I am 55 years old and earn Rs10 lakh per annum. I stay in a tightly knit joint family and owning a house is not a goal. I don’t have any children. My monthly household expenses are about Rs50,000. I have invested only in PPF over the years, which now has a value of about Rs30 lakh. I want to withdraw this when I am 60 but I don’t know where to invest that money, as I do not have any immediate or future need for it. I am sure my extended family will take care of me. What should I do with the PPF money?
Assuming you will work till 60 years means you still have 5 years of working life. With income considered as constant (Rs10 lakh per annum), you have a surplus of Rs4 lakh per annum over expenses (Rs6 lakh per annum). These savings over 5 years becomes a principal corpus of Rs20 lakh. This corpus, if invested in Public Provident Fund (PPF) and similar secured debt—at an interest rate of 8%—will turn into Rs24.65 lakh at the end of 5 years. And the current value of Rs30 lakh in PPF—assuming it earns an average of 8% per annum—will become about Rs44.08 lakh. So when you turn 60, the total net worth of your investments should be Rs68.73 lakh. This is assuming you invest your corpus in PPF and debt securities.
It is good that your family will take care of you in your old age. But it is equally important that you take good care of your money. Once you retire, you need to invest the money wisely to ensure it earns you a regular income. If regular income is not needed, the interest can be reinvested to give the portfolio the benefit of compounding. It is important to grow the money as it ensures protection against inflation and gives you comfort and security, in case you or your family needs the money.
You should invest for two reasons: high degree of safety and liquidity. So, continue to look at debt securities where you can consider a combination of debt mutual funds, which means short-term and dynamic-bond funds. At the same time, if you understand risk and have the risk appetite, do consider taking some degree of risk and investing in hybrid equity funds, which invest both in equity and debt securities. It is also prudent that you do your estate planning— the process of planning your succession and financial affairs—to ensure your assets are rightfully received by the beneficiaries. This process can be initiated by preparing a Will and ensuring adequate nominations for all investments.
Surya Bhatia is managing partner, Asset Managers.
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