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Ask us: on investments

Q. I save about ₹500-1,000 per month. Where can I invest this? Where there is no or minimum risk and maximum returns?

Siddesh Chandakavathe

A. Risk and return go hand-in-hand. You cannot earn high returns without taking risk. For low-risk options, invest in bank fixed deposits. Set up a recurring deposit for the amount you wish to invest each month. For higher interest within the FD space, pick a bank or a small finance bank that offers attractive rates now. You can consider other investment options such as mutual funds once your surplus goes up or you are able to take on higher risk.

Q. I am an avid reader of the Ask Us section of Moneywise. I’ll be getting a pension that is 50% of my salary and just enough for needs but not wants. My wife is 52 and we have 2 children yet to be settled. I have a ₹1.4 crore retirement corpus. I do not know where to invest this money due to high inflation rates. Can you suggest to me other places except SCSS and the Pradhan Mantri Vaya Vandana Yojana to invest this amount to beat inflation and earn a good interest?

Prakhar Chaudhary

A. First, it would be better that you work out the additional amount you require on a monthly basis to meet expenses. This will help arrive at how much you need to invest in income-generating investments and how much can be set aside in growth investments which can help generate better returns and allow your corpus to last longer. This exercise is also needed if you intend to utilise part of this corpus for your children’s needs. Apart from the SCSS and PMVVY, in the current scenario, central and state government bonds are offering superior yields. You can pick from the longer-term bonds such as 7 years and 10 years – based on the yields – which gives you predictable cash flows for a length of time. You can also consider RBI Floating Rate Taxable Bonds, where the interest rate is linked to the prevailing NSC rates and therefore superior to most other fixed-income options. High-returning FDs from banks and small finance banks are another option. Cap FD amount at ₹5 lakh in each bank in order to maximise insurance guarantee and limit risk. You can also put part of the income-generating corpus in low-risk debt funds with very short or short maturities and set up an SWP from this — keep a withdrawal rate of about 5-6% to avoid over-drawing (for short-maturity funds, start SWP after at least 1.5 years of investment). Debt funds are more tax-efficient than the other fixed-income options. The growth part of the corpus can be invested in moderate-risk equity funds such as large-cap index funds and aggressive hybrid funds. Let this amount sit untouched for at least 5-7 years.

Q. I’m a 23-year-old doing a 2-year fellowship. Currently, I earn ₹46,000 per month. After meeting other obligations, I’m left with ₹10,000 for my monthly expense. I wish to save ₹5,000 per month for my future education needs. Kindly suggest a suitable saving plan.

Swathi Sivadas

A. It is necessary to have an idea of when you will need the amount for your future education. If you have a time-frame of about 3 years, consider balanced advantage or hybrid aggressive funds along with very short-maturity debt funds. For an even shorter timeframe, stick only to debt funds or even just fixed deposits. If you have at least a 5-7 year time-frame, go for large-cap equity index funds and short-duration debt funds; either go for a 60-40 or a 50-50 split between this. One fund in each will suffice for your investment amount.

Q. I am a 75-year-old retired bank official. I have invested in mutual funds. I am contributing to MF through SIP as well. Please advise if, at this age, it is prudent to continue with mutual funds.

S. Viswanathan

A. Mutual funds as such are not wrong investments to be making at any age. The question is the nature of the funds you have, the investments you have outside of mutual funds and your own requirement. Mutual funds can be equity funds or debt funds or hybrid. Equity funds are high risk and debt funds are typically low risk; hybrid funds fall in between. Roughly speaking, if the mutual fund investment is a large part of your overall investment or if you are dependent on this to generate income to meet expenses, you cannot take high risk. Your mutual funds should be more towards debt mutual funds as well as other low-risk income-generating investment options such as FDs, SCSS and so on. However, if you are already comfortable on meeting monthly expenses, medical expenses, and you do not foresee needing this amount for at least 5-7 years, a higher share of equity funds even up to 40-50% of the mutual fund investments will be fine. But do make sure that the funds are not highly aggressive ones that invest predominantly in mid- and-small-cap stocks. Therefore, assess what funds you have now, where you stand in terms of cash flow requirement, and then decide on the course of action for your investments.

(The adviser is co-founder, PrimeInvestor.in)

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