Naveen Kukreja, CEO and Co-Founder, Paisabazaar.com, replies: Choose equity mutual funds over endowment plans. Typically, endowment plans have a policy term of over 10 years and the rate of returns generated over such a long term, including various bonuses, have been significantly lower than that generated by well-performing equity mutual funds. Over the long run, you should be able to generate a much larger corpus through equity mutual funds than endowment plans or fixed income instruments. The liquidity offered by equity mutual funds is also much higher than endowment plans. Plus, one should always keep their investment and insurance needs separate. If you do not have adequate life insurance, opt for a pure term plan with a sum assured of at least 12 to 15 times your annual income.
A pure term insurance plan will fetch you much larger life covers at a fraction of the premiums charged by endowment plans. As the equity markets are highly overvalued at present, I would suggest you invest in equity mutual funds through SIPs of 1-year tenure. Doing so will average your investment cost in case of any market corrections. You can spread your investible surplus among the direct plans of these four equity funds— Axis Bluechip Fund or Axis Focused 25 Fund; Mirae Asset Large Cap Fund; Parag Parikh Flexi Cap Fund; and Tata Index Sensex Fund or HDFC Index Sensex Fund— through SIPs. Keep your surplus in a high-yield savings account over the SIP tenure to generate higher returns.
I retired on 31 March, at the age of 58. I invested Rs 15 lakh of my retirement benefit in SCSS, Rs 50 lakh in post office TD scheme and Rs 18 lakh in post office MIS (Rs 9 lakh + Rs 9 lakh). I have also invested Rs 10 lakh in IndusInd Bank FDs at 6.5%. I can invest Rs 50 lakh more. What are the options?
Prableen Bajpai, Founder FinFix® Research & Analytics, replies: Based on the current information, if you need to invest the entire sum to generate a monthly payout, you should avoid products with lock-in so that you and your spouse can invest (Rs 15 + Rs 15 lakh) in Pradhan Mantri Vandana Vyas Yojana and Senior Citizen Saving Scheme at 60 years and 58 years, respectively. Till the age of eligibility, invest in high credit quality debt mutual funds. You can invest in categories such as low duration to contain interest rate risks given the current interest rate scenario. Set a systematic withdrawal from debt funds as per requirement. If monthly inflows aren’t a deciding factor, then you can consider RBI’s Floating Rate Savings Bond, 2020, which has a seven-year tenure and gives you a bi-annual interest currently at 7.15%. The interest rate is floating and will be 0.35% higher than the rates offered for National Saving Certificate. In addition, corporate fixed deposits of credible companies can be added. Ideally, 15-20% of your corpus should have some equity allocation (via a Nifty index fund) with a 10+ year view to ensure that you are able to beat inflation going forward. Do maintain a healthy contingency fund separately.