Look At Balanced MFs For Regular Monthly Income

Prasad Manthalka

I want to invest Rs 10 lakh to get guaranteed monthly income after 10 years. Safety is important. Where can I invest? Is it possible to get guaranteed income immediately?

Considering safety features and guaranteed monthly income after 10 years, let’s take an example of a person who is 35 years old now. Guaranteed deferred annuity plans from insurers will give you lifetime guaranteed income of about Rs 9,000 a month from the age of 45 years as per the current rate. On death, the purchase price is given back to the family. Say, a 50-year-old makes a lump sum payment of Rs 10 lakh to get immediate monthly income or for an immediate annuity plan. The person will get about Rs 5,000 monthly income lifelong and return of the purchase price to the family in case of his or her death. Annuity payments are taxable; income is guaranteed but does not beat inflation.

Another option is balanced category of mutual funds, which is less risky than equity mutual funds. One can expect non-guaranteed but higher monthly income that beats inflation, shows capital appreciation and has good liquidity. The returns are tax-efficient.

Decisions such as these should also be based on factors such as age, goal and risk appetite.

HINA SHAH Certified Financial Planner CM and Coach, LUHEM

Paul, email

I am 42 years old and my son is 10 years old. I have a Public Provident Fund (PPF) account. Can I open another one in my son’s name and contribute Rs 1.5 lakh in that as well? Will I get tax benefit on both the accounts?

Yes, you can open another PPF account in your minor son’s name. However, Rule-4 of the Public Provident Fund (PPF) Scheme, 2019, specifies the ‘limits of subscription’, which states that the maximum limit of Rs 1.5 lakh invested by an individual shall be inclusive of the deposits made in an individual’s own account and in the account opened on behalf of the minor. Thus, till the time the total contribution does not exceed Rs 1.5 lakh in a financial year, you can split the amount between the two accounts. The minimum contribution in an account is Rs 500 in a financial year.

The investment in your son’s account is also eligible for tax benefit under Section 80C (of the Income-tax Act, 1961). However, do note that the maximum deduction available under this Section is Rs 1.5 lakh which includes contribution to your own PPF account, your son’s PPF account, life insurance premiums, etc.

The key advantage of a PPF is that the interest earned and maturity amount is completely tax-free.

UMA S CHANDER Certified Financial Planner CM, Handholding Financials

Chandaresan

What are the advantages and disadvantages of index and diversified mutual funds? How do they compare with each other?

Index funds replicate the index. They invest in equity shares in the same proportion as in the index (for example, the Nifty or the Sensex). They are passively managed funds and well diversified. As they are passively managed, they have lower expense ratios or cost. An index fund replicates the returns of the index it tracks; there is no human involvement in choosing the equity shares and it is benchmarked to the index itself.

Diversified mutual funds are actively managed funds. They invest in the equity shares based on their mandate, theme and strategy. There is human involvement as the fund manager chooses the shares to invest in based on thorough research and often shuffles the investments. So, diversified mutual funds have higher expense ratios.

Historically, diversified mutual funds have outperformed index funds with higher margins. At the same time, it is advisable to invest in diversified funds based on your goals, term of the investment and risk appetite. Take advice from an investment expert if needed.

HINA SHAH  Certified Financial Planner CM and Coach, LUHEM