September 25, 2010 7:53 am
My uncle just retired from his job in June.
I would like to know what would be the best way to divide his funds so that he can get a regular income as well as the money appriaise in value.Can you suggest some options please?
One way this can be achieved is by buying shares of companies with proven track record of increasing dividends year after year. There are plenty of such companies in our markets.
Just for example, dividend from Nestle has increased from Rs. 20/- per share in 2003 to Rs. 48.50/- in 2009. Similarly, Castrol has increased dividend from Rs. 8.25/- per share in 2003 to Rs. 15/- per share in 2009.
These type of increasing dividends protects purchasing power in retirement. However, few cautions are in order while implementing this strategy:
First, there should be adequate allocation to safe instruments like bank FD, post office schemes etc adequate to cover essential monthly exenses. This is required in order to sleep well.
Second, portfolio should be diversified in order to mitigate company specific risk of reducing dividdend.
Third, person should have basic exposure and understanding of how stock markets work. A person who is completely new to market would not be comfortable with such strategy.
Similar one is to buy a property and give it to rent which can be renewed frequently at higher rate. However, this also has some risks like tenant trying to occupy property and continuous attention which needs to be paid for maintaining property and records.
However, relying only on FD and Post office schems is not advisable as inflation would erode purchasing power of return from these instruments.
If he has good amount , he can invest in some real estate and get rentals for his income and value appreciation would also be there in coming years . however dont look at it as super wealth creator .
I would suggest Post Office MIP, and MIP’s of Reliance MF and HDFC MF. He can also look the company deposits. I would suggest Shriram Transport Finance or Dewan Housing. Though Shriram Transport Finance is a much healthier and better option.
He can divide his funds into Post office MIS scheme, MF MIP schemes and Bank deposits.
And say 5% in Equity mutual funds.
At this age, it is not recommended to take much risk as this is his last source of income. Advise him to first go for health insurance. That will act as “protection” for his savings.
Invest some amount in Post office MIS to get monthly income. The following links will help you.
Keep some cash in bank FD – which does not have lock-in & gives higher interest than bank savings account.
In case, he is ready for small risk, invest in some good balanced fund through SIP like HDFC Prudence fund.
Hope it will help you.
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