I am 58 years old and will be retiring soon. By the time I will retire, I will have a corpus of Rs 50 lakh in the National Pension System (NPS). I do not have any major financial responsibilities; I have my own house, and my children are working. My first child is in the US, working for a multinational company; the other is working in a government job in Mumbai. My dilemma is whether I should withdraw the 60 per cent of the corpus in a lump sum and invest in fixed-income instruments, like fixed deposits (FDs) or withdraw systematically for cash flow. I can also invest the entire sum in an annuity plan. Which approach will be the best and give maximum returns?

Ans. Using the entire proceeds to buy an annuity is not a good idea. There are several reasons for the same—annuity rates are low, annuities are fully taxable, and the payment is fixed, though ideally, you would like it to be inflation indexed. The one case where annuities are suitable is when the retiree does not have professional help in managing their retirement corpus. In this case, an annuity can be helpful as otherwise, there is a risk that the retirement corpus will not be managed properly or frittered away. Forty per cent of your corpus (Rs 20 lakh) needs to be mandatorily annuitized, which will yield about 6 per cent per annum return or Rs 10,000 a month. The balance of Rs 30 lakh needs to be split into debt investments and equity investments depending on how much income you require every month. It is recommended that equity investments be made from the balance of Rs 30 lakh to make the retirement corpus inflation-proof. This will allow you to increase the income from your corpus to account for inflation in future.

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I am 70 years old and have a son and three daughters. They are all grown up, married, and working in different cities. My husband passed away a few years ago. I have a two-storey house in my husband’s name and live with my son and his family of four. My daughters do not want a share of the property; they want their brother to have it. I want to know how I should proceed with my estate planning. I also have a large ancestral agricultural land in my husband’s name and want to divide it equally among my children so they can have it for the next generation. How should I proceed with it?

Ans. If your husband has left a Will, then the assets will be divided based on the contents of the Will. In the absence of a Will, the succession laws will apply. It is recommended that you register the current property in which you are staying in your name as you are an eligible heir. It is highly recommended that you get professional help and register a Will in your name. In this Will, since the daughters have reneged any claim to the current property in which you and your son are staying, you can specify your son as the legal heir of the property. In this Will, you can also specify that the agricultural land has to be divided equally amongst your kids. The Will can also detail how your other assets –financial assets, jewellery, etc, need to be divided amongst the kids. Drafting a Will and registering it will ensure that the transmission of assets happens smoothly and reduce the possibility of any acrimonious situation amongst your kids in the future.

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I am 30, unmarried, and employed in a food delivery company. I earn around 40K in a month. I have two siblings, and they are studying in school. My father works in a private company, and my mother is a homemaker. I don’t have any major family responsibilities currently, but I want to contribute more to the family and my financial goals in the near future. So, how should I plan my savings and investments for short and long-term goals? 

Ans. Being young is a great advantage while investing, as you have time to reap the benefits of compounding. Even if you save Rs 10,000 a month from your salary and use it to invest in equity mutual funds, you can accumulate a corpus of about Rs 25 lakh in 10 years. As a new investor, it is recommended that you first invest in large-cap equity funds. In the large-cap space, it is best to go completely passive and you can invest in prominent indices like Nifty 50 or Nifty 100 through index mutual funds. Subsequently, you can invest in mid-cap and small-cap funds on top of the core investments of large-cap equity. It is also a good idea to invest a small amount in a debt mutual fund or a recurring deposit, which can act as a reserve for short-term goals or as an emergency reserve. If you invest Rs 3,000 a month in a debt mutual fund, it will slowly grow into a healthy corpus that can absorb any small emergencies as well as fund short-term goals. It is also important to keep a target in mind and step up your monthly investments each year. At the least, you should increase your monthly investments by 10 per cent each year. This will allow you to reach the target corpus much ahead of time.

The author is a CFA, a Sebi-registered investment adviser (RIA), and co-founder of www.samasthiti.in, a financial advisory platform.

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