Hi Thank you very much for the blog as well the Q&A Forum. Very helpful and easy for people like me to ask questions. Regarding my question: My father would be retiring soon and the Retirement money would be close to Rs 25 Lakhs. Rental income and Pension would be sufficient to cover for day-today living expense of the household after retirement. Hence, I am thinking recommending the following investment idea with the Rs. 25L amount to him. Invest in 3 separate FDs Rs. 2L, 4L and 6L respectively. This gives the flexibility of prematurely closing any particular FD specifically depending on the requirement if any emergency need arises. Invest the rest of the amount (Rs. 13L) in Balanced Mutual Funds. I would like to hear from you if (a) the entire amount can be split to 4 equal amounts and invested as Lump-sum Investments in Balanced Funds or (b) Invest the Rs. 13L in a Debt Fund/Liquid Fund and do a STP to the said 4 Balanced Mutual funds over a period of 2 years to reduce risk. Which is better – (a) or (b)? Or is there any other better alternate? Looking forward to your advice and recommendations on the above. Thanks.
What is your time horizon of this balanced funds? Whether they have sufficient emergencies created apart from this Rs. 12 lakh?
These investments in Mutual Funds would be inteded for long term (ie. >10 Years). The intention is to beat inflation with portion of the money invested in Equity through the Balanced Funds. Yes, Emergency funds are in place (again mostly in FDs that can be prematurely withdrawn if required) – Equivalent of at-least 8 months monthly household expenditure.
In that case, I suggest you to invest 40% ONLY in equity and rest 60% in debt. This 40% must in two funds like one large cap fund of Franklin India Bluechip Fund and one small cap fund of HDFC Midcap Opp or Franklin India Prima Fund. 60% of debt must be in short term or ultra short-term debt funds. I am not suggesting equity oriented balanced fund. Because the equity exposure is as minimum as 65%. This I feel uncomfortable for father’s age and the investment year.
Thanks for your advice. What your essentially suggesting is to ensure very safe returns by investing in debt funds . The captial appreciation would be hopefully coming from Equity funds. 1. In this case, what are the tax implications for Debt funds? I know long term capital gain is tax free in case of Equity funds. 2. Another question that I have is whether to do the 40% Equity investment as lump sum or through STP? If STP, is it troublesome process to set it up? I have only read about it from Internet and have not really setup one.
Yes, your understanding is right. Regarding taxation of debt funds, they are taxed at 20% with indexation benefit at the time of withdrawal. Hence, they are most tax efficient than FDs or RDs. You can consider the tax-free bonds option also (by buying them in secondary market). If your time horizon is 10+ years, then you no need to worry about current market trend (whether market experts claiming it a booming or bearish). Go with lump sum.