I am 60 years old and have retiral savings of around ₹70 lakh for which I do not see any requirement in the next 3 to 5 years. I can take moderate risk. Kindly advise with regard to the various available investment avenues that earn tax-free/post tax returns of 9 to 10 per cent per annum.

Manohar VKM

Frankly, we cannot recommend any investment option for a 3 to 5-year horizon that can give you a post-tax return of 9-10 per cent per annum. The returns that you can earn from either debt or equity investment are always a function of prevailing interest rates and stock valuations in the economy. Today, with the safest investment in the economy — the 5-year Central government bond — offering a yield of 5.8 per cent, any investment that offers 9-10 per cent returns, and that too on a post-tax basis, will put your principal at high risk. If you invest this sum in NCDs or alternate ‘new-age’ debt instruments that promise such high returns, you can be sure that the borrower or issuer will have a high likelihood of default.

If you invest it in mutual funds with an equity component, expensive valuations in the stock market would again expose you to capital losses from any market correction. A 3 to 5-year investment horizon is in any case too short a period to consider any investment with an equity component.

In the event of a market crash, you would not be able to recoup your principal amount within a 3 or 5-year time frame and getting back your capital may take much longer. We cannot recommend your risking capital losses on your retirement savings by shooting for such high returns at this juncture.

We suggest that you abandon the idea of seeking high returns on your entire retirement corpus of ₹70 lakh and explore a layered approach, instead. One option would be to combine government-backed instruments that offer high safety with reasonably good returns with equity funds. In this case, you can look to invest 75 to 80 per cent of your corpus ( ₹52-56 lakh) in the post office National Savings Certificate (6.8 per cent cumulative interest), Senior Citizens Savings Scheme (interest rate 7.4 per cent paid out quarterly) or GOI Floating Rate Savings Bonds (floating rate currently at 7.15 per cent paid out half-yearly) which carry a 5-year and 7-year lock-in respectively.

In the case of SCSS and the floating rate bonds, you will have to reinvest the interest in FDs or other avenues to benefit from compounding. You can look to invest the remaining amount through a Systematic Transfer Plan in equity index funds. ICICI Pru Nifty Low Volatility 30 and Motilal Oswal Nifty500 fund are two options to consider. Do be aware, though, that these equity funds can suffer capital losses for horizons below 7-10 years.

Send your queries to mf@thehindu.co.in

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