I am 65 years old and have a monthly pension of Rs 40,000. I have invested Rs 24 lakh in Senior Citizen Savings and POMIS scheme. How can I plan two vacations in a year? I have never been abroad. Can I plan to take my spouse abroad after three years? I have no liability and no other savings except mentioned above. I only have to manage house maintenance and basic living expenses. I can save Rs 5,000-6,000 every month from my pension. Please help me plan my vacation for the next 5–10 years.
Reply by Aniruddha Bose, Chief Business Officer, FinEdge
It’s great to know you plan to take two vacations a year! You’ve worked hard all your life, and this is the time to kick back, relax and reap the benefits. Indeed, you have made a prudent move by putting away Rs 24 lakh in SCSS and POMIS accounts, as they would generate an assured income stream for you. There are, however, more optimal income generation strategies available, which we will discuss later.
Let’s take a moment to talk about your cash flows first. Since you have a pension of Rs 40,000 per month and have roughly Rs 5,000-6,000 left over from it every month, you will have a cash surplus of roughly Rs 2.4 lakh every year, keeping your POMIS and SCSS interest in mind (assuming an average interest rate of 7.5%). Of this Rs 2.4 lakh, we suggest you put away half the amount or Rs 1.2 lakh in a low-risk investment such as a Fixed Deposit or an Arbitrage Fund. This money will suffice for two domestic holidays every year, assuming a cost of Rs 50,000-60,000 per vacation. You should not take any risks with this investment because it has a very short time horizon, and you will need to draw on it twice a year.
For your foreign vacation every three years, we suggest you put away your remaining surplus of Rs 1.2 lakh per year in an SIP of Rs 10,000 per month in a top-performing balanced advantage fund. These funds dynamically adjust the equity allocation within their portfolios to allow you to generate better tax-adjusted returns than fixed-income assets. Assuming a 10% CAGR from these funds, you will have an additional Rs 4-4.25 lakh saved every three years for that foreign vacation.
Do note that balanced advantage funds have an equity allocation and do carry a degree of risk. However, investing through the SIP route will help mitigate these risks to an extent. That said, their returns will not be linear, and there could be some ups and downs in your fund value. Ensure you work with an investing expert to understand these risks before investing.
Lastly, returning to your POMIS and SCSS deposits, you should reconsider your income generation strategy once they mature. A well-constructed portfolio of Mutual Funds with an SWP (Systematic Withdrawal Plan) strategy can provide a much more tax-efficient income stream with higher income and liquidity than these government schemes, which have a hard lock-in.
(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)