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If you’re retired and have low risk appetite, invest 10-15% in equities


My father will retire in December. He will get around 60 lakh from his Provident Fund and gratuity. How should we invest this amount? He has three goals: a) 40,000 monthly income by investing some part of the kitty (without eroding much of the amount); b) an emergency fund that is easily accessible; c) investing the remaining amount as lump sum in mutual funds (low risk or debt). Also, how can systematic withdrawal plans (SWPs) be used? Please recommend good mutual funds or other financial instruments.

—Harshit Gupta

The corpus of 60 lakh if earning 8% per annum will generate a return of 4.80 lakh, which is 40,000 per month. This return is assumed to be pre-tax and, hence, the in-hand returns, net of taxes, will have to be adjusted. When interest rates on fixed income—bank deposits, bonds and post office instruments—as well as yields on debt mutual funds are falling, it is not easy to generate a return of 8%. While equity is expected to generate a higher return, in the last few years, returns have been on the lower side and even negative. This is typical of equity and that’s why it is recommended for the long-term.

Investments can be made in a combination of debt instruments, wherein corporate deposits is one of the options. Here, you need to be careful in picking high-quality deposits i.e. AAA-rated securities such as ICICI Bank, HDFC Ltd and LIC. This along with Senior Citizen Savings Scheme, Post Office Monthly Income Scheme, LIC Varishtha Pension Bima Yojana and debt mutual funds, which also offer liquidity and can be used as an emergency corpus.

In debt mutual funds, you can either use an SWP or withdraw when you need the funds. Here you can invest in a short-term debt fund and there are many options to pick from—Axis Short Term, SBI Short Term and IDFC Bond Fund Short Term.

The SWP strategy allows withdrawing a fixed amount at regular intervals, which can be according to your specifications—monthly, quarterly, half-yearly or annually. The rationale used for withdrawal is equivalent of the expected earning rate of the investment to ensure the principal value of the investment remains intact. Further, it is also recommended to have an exposure in an equity asset class and here a large-cap mutual fund can be considered. This can form 10-15% of the corpus, as you have low risk appetite.

Surya Bhatia is managing partner of Asset Managers. Queries and views at [email protected]

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