Home / Money / Personal Finance /  It’s important to always have some contingency funds

I will be retiring in a year’s time with a monthly pension of Rs. 71,000, and a fund of 40 lakh. I have no liabilities and have health cover by CGHS. I live in my own house. Please suggest what would be the best safe investments for me. I also have a PPF account running on extended maturity {15+ years}.

- Name withheld on request

If the pension of Rs.71,000 is reasonable to take care of your monthly expenses, you can work on a good investment plan for 40 lakh that will help you grow the money along with limited risk. Even though you are well placed in other aspects like your own house and health insurance, it would be good to keep aside some contingency funds in a fixed deposit. This will help you to always have some liquidity in place and you need not disturb your other investments in case of any emergency.

As you had mentioned safe investment avenues to invest Rs.40 lakh, you can consider investing in Senior Citizen Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY). Both investments are government-backed and generate good returns. SCSS has a maturity of 5 years and the investment can be further extended to 3 years. Similarly, PMVVY has a maturity of 10 years. While investing in these avenues you should keep in mind your liquidity needs as the money will be blocked up to maturity.

Along with these investments and your existing PPF account, we would also suggest you have some allocation in equity mutual funds. Usually, the post-retirement stage is for 25 to 30 years for you and your spouse. This is a very long time and your overall portfolio must grow at a better rate compared to inflation. Over the years, debt-based investments have generated higher returns than inflation, but equity has generated better inflation-adjusted returns. Hence, the suggestion is to have some allocation in equity mutual funds.

The risk will be limited if you invest in large-cap funds and index funds where the funds invest only in well-established large companies in India. These funds are less volatile and have the potential to generate good long-term returns. You can invest at the beginning of retirement with a minimum horizon of 5 to 7 years in mind.

Harshad Chetanwala is co-founder at MyWealthGrowth.com. Do you have a personal finance query? Send in your queries at mintmoney@livemint.com and get them answered by industry experts.

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