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My sister is 32 years old and her spouse succumbed to Covid last year. Now she lives with her 4-year-old son in her own house. She received ₹75 lakh from the insurance company and also gets about ₹50,000 a month as pension, besides her own net salary of ₹80,000 a month. She has medical insurance and HRA from her organisation. She has not started any investments so far. Her monthly expenditure is about ₹30,000. Can you please suggest investment options for her lump-sum funds and the monthly pension?
AR Chintha
We are sorry indeed to learn about her situation. Life events such as this often force us to reassess our priorities and life goals and your sister, too, must do this.
As we see it, she may need to save and invest towards three goals from here on – securing her son’s education and future, ensuring that her financial future both during her working years and post-retirement is taken care of and having sufficient insurance and emergency funds to take care of any life exigencies. Given that she has income that is well in excess of her expenses and that the insurance money is intended to replace her spouse’s income and take care of her future, she can look to invest the lump-sum of ₹75 lakh towards her own future and post-retirement needs.
We would advise setting aside 60-70 per cent of the lump-sum in safe government-backed instruments such as NSC, GOI Floating Rate Bonds or mutual funds focussed on central or State government securities while allowing the interest to compound. Given that she can afford a 7-plus year horizon to see this money grow, the remaining can be invested in equity index funds so that her overall returns on this corpus can beat inflation. Index funds mirroring the Nifty50, Nifty500 and Nifty Low Volatility Index would be good choices.
Given the over-heated stock markets, we would suggest parking this money in a safe debt fund and using Systematic Transfer Plans to move it gradually into the above index funds over the next 2-3 years.
Given that she would be the key breadwinner in her household now, she needs to get an adequate life insurance cover through a pure term plan to take care of her son’s needs in her absence. It may also be wise to buy a critical illness insurance policy to compensate her in the event of sudden illness. She must also build an emergency fund, equal to about 12 month’s living expenses out of her insurance claim or monthly savings, which must be parked in FDs with a systemically important bank.
To fund her son’s education and meet her other goals for the future, she can look to start SIPs out of her pension and own income, in a combination of debt and equity funds. She can consider debt funds that invest in high-quality bonds from PSUs, banks, State Development Loans (SDLs) or AAA rated companies.
For the equity portion, she can consider index funds mentioned above or flexicap funds picked out by a good advisor. Her investment plan, however, would need periodic monitoring to adjust to the changing debt and equity market conditions, for which a full-time advisor would be quite useful.
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