With interest rates getting reduced, will it be prudent to shift my FDs and PPF balance amounts to Tata Retirement Saving Fund- Moderate Plan- Direct Plan and opt for SWP for my day-to-day expenses? I don’t get any pension, other than the EPS of ₹1,900 p.m. As the said Fund doesn't charge any exit load for senior citizens and my taxable income can accommodate the STCG, should I adopt the strategy mentioned above?

Shrikant Mahajan

It is true that over the last few years, interest rates on several debt saving schemes have been reduced. However, there is wide consensus that interest rates have bottomed out and may be on their way up again. Even so, FD rates are hardly attractive on a post-tax basis and returns often lag inflation levels significantly. Therefore, generating a steady stream of income becomes a challenge, especially for non-pensioned senior citizens.

Tata Retirement Saving Fund- Moderate Plan is a quality fund and has performed extremely well over the past five years.

But given that it is an equity-oriented balanced fund, the scheme would be subject to market volatility and there could be erosion in NAVs during falls.

As you would be dependent on the income generated by selling units of the fund for your regular expenses, you cannot ignore market gyrations. Taxation too cannot be ignored; you will have to shell out 15 per cent of your short-term gains, which will further deplete your income.

Therefore, a more suitable strategy would be to invest in monthly income plans(MIPs) and opt for the dividend option for generating regular cash flow.

Invest about 50 per cent of your FD proceeds in MIPs. Spread your investment between Aditya Birla SL MIP II - Savings 5 and SBI Regular Savings Fund, which are quality MIPs with stable performance records. Opt for the dividend option.

The post office senior citizen savings scheme, which offers 8.3 per cent interest, is another suitable avenue to park your funds.

Keep at least three months’ expenses in your savings account for any emergency. If not already done, take a medical cover for your spouse and yourself.

I manage to generate ₹30,000-40,000 in liquid cash every month, which I generally put in my savings account. Can you suggest MFs in which this amount can be invested in and can have safe returns 10-15 per cent? My 80C investments are already taken care of.

Rohit

You have been able to save healthy sums of money every month. Given that you are new to investing in mutual funds, taking a safe approach by parking amounts in large-cap and balanced schemes would be a good idea. It is quite reasonable to expect 10-12 per cent returns over a 7-10 year period. But 15 per cent returns would be a tough ask and would require investing in mid-cap funds, which would increase the risk levels of your portfolio.

Also, follow an asset allocation plan with appropriate levels of investment in debt, equity and if possible, real estate based on your risk appetite and age. Invest ₹7,500 each in Aditya Birla SL Frontline Equity, Mirae Asset India Equity and Kotak Select Focus.

These are large-cap funds with a proven history of outperformance across market cycles. Park ₹7,500 each in HDFC Balanced and ICICI Pru Balanced. These two are quality hybrid funds. You can alter these allocations proportionately based on your surplus. Review the performance of the funds in your portfolio periodically and take corrective action as and when necessary.

Take a term cover and a medical insurance policy for yourself and any dependants. Have six months’ expenses as a contingency fund in your savings account or in a liquid scheme.

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