Reader's Corner: How to plan savings for retirement a decade before it?

I am 50 years old. I have not saved enough for my retirement. I have invested in a house, which is now worth Rs 1.5 crore. My son wants to go abroad to do a course that would cost us anywhere between Rs 40 lakh and Rs 65 lakh. I plan to sell the house. But I am also worried about my retirement. I will end up with Rs 60-65 lakh after paying for my son’s tuition fee and capital gains tax. How should I utilise this money to save for my retirement in nine years?

With the money that you will be left holding, in nine years you can expect to have it grow to about two crores, provided this money is invested in equities. That way you will have a corpus which will be able to give you a retirement income of approximately one lakh per month. Thus, to a certain extent, your retirement will be sorted out. Considering inflation and provisions for the future years, I would suggest that a significant portion (40-50 per cent) of your corpus should continue to remain in equities for another five to 10 years. Thereafter, you should shift your portfolio entirely to fixed-income instruments.

I have three daughters. They are between 11 and 15. I want to get them married in the next 10-15 years. I can save Rs 45,000 every month. Please suggest where I should invest and the corpus I should expect after 10 years.

If you invest in equity mutual funds, you can expect to garner about Rs 1.2 crore in the next 10 years. If the is money invested in fixed deposit kind of investment earning about 6-7 per cent, then you can expect to accumulate approximately Rs 70-75 lakh. That is the range of corpus for you, considering both the extremes of investment strategy. Hence, depending on your budget for the marriage of your three daughters, you may decide which strategy, or combination of strategies, to use.

I plan to move to Canada. I have savings of Rs 18 lakh. Of this Rs 12 lakh is in equity mutual funds, Rs 4 lakh is in PPF, and Rs 2 lakh in insurance and fixed deposits. According to my calculations, I will need Rs 12 lakh there. How should I liquidate my investments? Should I wind up all my investments here?

You should definitely withdraw from insurance and fixed deposit. Withdrawal from the PPF scheme has some restrictions. If you can withdraw from PPF, I would like to use that as the first option. Investments in equities will continue to rise perpetually. Ideally you should try to keep the maximum amount possible in that area as it will give you the highest returns.

My company is giving us the option to shift to the National Pension Scheme (NPS). I want to understand whether NPS is a better option than Employee Provident Fund? I am 42. Please help me decide.

If you have the option to shift to NPS, it is definitely a good idea. Over time the rate of return in EPF will keep falling. As a result, the corpus will grow at a slower rate in EPF. Please ensure that in NPS you invest your funds with the highest possible allocation to equities.

I am 31 and interested in direct stock investing. I am a beginner. I do invest Rs 5,000 in a mutual fund every month. Why do financial advisors keep advising not to invest in stocks directly? I want to know the pitfalls of direct stock investing.

Ordinarily it is difficult for most people to make informed decisions based on the balance sheet data available. This data itself is also historical, so one needs to use past performance along with judgement about the industry, business of the company, and its prospects. This has to be coupled with economic and other data. Often investors make losses due to lack of understanding and insufficient research and hence are advised to use professional management of mutual funds to invest in equities. 

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