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My PPF account will mature on March 31. Where can I invest this money for the short term?

There are few choices such as Post Office Time Deposits or debt mutual funds other than bank FDs. A one-year time deposit at the post office will earn 6.9%, calculated quarterly and paid annually. The minimum lock-in is 6 months.

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Last Updated: Mar 25, 2020, 09.26 AM IST
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I am 68 and still working. I have some investments in bank FDs and mutual funds that can take care of my expenditure after retirement. My PPF account is maturing on 31 March, with a corpus of Rs 25 lakh. I have already extended the tenure of my PPF account for two five-year terms. What are the short term options for this maturity value?

Prableen Bajpai, Founder, Managing Partner, FinFix Research & Analytics, responds: You have not mentioned any financial goal or time frame. Going with a short-term period, between 3 months and a year, capital preservation becomes the prime component of any investment decision. There are few choices such as Post Office Time Deposits (POTD) or debt mutual funds other than bank FDs. A one-year time deposit at the post office will earn 6.9%, calculated quarterly and paid annually. The minimum lock-in is 6 months. However, in the event of an exit between 6 and 12 months, only the post office saving account’s interest rate will be payable. The second option is to go for an ultra-short-term or low duration debt fund. These funds can be accessed anytime, but the gains are not fixed. If you choose debt funds, split the amount across two credible fund houses. If you do not utilise the money held in debt funds for 3 years, you can avail indexation on capital gains. If some of the money can be parked for say 5 years, then the Senior Citizen Saving Scheme is a viable alternative. You can invest a maximum of Rs 15 lakh and earn a quarterly interest payout at 8.6%. A mix of these products should suffice your purpose.

I am a 46-year-old professor. Recently, I changed jobs and received Rs 15 lakh from my previous employer as gratuity and leave encashment proceeds. I have two children aged 16 and 13. I want to keep this money for their higher education. How should I invest it? I have been investing Rs 40,000 a month in mutual funds through SIPs for the last three years.

Jayant R. Pai CFP and Head - Products, PPFAS Mutual Fund, responds: As you are already investing Rs 40,000 a month in equity funds, you are on the right track. You could increase the SIP amount in the schemes you already invest in. Assuming you need the money when your children turn 21, your investment horizon is 5 and 8 years respectively. Segregate the portfolio for each child. Invest the sum received from your ex-employer in liquid funds of the same fund houses and opt for the STP option. This will help you sequester the funds.

I am 64, retired with no pension. I live off my savings and investments. I have Rs 1.3 crore in mutual funds, Rs 15 lakh in bank FDs, Rs 15 lakh in SCSS, Rs 9 lakh in post office deposits and Rs 10 lakh in the PPF. As part of my MF portfolio, I invested Rs 75 lakh in the dividend options of three hybrid funds: DSP Equity and Bond, ICICI Prudential Equity and Debt and Tata Hybrid Equity Fund. I earn about Rs 58,000 from these every month. Should I opt for an SWP option instead to earn around Rs 65,000 every month? I want to protect capital too.

Ankur Choudhary, Co-Founder and CIO, Goalwise, responds: All three are aggressive hybrid funds, which means these will have 65-80% of their portfolio invested in the market. In the long term this means you can get higher returns but on the flip side you could also lose 30-40% of your investments in a market crash. If you want Rs 65,000 every month then it is best if you set up a SWP since dividends are not fixed. Also, SWPs may be more tax efficient as you would be paying capital gains tax, that too only on the gains part of the amount withdrawn. The new financial year dividends will be taxable at your bracket and there will be a TDS of 10%.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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