actual solution!
Sumit Anand
Assuming that she has no dependents and will be needing 30,000 per month to spend on herself…
* No dependents, No Insurance required….
* She needs 30,000*12 .. i.e. 3,60,000/- each year….
* Park 5,00,000 in a sweep in fixed deposit and withdraw thirty thousand every month for the first year….leaving 1,50,000/- in the fixed deposit itself.
* Park 5,00,000 in SCSS earning 9% annualized in quartely payouts
* Invest 15,00,000 in a liquid fund….do STP into two or three equity diversified funds for 3 years of about 35,000 per month…..
* A systematic withdrawl from equity diversified fund from 2nd year onwards will take care of the monthly expenses…..after 3 years….start another STP and continue doing systematic withdrawls in the same manner….
Plan is betting on long term returns of equity market and disciplined investing using averaging in equity diversified mutual funds…..
Ashal Jauhari
Dear Subra, We are waiting for your words. Where are you?
Thanks
Ashal
KalpK
I find some of the above suggestions so complicated that the lady will have a post-retirement unpaid job of maintaining her own investments!
Deepak Shenoy
I’ve written about this – the fact that the standard “don’t risk your money” advise to retired people is bullshit. I say boss, find your monthly expenses, are they covered? I even wrote a retirement calculator for it – saying if you retire now, with your current expenses, what kind of corpus do you need.
http://blog.investraction.com/2006/10/how-much-do-you-need-in-order-to.html
My funda is – if you have that money, you can put it into avenues that give you the kind of exposure needed (for ex. I take 10% expected return and put the money into MIP funds in one case).
Anything above that amount is freak out money. Spend, invest, trade, start a business, whatever.
Extreme cases – if you put the money into ultra-safe avenues, your corpus need goes up (6% net return), and if you go equity the whole hog, then you end up with cash flow problems. For a larger corpus, could allocate half safe and half direct large or mid-cap equity. For one person I know,this was the combination – luckily in the last 10 years, the equity bit has gone up 15x, and provided a massive kicker.