Reader's corner: Financial Planning

Kartik Jhaveri, director, Transcend Consulting, answers your questions

I want to know what investment options exist for me to earn Rs 50,000 per month on an investment corpus of Rs 60 lakh. As a retired professional, this will be my only income source to meet my expenses.

There is no 100 per cent safe and definite option for you to earn Rs 6 lakh from investment corpus of Rs 60 lakh as your expected rate of return is 10 per cent. You can consider certain company fixed deposits which may help you earn close to the targeted income. However, advise you to check the credit rating of the company before making the decision and also its track record of repaying investors. Don’t opt for one only because the interest rate is high.

You can also consider medium-term bond funds and monthly income plans (MIP) of mutual funds. Both have inherent volatility but have the highest possibility to get you the targeted income using the systematic withdrawal plan facility.

There are three things to note: one, the income will be taxable depending on the period of investment. Two, inflation will play out and thus you will not have an increasing inflow over time, and three, you may face a liquidity issues just in case you needed the money immediately. 

For the past five years I am investing Rs 30,000 every month in mutual funds. Is this enough to reach Rs 50 lakh for my son’s higher education in the next eight years? Should I save more? If so, should I invest in the same mutual funds?

From the investment strategy that you have been pursuing, I understand that you should be somewhere in the range of about Rs 25-27 lakh in terms of value of your investment so far. This is assuming a rate of return of 15 per cent a year.

Mathematically speaking, you do not need to do any further investment. Over the next eight years your existing investment itself should more than double to provide for your targeted sum of Rs 50 lakh. However, you should continue this investment strategy as it’s a fabulous idea.

If you continue, you would be able to conjure up another Rs 50-55 lakh, which you could pretty much use as you please or can come in handy for other long term goals. While calculating the corpus you need for son’s higher education, I hope you considered inflation over the next few years. While you can continue in the same funds, you need to review their performance periodically.

I will retire next year. I have saved Rs 30 lakh in mutual funds? In addition, I will also get about Rs 40 lakh when I retire. I have Rs 20 lakh in PPF also. How should I invest the money to get regular monthly income? How much income can I get? 

I see that you will have a corpus of approximately Rs 90 lakh. There are various options available for you. The most popular option being bank fixed deposit, which would give you about 6.5-7 per cent return. This would give you an income of approximately Rs 50,000 a month.  If this is adequate for you then this strategy is workable and most preferred. The strategy also provides for the highest level of safety and security for your money.

The next bastion to progressively consider are company fixed deposits, bond funds and mutual fund MIP. These offer returns in the range of 8-11 per cent. All these options have inherent risks such as credit risk, risk of small capital fluctuation due to bond market volatility as well as low returns due to partial exposure to equity in MIPs.

It is also pertinent to note that a specific return is not guaranteed in these options. A financially rational assumption is made for the returns you can expect. Over the long term, the return would average out between 8-11 per cent. You will also need to set up an SWP to create regular income from mutual fund investments.

The writer is director, Transcend Consulting. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in