Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on April 21, 2019 Published on April 21, 2019

I would like to know what the best/safe investment options are for a sum of ₹50 lakh that I will get as part of my retirement corpus. From this, I would like to get payouts on a monthly/quarterly basis. What returns should I expect?


Since it is your retirement corpus and you are dependent on it for regular income, it is prudent to first exhaust safe avenues such as the Senior Citizen Savings Scheme (SCSS) from the post office and the Prime Minister Vaya Vandana Yojana (PMVVY) run by LIC. Investments of up to ₹15 lakh are accepted in both the schemes.

Under SCSS, investments are locked in for five years and can be extended for three years. PMVVY is a pension scheme for senior citizens open for subscription until March 2020 and has a tenure of 10 years.

The returns on SCSS is reset by the government every quarter based on the prevailing market rates. However, you will be locking into the prevailing rate at the time of your investment, for the full tenure of five years. SCSS currently offers 8.7 per cent returns, superior to most bank fixed-deposit options. Interest is paid out quarterly.

PMVVY offers a fixed interest rate of 8-8.3 per cent depending on whether you opt for monthly, quarterly, half-yearly or annual pay out. If you decide to invest up to the maximum limit of ₹15 lakh in each of these schemes, you will earn an approximate sum of ₹10,000 a month from each.

Conservative options for the remaining ₹20 lakh include bank deposits, top-rated NBFC/corporate deposits and immediate annuity plans from insurance companies. If you are savvier and willing to take more risk, you can spread this sum over a few mutual fund schemes with a good track record, and opt for systematic withdrawal plans.

You can choose corporate bond funds which invest predominantly in top AAA rated debt instruments that carry a relatively lower risk of default. Else, if you are willing to take higher risk to get higher returns, you can invest in aggressive hybrid funds. These funds invest at least 65 per cent of their corpus in shares and the remaining 35 per cent in debt instruments. Equity savings funds which invest in debt, equity arbitrage and equity in equal proportions may also provide a good middle ground between corporate bond funds and aggressive hybrid funds.

Remember that the interest/pension from SCSS, PMVVY, FDs and annuity payments are all taxable. Systematic withdrawals are also subject to capital gains tax as applicable to debt and equity mutual funds.

I have been investing in four SIPs through the direct mode: ₹3,000 each in ICICI Pru Bluechip and Mirae Asset Emerging Bluechip, and ₹2,000 each in L&T Midcap and Motilal Oswal Multicap 35 Fund. Please review the current portfolio. My time horizon is 12-15 years. A lot of experts are advising to add index funds like Nifty Next 50 instead of large-cap funds after the re-categorisation of funds by SEBI. Please comment on that. I want to enhance my SIP amount by ₹5,000. Please guide me on this, too.

Sumant K Das

All the funds you currently invest in have a good track record of performance. You have also chosen wisely by spreading your investments across different categories — large-cap (ICICI), large- and mid-cap (Mirae), multi-cap (Motilal) and mid-cap (L&T). This allocation suits someone with a moderate risk appetite. Your 12-15-year time horizon also means that you need not take undue risk by having a portfolio skewed towards mid- and small-cap funds. You can continue with these investments.

As regards to index funds, considering that the outperformance of actively managed large-cap funds over their benchmark indices have been narrowing, index funds which passively mirror the benchmark are becoming good alternatives. Index funds also carry lower risk considering that they can fall only as much as the index it is based on does, while an active large-cap fund may fall more depending on its portfolio choices. Also, the lower expense ratios of index funds vs large-cap funds is an attraction.

Out of the additional ₹5,000, you can put ₹3,000 in ICICI Pru Nifty Next 50 Index fund. The remaining ₹2,000 can be equally split among your existing funds itself.

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