- Rahul Parikh, CEO, Bajaj Capital says, “Considering your age and risk appetite, you can shift from bank FDs to floating rate funds. The advantage of floating rate funds is that they are largely insulated from interest rate risk associated with fixed income instruments. The underlying floating rate securities reset their coupon rate periodically based on the benchmark rates. The best time to buy floating rate bonds is when rates are low, or have fallen quickly in a short period, and are expected to rise. Given the sharp fall in interest rate in Indian markets in recent times, it is better to invest in floating rate securities rather than fixed rate securities. If you invest in floating rate funds for more than three years, you can expect to earn more than 6.1% as post-tax returns compared to 5.3% returns delivered by bank FDs. You can consider investing in HDFC Floating Rate Debt Fund or ICICI Prudential Floating Interest Fund.”
I will get approximately Rs 52 lakh (including PF) on my retirement. My son is a second year engineering student. How I can generate a monthly income while ensuring minimum capital erosion? I won’t get a pension.
Prableen Bajpai Founder, Managing Partner, FinFix Research & Analytics says, “To ensure regular monthly income while keeping the principal intact, invest the corpus in a combination of government schemes and low-risk debt mutual funds. Remember some of these schemes come with agerelated eligibility criteria, and may require you to rework the allocation accordingly. Broadly, you can park Rs 9 lakh in a Post Office Monthly Income Scheme to earn 7.6% per annum. A sum of Rs 15 lakh can be invested in the Senior Citizen’s Saving Scheme to earn 8.6% annually, paid out quarterly. Although SCSS sets 60 years as the age criteria, eligibility starts from 55 in certain cases. Further, Rs 15 lakh can be invested in the Pradhan Mantri Vaya Vandana Yojana (PMVVY) to earn a monthly pension at 8% p.a. PMVVY is currently open till 31 March 2020. The remaining money can be parked in a low-risk debt fund with no exit loads from which a fixed amount can be redeemed every month via a systematic withdrawal plan (SWP). Based on the amount invested, calculate returns at 7% (not an assured number) and decide the amount accordingly. For example, for a sum of Rs 20 lakh, set a monthly SWP of around Rs 11,000. Since most government schemes come with a lock-in, a debt fund would give you the additional flexibility to access your funds anytime. Overall, a sum of Rs 52 lakh can provide a monthly income of Rs 32,500, assuming an average return of 7.5%. While investing, do build a contingency fund for unexpected expenses by parking six months’ worth of expenses in a separate liquid fund and ensure you do not withdraw from it for regular use.”