I’m a 65-year-old homemaker and own two flats valued at Rs 5 crore. These generate a combined monthly rental income of Rs 1.5 lakh. Additionally, I have Rs 20 lakh invested in equities and a corpus of Rs 1.5 crore from a property re-development project. How can I increase my monthly income to Rs 3-4 lakh? I also want to buy insurance as I currently lack any coverage.
Prableen Bajpai, Founder, FinFix Research and Analytics:
Securing health insurance should be your top priority and you can keep aside Rs 50,000 to Rs 1 lakh a year for premium. Out of the investable Rs 1.5 crore, keep aside Rs 25-30 lakh for any out-of-pocket health expenses and other requirements. This amount should be parked in an arbitrage fund to lower taxation. You could allocate the remaining Rs 1.25 crore to various investment avenues like the RBI Floating Rate Bonds, Senior Citizens’ Savings Scheme, or mutual funds. If you choose to invest the entire amount in the RBI Floating Rate Bonds, you stand to earn approximately Rs 10 lakh in pre-tax interest annually.
However, considering that the rental income of Rs 1.5 lakh places you in a higher tax bracket, the post-tax returns will be considerably reduced, with nearly 30% returns subject to taxation. The bond scheme matures after seven years, returning the initial Rs 1.25 crore, which may have diminished purchasing power due to inflation.
Alternatively, by investing in a hybrid mutual fund, such as a balanced advantage or multi-asset category, you could potentially withdraw an inflation-adjusted (6%) sum of about Rs 75,000 per year till the age of 85. Initiate a systematic withdrawal plan (SWP) from the scheme after 1-2 years to prevent immediate depletion and benefit from lower taxes.
Initially, only a small portion will be subject to 10% tax rate since appreciation is expected to be lower. As time progresses, a larger proportion of the withdrawn amount will be taxed at 10%. If your monthly expenses vary, consider redeeming funds as needed with a predetermined withdrawal limit. The Rs 20 lakh invested in equity can remain untouched for future needs.
If additional monthly income is required, consider liquidating the equity investment and adding it to the corpus for SWP. In short, the current investable amount is insufficient to meet your expected monthly needs without either depleting too quickly or taking on a significantly higher risk.
I’m 36 years old, earning a monthly salary of Rs 1.5 lakh. My monthly expenses are Rs 60,000. I have Rs 10 lakh in fixed deposits and Rs 2 lakh in equities and mutual funds. I contribute Rs 20,000 monthly to both EPF and NPS. I have Rs 1 crore as term insurance and Rs 5 lakh as health insurance. I want to retire by the age of 55. Before that, I must amass education funds for my two children and Rs 1.5 crore for a house. Please advise.
Rushabh Desai, Founder, Rupee With Rushabh Investment Services: Considering the rise in life expectancy, inflation, and other uncertainties in life, retiring early may not be advisable. Saving more than 50% of your income is commendable, but your allocation to equity mutual funds is low and should be augmented. Considering your age, it’s crucial to direct your savings toward suitable investments and asset classes to maximise long-term benefits.
You must prepare two baskets for the two big goals. You should immediately start investing Rs 20,000 per month in equity mutual funds. Assuming 12% CAGR, these funds will help you ready a corpus of Rs 1.5 crore by 55. For your children’s education, you should invest the rest of your surplus in equity mutual funds via SIPs, with a long-term outlook. If you deduct your monthly expenses and other contributions from salary, you are left with a surplus of Rs 70,000.
If you invest this in equity mutual funds via the SIP route, by the time you are 55 years old, you will be able to build a corpus of around Rs 6 crore, assuming 12% CAGR. Depending on your risk appetite, you can consider investing in a combination of flexi-cap, mid-cap and small-cap funds. Don’t have more than 5-6 funds in your portfolio and keep a buffer period at the end of the time horizon to be able to redeem during good market conditions.
I will retire in September 2025. My assets are as follows: mutual funds (Rs 73 lakh; 60% equity, 40% debt); Ulips (Rs 45 lakh; 60% equity, 40% debt); stocks (Rs 32 lakh); NCDs (Rs 2.5 lakh); FDs (Rs 3 lakh); gold/silver/gold MF (Rs 11 lakh). My PF corpus at retirement would be about Rs 45 lakh. I have an outstanding home loan balance of Rs 11 lakh to be repaid in 6.5 years. My monthly expenses are Rs 1 lakh. I and my wife have medical insurance worth Rs 15 lakh each. I do not have a term plan. Is my current corpus sufficient to sustain me till I’m 85 years?
Adhil Shetty, CEO, BankBazaar: Your current portfolio of Rs 2.11 crore has 49% equity, 46% debt, and 5% commodities. As per the 25x thumb rule, you need to save 25 times your annual income by retirement. Therefore, for an income of Rs 12 lakh, you need to save Rs 3 crore. If your portfolio grows 10% annually, it will be worth Rs 2.4 crore by retirement.
Therefore, you’re on track to hit only 80% of your goal. This isn’t a problem if you optimise the portfolio for sustainable liquidity and growth. Split the holdings into short-, medium-, and long-term investments, where the returns vary from low to high, and liquidity varies from high to low. The short bucket is for short-term liquidity.
The medium bucket blends liquidity and growth. The long bucket is purely for long-term growth. The further you are from the age of 85, the more you should allocate to equity for growth. The closer you are to 85, the more you should allocate to liquidity. The key to sustainability is for your annual withdrawal rate to be lower than the portfolio growth rate. If you’re starting with a 5% withdrawal rate, ensure the portfolio is optimised for 8-10% annual growth.
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