Post my last column a fortnight ago, on the Silver Years and the need to avoid the Chinese Curse of outliving one’s money, I received an interesting feedback mail from an 89-year-old gentleman, suggesting Reverse Mortgage as an option.
A Reverse Mortgage involves the bank or financial institution paying the house owner (usually a retiree) a fixed monthly amount during their lifetime. Post the house owner’s lifetime, the entity offers the legal heirs the option of repaying the sum issued under reverse mortgage with interest and taking ownership.
Another popular option used by several investors is to invest in an insurance company’s Unit Linked Investment Plan (ULIP) in their late forties and allowing it at least a dozen years to mature even though the lock in period is usually five years. Even with the new marginal tax levy, it remains a feasible retirement option if your financial advisor performs the balancing act between debt and equity adroitly.
Mutual Funds too offer multiple retirement plan options and one of the popular ones is a Conservative Retirement Fund. These have a lock-in period of 5 years or 58 years of age, whichever is earlier. Let us now proceed to glance at a few funds from this category.
Nippon India Retirement Fund-Income Generation Scheme has an AUM of Rs 264 crore. The Current Asset allocation is 20 per cent in Equity, 72 per cent in Debt and 8 per cent in Cash and Cash equivalents. The equity investments are spread across sectors like Banks, Software and Consumer Non-durables. The debt investments are in Government Securities. This fund has recorded returns of 8.5 per cent over three-years and 6.9 per cent over five-years.
Tata Retirement Savings Fund-Conservative Plan has an AUM of `173 crore. The asset allocation mix is 30 per cent in Equity, 58 per cent in Debt and 12 per cent in Cash and Cash Equivalents. The equity investments are primarily in the Banks and Software industry. The debt allocation comprises Government Securities, Zero-coupon Bonds and State Development Loans. This fund has recorded returns of 8.2 per cent over three-years and 8.4 per cent over five-years.
HDFC Retirement Savings Fund-Hybrid Debt Plan has an AUM of Rs 123 crore. Its current asset allocation mix is 14 per cent in Equity, 59 per cent in Debt and 27 per cent in Cash and Cash equivalents. The Equity portion primarily includes investments in Banks and Software whereas the Debt portion comprises of investments in Government securities and higher rated debentures and NCDs. This fund has recorded returns of 8.9 percent over three-years and 8.2 percent over five-years.
The Government’s National Pension Scheme (NPS) is also emerging as a popular avenue for retirement planning. However, the scheme may still undergo a few more iterations before settling down.
Clearly then, there is no dearth of options to choose from, provided investors begin planning for their Silver Years well before they are upon them.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com