I have just retired and have about Rs 40 lakh. Where should I invest this money for regular income?
There are different ways of deriving regular income. But the approach you take entirely depends on certain parameters. One of these parameters includes - is it going to be your only income source or a supplementary income source?
However, I normally suggest that target some regular income that should not exceed 6 per cent of your accumulation. So, 6 per cent of Rs 40 lakh is the only amount that you should withdraw. And there are different ways of configuring this Rs 40 lakh. If this is going to be your primary income source post-retirement, then you should consider investing up to the maximum permissible limit under SCSS (Rs 15 lakh) and POMIS (Rs 4.5 lakh). The remaining money can be invested in an aggressive hybrid fund. This way your overall asset allocation will also be more conservative, as half of your money is going to be fixed income which will generate guaranteed income. This remains the base and you will be very sure of that.
While this portion of money remains considerably safe, you can take chances with the remaining amount by investing it in a volatile asset class, i.e. equity. This money should last for a long period of time and also generate substantial returns. It is, therefore, advisable to invest it in equity -an asset class that can provide inflation-beating returns.
You should make sure that you are not consuming all your investments at one go so that there is some money left which can support a higher income and increase your capital. So, if you continue to withdraw only the income of about 6 per cent and let the remaining money accumulate for the next four-five years, this money will appreciate to an extent that it can support a higher income in the future.
The thumb rule is that do not withdraw more than 6 per cent of your money. Any higher return will lead to an increase in your capital, which can support higher income.