I am 50 years old, and my husband passed away about a year ago. He had left behind savings of around Rs.20 lakh, of which I put Rs.5 lakh into a bank fixed deposit (FD). Where should I invest the rest? I am looking at an investment horizon of 10-15 years. I live in my own house, and my son stays in another city. My monthly expenses come up to around Rs.15,000 and I earn around Rs.60,000 a month. I already have investments in mutual funds (MFs), Public Provident Fund (PPF) and an FD of my own.
Let’s understand your financial objectives. Prima facie it appears your son is independent. With your own house in place, you are left with planning for your retirement and providing for contingencies. Your current cash flows are in order and there is a potential to save every month from your earnings. The existing corpus of PPF, FD and MF, including your spouse’s investments, need to be managed collectively.
You are right when you say that the investment is to be done for long term, ideally 10-15 years.
To start with, a liquid basket is required to provide for contingencies—ideally 4-6 months of your income is a good number to look at. This could be the FD investment. Alternatively, consider liquid, ultra short-term and short-term funds. Also, to protect this further, you should have health insurance. This is required even if your employer provides you a medical cover.
Further, you need to create a corpus for retirement. The need being long-term, investments with long-term horizons should be considered. The rationale of any investments in this basket is to ensure a positive inflation-adjusted return. While all investments may not be able to deliver superior returns to inflation, the overall returns should generate an alpha over inflation. This is critical for overall growth of the portfolio as the true value of money should not diminish with time.
How do you achieve this? There are a few asset classes that have the potential to outperform inflation over the long term. Equity is one of them. However, it comes with its own inherent risk and volatility. Hence, long-term investment becomes critical. Also important is your risk tolerance.
Based on this, you could do a portfolio mix. You could consider a combination of bank deposits, PPF and mutual funds for investments. Within mutual funds, the long-term asset class can be made up of equity and balanced funds.
The regular investment that comes from your monthly savings can be invested via systematic investment plan (SIP) and the lump sum can be invested via systematic transfer plan (STP). The portfolio mix can be a combination of large-, multi-, mid-cap and balanced funds.
If you are low on risk tolerance, start with balanced and large-cap funds and gradually go to multi-cap funds, with a small exposure to mid-cap funds.
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