I retired two months ago and I have received a lump sum of Rs.27 lakh. How should I invest this money? What are the instruments I should look at and in what proportion? I get about Rs.20,000 as pension every month and this takes care of my monthly expenses. I do not have any dependants.
Since your pension income takes care of your monthly expenses and you have no dependants, you need to ensure that the retirement corpus received is invested to grow at a steady pace. You should target the corpus to grow with the benchmark being the inflation rate. And a word of caution, in some years, your growth in assets may not be able to match the inflation rate; this was true in the past few years as there was hardly any asset class which outperformed inflation. But there will be years when the returns earned will be higher than the inflation.
This also shows that investing only in debt instruments may not be able to deliver the desired results. To beat inflation, you need to have some exposure to equity. And this is recommended, too, as you don’t need the funds in the short term. The exposure to equity can be built gradually over the next couple of years. You can consider having 15-30% of your total investment in equity.
Within the debt asset class, you can consider bank fixed deposits, or FDs, (this is a good option as you come under the lower tax bracket) and debt mutual funds where dynamic funds is a good option for you. Funds such as Birla Sun Life Dynamic Bond fund working more in the space of short- to medium-term fund and Templeton Short Term Income Fund can be considered. FDs can be done by way of multiple deposits as this will also ensure liquidity in the portfolio, which is important in your case.
In the equity space, you can consider a combination of assets such as monthly income plans (MIPs) and hybrid funds. In the MIP category, funds invest 10-30% in equity and options such as Birla Sun Life MIP II-Savings 5 plan and Reliance MIP are conservative and moderate schemes, respectively. In the hybrid category, HDFC Balanced, Tata Balanced and Reliance RSF Balanced are good options. These funds take minimum exposure of 65% in equity. Overall, there should be 4-5 investments, which should diversify the portfolio. All these investments should be made in cumulative and growth options with the rationale to grow the corpus and take the benefit of compounding. You should not go for a dividend payout or an interest payment option.
Lastly, you should have a medical insurance. If you have one, then ensure you pay the premiums regularly and should also consider using portability benefits, if required. In case you don’t have a health cover, it is recommended to have a health policy even at your age and even if it is expensive.
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