Q I am 25 years’ old and unemployed and preparing for government jobs. My father, the sole breadwinner of our family of four, passed away recently, with nine years of service left. We are entitled to a lump sum amount of ₹35 to 40 lakh owing to terminal benefits.
How should I invest that lump sum? Should I diversify my investments or invest that amount in a sole immovable property like land? Is it a good idea to put that lump sum only in a fixed deposit? we don’t have any necessities /plans (like building a house, buying a new car, etc.) for the next 10 years.
We will get ₹60,000 per month as a pension, which will suffice for our basic monthly needs. My dad had already invested in equities and mutual funds, which has a current portfolio value of ₹54 lakh. His portfolio includes a SIP instalment of ₹8,000 monthly (on 5 mutual funds), and I have decided to continue that SIP. Should I have a close watch on the equities invested by my dad, or is it like “invest and forget”? I am a novice in the realm of the share market. I too want to know about the tax liabilities for the terminal benefits. I am literally in a dilemma.
A Vidya Bala: First, on the tax liabilities from the terminal benefits, it is unlikely that you will have any, but it is best to consult an auditor once and get clarity. On investing, since you are currently unemployed and depend on your father’s pension, it is better not to go overboard on risk with the corpus. Do not lock the corpus in illiquid assets like land or property. Our suggestion would be that you invest the corpus in a mix of medium-tenure (2-3 years) bank deposits and rest in RBI Floating Rate Bonds. The latter should be restricted to the amount you don’t need to liquidate in the next seven years. Yes, you will get quarterly interest payout from the RBI bond. There is no cumulative option. Use it to continue and increase the monthly SIP that you father was continuing. Use the FD as an emergency fund and break it if you have any unforeseen needs. Once you have a job and have sufficient cash flow, you can then decide to remove the FDs (continue the RBI Floating Rate Bonds) and use them in long-term equity and debt mutual funds. Create your own emergency corpus with FDs or liquid funds as you see fit then. On your father’s current investments, yes, you need to review them at least once a year. If your father had an advisor, ask him to do it or use a good platform or advisor to help with the same. For any fresh investments, insist on using equity index funds to keep your job simple or use direct plans of mutual funds and choose funds with underlying indices like Nifty 50, Nifty 500 and Nifty Midcap 150.
Q I am a retired software manager and my wife is a retired bank officer. She has taken group insurance being done through Indian Banks Association for both of us.
This year we have paid a premium of ₹73,000 for a coverage of ₹9 lakh for both of us. As per the Income Tax Act, only ₹50,000 premium can be claimed for tax benefits. Can I show the remaining ₹23,000 against my taxes? Payment is done from both of our bank deposit earnings.
A Nitya Kalyani: Both of you can claim income tax benefits, provided premium payment is done from a joint account. But, more critically, you have to get the receipt from the insurer giving the breakup of premium amount between the two of you. Please make a request to the insurer through your IBA contact person in writing and specify that you need it by a certain date in order to file your return and claim the benefit.
(Vidya Bala is co-founder, PrimeInvestor.in. Nitya Kalyani is a business journalist specialising in insurance & corporate history)