OTHER AVENUES TO EHANCE INCOME FOR RETIRED PERSONS

I am retired and aged 58 years now. My retirement benefits are invested - 20 per cent in Post Office MIS scheme and rest in bank deposits earning an average interest of 7 per cent per annum. The incomes from bank deposits are too low. Please advise me on other avenues of safe investments to improve my income.


If you had locked into bank fixed deposits post February this year, interest rates would not have been attractive. Yes, it is not an easy task, keeping your risk profile low and yet earning superior or at least inflation-beating returns. We would like you to explore the mutual fund option to enhance returns, although these instruments do carry risks. We will attempt to build a portfolio with average risk but with a potential to deliver returns superior to fixed income options.

We do not know if you have exhausted the permissible exposure allowed under the post office MIS. Try to open joint accounts with your spouse to utilise the post office investment limit to the maximum.

You will have two more years before you become eligible to invest in post office senior citizen's scheme. This would offer a slightly superior return of 9 per cent and also allow you to claim deduction under Section 80C, if the same is eligible at that point.

You can consider small exposure to fixed deposits offered by corporates to prop up the average returns of your portfolio. However, make sure to get a good agent/advisor to elucidate the credit worthiness of the company that's offering the deposit. Remember to ask for the credit rating of the company's debt as the business and financial risks of company would have a bearing on its ability to pay the deposit interest and also repay your capital. Hence make sure, you invest in this avenue, only if you have the right advisor.

Post office, bank deposits and corporate deposits (5-10 per cent of your portfolio) can account for 70-75 per cent of your portfolio; a low risk appetite would mean higher holding in the above-mentioned fixed income securities. Bank deposits can be expected to go up in 2010; wait and watch for the increase before investing further. You can, in the meantime, invest in a few mutual funds listed below: we intend to keep this a combination of equity, debt and monthly income plans.

Mutual funds: Quantum Long Term Equity and Templeton India Growth are the 2 equity funds that we would like a retired investor like you to hold, especially given your low risk-taking ability. You have to either use the systematic investment route or request your agent to remind you to make investments on every 10 per cent or more fall in the broad market. The current market levels do not provide much confidence to invest lump sum.

Consider investment in UTI Mahila Unit Scheme through your spouse or invest directly in FT India Life Stage Fund of Funds 50s Plus. Canara Robeco Income and HDFC MIP Long Term are two other debt-oriented funds we would like you to hold. Opt for dividend payout options in all the schemes. Accumulate dividends payout to invest in bank deposits over the next year and a half if interest rate for a 2-3 year deposit is not less than 9 per cent. Otherwise, start investing in Post Office Senior Citizen's Scheme after 2 years.

However, ensure that your overall exposure to mutual funds, including the debt funds, does not exceed 25-30 per cent of your entire portfolio.