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Ask Mint Money | For senior citizens, PPF may not work as it locks money for 15 yrs

Ask Mint Money | For senior citizens, PPF may not work as it locks money for 15 yrs
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First Published: Thu, Apr 07 2011. 09 06 PM IST
Updated: Thu, Apr 07 2011. 09 06 PM IST
I am 61 years old and my wife is 54 years old. I have a liquid corpus of around Rs2.2 crore. I also have equity stock holdings of around Rs1 crore and have Rs20 lakh in mutual funds (MFs). I want to optimize earnings for a monthly income of around Rs1.25 lakh. How should I go about it while factoring in inflation and minimizing tax liabilities and at the same time protecting my corpus. I have been told that besides equity-based instruments, other avenues are Public Provident Fund (PPF), post office and bank deposits, but I am not convinced on their efficacy to meet long-term needs. A bank is offering 10.5% pre-tax on eight-year deposits for senior citizens and post office holdings for an upper limit of Rs6 lakh at 8% tax-free interest. Among the two, which is better? I have a house and have no loans and other liabilities except my daughter’s overseas higher education for which I have set aside a reasonable amount in a fixed deposit.
-Rajan Lalvani
As you have already set aside a corpus for your daughter’s higher education and with a house of your own and no liabilities, your needs are limited to planning for your monthly expenses and making sure adequate liquidity is available for any contingency.
You have sufficient corpus and you don’t need to take any additional risk to provide you the extra return as the said amount available will provide you with the expected monthly income.
At an average return of 6% post-tax, you can get an income of Rs1.10 lakh per month on the liquid corpus and the dividends even if assumed at 2% of the total equity corpus will fetch you a tax-free income of Rs16,000 per month, giving you an overall income of at least Rs1.25 lakh per month. This is when we have not even considered any income from MFs.
However, this does not mean that you should not be aiming for higher returns. The rationale is that you should be aware that by taking low risk with the liquid corpus you can attain the minimum desirable level.
You can consider a combination of bank deposits, post office deposits and within MFs, you can go for dynamic debt, and fixed maturity plans. All these put together can give you a good mix of debt portfolio. PPF within the debt stable is not recommended at your age as it locks in your money for 15 years and you can deposit only a limited amount every year.
You can consider equity to enhance your returns. However, as you are already holding a substantial amount in direct equity, consider investing only if you have any further risk appetite. In case you increase the same, you can also look at MFs where the exposure is currently limited. MFs are more tax efficient both for debt as well as equity.
Queries and views at mintmoney@livemint.com
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First Published: Thu, Apr 07 2011. 09 06 PM IST