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Where should I invest the maturity proceeds of an FD to get a monthly income?

Dhirendra Kumar explains the ideal investment approach during retirement

I am a senior citizen. How and where should I invest the maturity proceeds of an FD to get a monthly income?
- Manan

Transcript: The first thing to evaluate is your monthly income requirement. The amount of money which is necessary for your living expenses. Do some estimation. If you don't have any other source of monthly income like pension or any kind of rental income, then your first option should be Senior Citizens Scheme for an investment of up to Rs 15 lakh. Because, there you get a return of 8.7 per cent and it is absolutely safe. You get the return on quarterly basis. The Pradhan Mantri Vyaya Vandana Yojana, the LIC scheme in which the maximum investment amount has been increased to Rs 15 lakh in this budget, also gives you guaranteed income and an effective return of around 8.3 per cent. Both these schemes are safe. One is government scheme and the other one has been sponsored by government.

For rest of the money, I will just give you a guideline as it needs careful planning. All these fixed-income yielding instruments like fixed deposits are important and look safe but they are not complete solutions. In retirement there is a need of regular income which should increase with inflation. The problem is that if income from these fixed income instruments is sufficient for your income needs today, it will not be good enough to support your income three years from now. In these investments your capital will remain constant and not rise. So, in five years time or ten years time with rise in inflation the income requirement will also rise, and with your capital remaining constant, you will be in difficulty. So, a part of your money should be invested elsewhere which can see ups and downs but will grow faster to support the increase in the requirement of income by increasing the worth of your capital. Equity is an important component for a retiree because of the same reason.

But there are some rules and principles which should be followed to ensure that the worth of your capital is protected at the same time when you are investing it to increase its worth in tune with inflation. Never invest it in one go and stagger your investments. Your risk tolerance also reduces with age. Follow a conservative approach and don't allocate more than 30 to 40 per cent of your corpus to equity.

This answer was updated in November 2018.

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