Mutual Funds

Your Fund Portfolio

Aarati Krishnan | Updated on October 04, 2020

My wife and I are senior citizens. I am a retired government employee with a monthly pension of ₹20,500. We live in an apartment owned by me, with my youngest son and his family. My son’s employer includes us in the family medical cover under CGHS. I worked at a non-government job in the latter half of my career, retiring in 1996. I am invested in mutual funds via lump sums as well as SIPs, mostly through direct dividend plans in equity and balanced funds. My main objective is to earn some income from my MF investments so as to be self-reliant and also assist my younger son in the education of his two daughters. As per my NSDL statement, my MF holdings are worth about ₹27 lakh. I hold these investments on either or survivor basis, and my son and my wife are the second holders. I would like to leave my MF investments as a legacy. I own ICICI Prudential Multi Asset, Templeton India Value and UTI Mastershare. Please advise me on what I should do with my MF holdings. Must I monitor the dividends on my funds this year and persist with these schemes? Making changes at this stage is cumbersome.

RL Gaur

It is good that you have an assured monthly pension of ₹20,500 to take care of your living expenses. Having your own home is also a comfort as you save on the outgo towards rent, which can escalate sharply over time. But the other aspects of your investments do need substantial changes. You must make them to protect your capital, even if it means a little bit of inconvenience.

One, while it is good that you have basic medical cover under the Central Government Health Scheme (CGHS), the scheme usually offers a limited network of hospitals, has sub limits on the expenses covered, and may not cover all the health contingencies that you and your wife may face as you grow older. Medical emergencies can put a big dent in both your own and your son’s savings.

It is, therefore, advisable to supplement your CGHS cover with a separate health insurance policy of, say, ₹10 lakh, that covers both pre-hospitalisation and post-hospitalisation expenses for you and your wife. It may be economical for your son to take a family floater policy as seniors often find it difficult, or very expensive, to get health insurance.

Two, it is really not a good idea to depend on equity and balanced funds for your monthly income needs. Yes, you may have received regular dividends so far, but that is largely because of stock markets doing very well in the last five years. While equity and balanced funds may have dividend options, they can pay dividends only if they manage to book profits on the shares they own in a particular year.

Should the stock markets fall sharply or go through a long bear phase (this is very likely because of an over-heated market), equity and balanced schemes can skip their dividends. You can also suffer sharp capital losses on your principal invested in these funds, too.

It is best to exit these funds, if regular income is your objective.

For income with safety of capital, the post office Senior Citizen Savings Scheme and the Pradhan Mantri Vaya Vandana Yojana offer the best options today at 7.4 per cent interest for seniors. The schemes carry lock-in periods of five and 10 years, respectively. We suggest you maximise your investments in these options for your regular income needs.

Three, while your current monthly pension of ₹20,500 may seem sufficient for your current needs, you need to budget for inflation in future that may make this sum inadequate. The fixed-income options mentioned above will not deliver any growth in your capital to match inflation.

To take care of your liquidity needs, you can park a portion of your portfolio (say, 10-20 percent) in equity funds. Given that you don’t have an advisor, index funds investing in the top 100-200 stocks would be your best bet.

You can leave all the above-mentioned investments as a legacy.

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Published on October 04, 2020
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