Now that we have established as to how we can have 1 goal of a FI number and invest in 2 asset classes with 3 portfolios, we need to get down to the strategy of investment in the 3 portfolios. Let me start with debt.
For the purpose of coverall all sections of readers, let me divide the investing populace into 3 categories. The first will be people who are below 40 years in age and are likely to continue work for at least another 15 years or so. For this category of people the only thing they need to do is to keep contributing to their PF / NPS and PPF accounts. Remember that it is important too maximize your PPF account contribution, you will see the real benefits of compounding in the years to come. For people who do not have a PF or NPS account, I recommend you open another PPF account in the name of your spouse.
For the next category of people who are in the age group of 40 to 60, my recommendation is the same. Keep extending your PPF accounts, make sure you contribute the maximum amount and ideally never withdraw from it unless it is to meet a goal at a time when redemption of equity is inopportune. In addition to this you can invest in Tax free bonds if you are looking at a regular income in a few years time. Avoid FD as they are clearly tax inefficient, you may want to look at POMIS and also at different types of debt funds if you have surplus money to invest after all the above.
Finally, we come to the category who are retired, even though they may still have some secondary profession. For these people Tax free bonds are a must and they should put in as much as they can. In terms of FD, Senior citizen’s saving scheme is the only worthwhile investment. POMIS along with Debt funds can be looked at. The PPF accounts need to be continued and you can withdraw from these now. If you have the financial means, keep contributing the maximum to it. Assuming you have contributed to PF and PPF diligently over your working life, these alone will go a long way in taking care of your post retirement needs.
In my opinion, dent investments should be kept simple. Unless you have serious amount of surplus money, do not go for Gilt funds and the like. The best part of debt instruments is predictable returns, there is no need to go for instruments that are likely to have volatile returns. Equity is volatile in any case – I will deal with this in the next post.