Want guaranteed income for life? Choose SIP over annuity for better return

Start a SIP or invest into an equity mutual fund which may create a considerable corpus during the accumulation phase

Does it make sense to buy an annuity plan with guaranteed income for life? Is there any product like annuity which can give my wife and me a regular monthly income?

No, it does not make sense. There are two issues. The annuity rate you will get is really low and the annuity income is taxable as salary. So why do this? Instead, start a systematic investment plan (SIP) or invest into an equity mutual fund which may create a considerable corpus during the accumulation phase. After that, you can choose to withdraw as you like during the retirement years.

I am planning to migrate abroad after three years. My goal is to save up Rs 15 lakh for it. I can spare Rs 30,000 a month. How should I invest my money? 

As the goal is due in three years, it is ideal to not opt for high volatility products and instead invest in equity savings or monthly income plan type of funds which have comparatively low equity exposure. With this strategy, you may be able to garner about Rs 12 lakh by investing Rs 30,000 a month for three years. To bridge the gap, invest an additional Rs 500-Rs 1000 every month.

I am interested in trying out two variations of SIP. One of these – value averaging plan – is well-known. My distributor is offering the second. Under this, an algorithm suggests how much to invest based on the stock market and schemes’ valuations. Do you think such variations of SIP help?

We are trying to predict unpredictable. In my 25 years, I have not seen any model which can be said to be a predictor of stock market behaviour. Such models are made on the basis of past data which is a representation of past human behaviour, economic activity in the country and the world. All this unpredictable.  Two my view, the best thing to do is to keep investing as you can and as much and as long as you can in equally funds.

I have an ongoing home loan that has seven more years to go. Does it make sense to liquidate my investment in mutual funds and pre-pay the loan?

Pay equated monthly instalments as per schedule if you have available free cash flows. Prepayment of loan makes sense only when your investment generates lesser returns than home loan interest rate. However, in your case, your investments will earn much higher, and you can consider utilising the profits of your investment to pre-pay the loan. Do not dig into the capital as you have taken pains to build this over time.

I am doing tax planning for the year. Does it make sense to invest in Sukanya Samriddhi Yojana for my daughter who is now seven?

Sukanya Samriddhi Yojana is a government scheme providing returns of about 8.5 per cent at present. There is a lock-in period until the child turns 18. From tax saving point of view, this will help you get deduction under section 80C. However, from a combined view of tax savings and good investment returns it is advisable to invest in equity-linked savings schemes (ELSS). 

I am 26 and earn a salary of Rs 40,000 a month. I am yet to start planning to save my tax. If I can spare a Rs 100,000 over the next three months, where should I invest? I do have a public provident fund account. I also invest Rs 25,000 annually in a traditional insurance plan.

ELSS is one of the best investment options that offer tax savings benefits with significantly higher returns than any other tax savings product in the section 80C basket. Use ELSS to do your tax planning. After that consider using equity mutual funds to generate wealth. Avoid traditional insurance plans as returns are dismal in that area and term plan provides the required life cover at a very low cost.

The writer is director, Transcend Consulting. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in