Avoid small payment banks or co-operative banks with high interest given their risks in recent times.
Q. My daughter (40) is working. Neither she nor her husband has pension benefits. I want to ensure a decent pension at the end of her service 20 years hence. I want to invest a maximum of ₹10 lakh in a long-term fund giving good returns after 15-20 years without much risk. She has insurance policies with a life cover of ₹10 lakh.
A. Please ask your daughter to increase her term insurance cover as it is inadequate for an earning member in the family.
For investing, you have two options. If you are totally risk averse, simply use the higher returns available for senior citizens to invest in Senior Citizens’ Savings Scheme. If you have exhausted it, then invest in RBI Floating Rate Bonds 2020. Use the interest from either or both of these to invest SIPs in Nifty-based index funds (30%) and banking, PSU and corporate bond funds (together 70%). This way you will ensure your ₹10 lakh is intact (you can gift it later along with the investment).
The other and slightly riskier alternative is to directly invest in Nifty-based index funds for about 30% of your corpus and 70% in corporate bond and gilt funds. Both, especially the equity index fund will be volatile and see losses even over three-year periods. If you wait patiently, you can ensure a decent corpus for her. Please use SIP over 18-24 months. About 5-8 years before her retirement, she can start shifting the money in the index fund to safer deposit options.
Q. I am a government employee set to retire in April 2021. I want to invest my terminal benefits in secured investments. I am more concerned about the safety of the money invested than interest income. Since deposit insurance covers only up to ₹5 lakh, can I invest in different banks/institutions in fractions of ₹5 lakh? Does this cover Post Office savings schemes?
A. Yes, you can split the deposits across various banks — specifically make sure you have them in systemically-important banks such as SBI, HDFC Bank and ICICI Bank. RBI considers these banks vital and would not allow them to fail.
Avoid small payment banks or co-operative banks with high interest given their risks in recent times. There is no deposit insurance for government schemes as they are sovereign guaranteed. That means unless the country goes bust, your money is guaranteed by the government. We suggest you have a mix of bank deposits (for liquidity), Post Office Senior Citizens’ Scheme, 10-year government pension policy called PM Vaya Vandana Yojana (if it is available in 2021 at good rates) and RBI Floating Rate Savings Bond (2020).
Q. My father is a Central government employee. He has ₹5 lakh as fixed deposit in SBI. It is nearing maturity and now, he wants to deposit it in Post Office schemes. What are the benefits of investing thus? Is there any other way of earning more interest?
A. Your father is doing the right thing by choosing Post Office schemes. They are government guaranteed and hence, carry no risk. In this low-rate scenario, every good scheme will earn low interest. Let him lock into a shorter period of 1-year post office deposits and when rates go up, he can lock into longer periods.
The only other safe option with better returns is the RBI Floating Rate Savings Bond 2020. They carry 7.15% interest (with lock-in of 7 years) and rates will be floating. Since we are in the bottom rate cycle, when rates move up, the interest will go up. The only issue is you will find them only in select branches of banks such as SBI, Axis Bank, HDFC Bank and ICICI Bank.
(The writer is co-founder, Primeinvestor.in)
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