My father is 63 years old. He is planning to sell his commercial properties, which are worth Rs 2.8 crore before tax, and then retire. His annual expenses are Rs 6 lakh. His risk appetite is medium and I can support him in the near future if the returns are lower initially. How should he invest?
Rushabh Desai, Founder, Rupee With Rushabh Investment Services:
Since you have not mentioned the date of purchase, cost and final sale value, we cannot arrive at an accurate post-tax amount. If the properties have been held for over two years, the long-term gains will be taxed at around 20%, along with surcharge and cess, with indexation, provided depreciation has not been claimed for commercial usage. Assuming your father is in the higher tax bracket, his post-tax amount after 30% base tax, with 25% surcharge and 4% cess, without indexation benefits, will be in the range of `1.7-1.8 crore. Currently, debt AAA bond yields are at 7-8%. An annual yield of 7% will give your father `11.9 lakh before tax. His annual expenses of `6 lakh can be met from this. However, yields from pure debt products may not be enough to beat inflation over the long term. Considering his medium risk appetite and your support for a few years, I recommend venturing into balanced advantage/ dynamic asset allocation funds, which have a combination of equity, debt and arbitrage instruments. These are dynamically managed on the valuations and trends in the equity and debt markets. With a decent equity exposure to generate inflation-beating returns (assuming 6-8% inflation), and debt exposure to reduce volatility over the long term, these funds will be well suited for systematic withdrawals. Remain invested for 1-3 years before starting withdrawals so that decent profits can be generated without impacting the base capital, and exit load and short-term capital gains tax can be avoided. He can look at investing in a combination of Edelweiss Balanced Advantage Fund and ICICI Pru Balanced Advantage Fund. Currently, interest rates for senior citizen products are quite high. The Senior Citizens’ Savings Scheme gives 8.2% for up to Rs 30 lakh per account, and he may want to take advantage of this as well.
I am 22 years old and will start my first job in April 2024. I will be earning Rs 1 lakh per month. My biggest liability is an education loan of around Rs 20 lakh, on which I have a moratorium of one year. Should I focus on repaying my loan and explore the investment avenues later?
Prableen Bajpai, Founder, FinFix Research and Analytics: Planning your financial journey early in life is advisable. As a rule, repaying a loan should take precedence over investing. However, the decision must consider the type of loan and your comfort with debt. Since the interest paid on an education loan is eligible for deduction (maximum eight years) under Section 80E of the Income-tax Act, you can give yourself this period to repay the loan. While the interest rate is not mentioned, a 10% interest would roughly translate into a Rs 30,000 EMI for an eightyear tenure. The EMI, along with other expenses, will take away the lion’s share of your income. While you won’t be able to invest much, do start with a small amount in an 80:20 ratio. If you set aside Rs 5,000 per month, then Rs 4,000 should be in a liquid fund or an ultra short duration fund, via monthly SIPs, for a contingency fund. The rest 20% (Rs 1,000) can go in an equity fund. Start with an equal weight Nifty 50 index fund. As your salary increases with time, keep increasing the investment amount.
I am 23 and earn Rs 1.1 lakh a month (after TDS). I save around 50% of my salary. I am planning to buy ICICI Prudential Term (Smart) Plan worth Rs 3 crore, and have a Rs 5 lakh cover from ICICI Lombard as well. My job prevents me from investing in stocks and I can only invest in mutual funds. How can I retire early, say, by 40-45 years?
Adhil Shetty, CEO, BankBazaar:
Adjusting for 6% inflation, you will need around Rs 35.5 lakh at 40, or Rs 47.5 lakh at 45 to sustain your current lifestyle. Your actual income may be higher by then, but the numbers reflect what you need instead of what you can earn. To be able to retire early, you will need to save 25x of your annual income and have an annual withdrawal rate of 4%. With the 25x calculation, you’ll need to save Rs 8.9 crore by 40 (goal 1), or Rs 11.8 crore by 45 (goal 2). The past returns suggest equity as the best way to achieve such goals, and an SIP in a diversified mutual fund, such as an ELSS, should help you achieve the goal. For goal 1, invest in an SIP of Rs 55,000 for 17 years, with a 15% annual step-up, assuming 12% annual rate of return. For goal 2, start a monthly SIP of Rs 45,000, with an annual step-up of 10% for 22 years, at 12% return. For insurance, unless you have liabilities and dependants that require a Rs 3 crore coverage, you can start with a low cover and buy more later.
I’m 34 and earn Rs 86,000 a month. I have mutual funds (Rs 10.88 lakh), sovereign gold bonds (Rs 58,900), US stocks (Rs 1.68 lakh), NPS (Rs 13.46 lakh), PPF (Rs 5.25 lakh), FDs (Rs 3 lakh), and debt funds (Rs 1.6 lakh). My wife is 30 and earns Rs 80,000 a month. She has Rs 20 lakh of FDs. I want to be financially independent in 10 years. How should I proceed?
Anupam Guha, Business Head- Private Wealth Management, ICICI Securities:
You can use FDs and debt funds to build an emergency corpus of six months’ expenses. You will need a retirement corpus for 36 years, but have not given details of expenses and requirement in retirement. We have assumed 70% of your monthly income as requirement in retirement. After adjusting for 6% inflation, this will rise to Rs 1.08 lakh a month. Your current investments are worth Rs 55 lakh. Assuming 8% annual grow over 10 years, the corpus will grow to Rs 1.18 crore. To achieve financial independence, you will need Rs 3.4 crore to support your monthly expenses in your lifetime. The remaining corpus needed is Rs 2.23 crore, which can be amassed via monthly SIPs of Rs 97,000 in flexicap and multi-cap funds. Your combined monthly income is Rs 1.66 lakh and monthly SIP of Rs 97,000 comes to 58% of your monthly income. Also, if you don’t have any term insurance, buy a plan worth Rs 3 crore each for both of you. In case a monthly SIP of Rs 97,000 is not feasible, then you are advised to you defer your retirement by a few more years.
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