Where should I invest my retirement corpus?

Arun Kumar Bannerjee of Bokaro has no liabilities and has already invested nearly Rs 13 lakh directly in stocks and through equity mutual funds. Now he wants a monthly income for his living expenses.

Q. I will retire in March. Where should I invest my retirement corpus to earn Rs 10,000 a month?

As a first step, you need to formulate a sound asset allocation plan. Based on your risk profile and requirement, decide how much you want to invest in different asset classes and accordingly distribute investments. This will not only reduce the risk through diversification, but also help increase the overall returns from your portfolio.

For a retired person, the safety of capital is of utmost importance. You should not take a large exposure to risky investments such as stocks. If they crash, it may take months, even years, for them to recover. A younger investor may be able to wait for the market to bounce back, but at 60, most people do not have the luxury of time. In any case, you already have a sizeable Rs 13 lakh invested in stocks. There’s no need to invest further in equities.

Suggested allocation
Senior citizen's scheme: 46%
Stocks and equity funds: 24%
Fixed deposits: 15%
Debt funds: 9%
Cash: 6%

Bannerjee should progressively reduce his equity exposure and shift to debt instruments.

Asset allocation plan

Senior Citizens Savings Scheme (SCSS): The bulk of your retirement benefits should be put in the SCSS, which is a safe and secure scheme with assured returns of 9%. The interest is paid every quarter. The only hitch is that there is a Rs 15-lakh ceiling on investment by an individual. If you invest Rs 15 lakh, you will earn Rs 33,750 every three months. This is Rs 11,250 a month, which more than meets your cash flow requirement.

Debt funds: Your financial needs are going to change over time due to inflation. A year from now, Rs 10,000 may be insufficient to meet your monthly expenses. To counter this, invest Rs 3 lakh of your corpus in a debt mutual fund and start a systematic withdrawal plan (SWP) when your income from the SCSS is no longer able to sustain your living expenses. SWPs provide a predefined sum to the investor by redeeming the required number of units every month.

Cash: Keep the balance Rs 2 lakh for medical or other emergencies. You could keep it in a two-inone savings bank account, where the excess balance earns a higher interest and is always available to you.

Insurance: Senior citizens and retirees are easy prey for unscrupulous brokers. Do not buy any pension plan, insurance scheme or unit-linked product. The brokers will paint a rosy picture, tell you how well their funds have done in the past and that you need to invest for only three years. Often, they do not reveal the 25-30% charges deducted on a Ulip in the initial years. In any case, you don’t need insurance at this stage and shouldn’t increase your equity exposure.

Stocks: You should reduce your equity stake by selling some of your stocks. This may require you to take some hard decisions, but it is better to weed out the loss-making stocks now rather than hold them and magnify the losses. Reduce your investment to Rs 8 lakh and shift the money to fixed deposits. You should also consider decreasing direct exposure to equities and buy index funds instead. The Satyam episode has shown that even blue-chip stocks can be risky investments.