Query: I am a central government employee and will be retiring shortly. I will get retirement benefits of about Rs 1.5 crore. Where should I invest this sum to be able to finance my son’s education 7-8 years from now?
Jayant R. Pai, CFP and Head of Marketing, PPFAS Mutual Fund replies: Assuming that the entire Rs 1.5 crore is tax free and that you will be requiring about Rs 50 lakh for your son’s education eight years from now, you are in a fairly unique position: You already have the amount needed for your son’s education. You can park the sum in liquid funds or bank fixed deposits and earn a pre-tax return of 6-7% per annum. However, given the reasonably long time period, you may consider investing in equity mutual funds through monthly SIPs. Assuming a pre-tax return of 10% per annum, you will have to invest Rs 34,200 per month to amass `50 lakh at the end of eight years. You can invest this sum into four diversified equity mutual fund schemes—25% in each scheme. In case you want to use the entire Rs 1.5 crore for your son’s education, you could increase your monthly SIP investment to Rs 1,02,600.
Query: I am 70 and want to sell my flat as I’ll live with my son. The flat will fetch me about Rs 45 lakh. I want to invest this money to earn a monthly income of Rs 40,000. Please suggest where to invest.
Rahul Parikh, CEO, Bajaj Capital replies: A monthly income of Rs 40,000 on an investment of Rs 45 lakh means an annualised return of 10.67%. Considering your age and assuming that you will need the monthly income immediately after you invest the amount, your risk profile should be conservative and safety of capital should be critical. You should invest only in fixed income or debt mutual fund schemes. Credit risk debt mutual fund schemes that invest in corporate bonds of high to moderate credit quality have the potential to deliver high single digit returns. However, these funds cannot give returns of 10% or above consistently. Hence, you may need to tone down your return expectations. These funds have delivered returns of around 8% per annum in the past, over a 3-5 year horizon. Returns can be volatile in the short-term though. Some of the popular schemes in this category are: ICICI Prudential Credit Risk Fund, UTI Credit Risk Fund and Kotak Credit Risk Fund. You may spread Rs 45 lakh equally in each of these funds and start SWPs at the rate of 7-8% per annum. This should provide you a monthly income of Rs 26,000-30,000.
Query: I am 44 and want to invest Rs 30,000-40,000 per month in mutual funds to build a retirement corpus. As my investment horizon is over 10 years, can I just invest in equity schemes? Please suggest funds.
C.R. Chandrasekar, CEO and Co-Founder, FundsIndia.com replied: It is good to adopt an asset allocation-based approach, even if you have a longer investment time frame. Asset allocation helps contain the impact of volatility. You may consider investing 70% in equity funds—30% in Mirae Asset India Equity, 20% in Kotak Standard Multicap and 20% in HDFC Mid Cap Opportunities—and 30% in debt through HDFC Short Term Debt.