How to secure your parents' retirement income

Question: My mother has past savings which will enable her to be financially independent.

- HP Ranina

She traditionally believes in bank fixed deposits but mutual funds are now being suggested by financial advisers. Are mutual funds safe and attractive and will she be able to draw funds on a monthly basis for her maintenance and personal expenses?

ANSWER: For decades, Indian households invested in fixed deposits. However, according to a recent report of the Reserve Bank of India, investment in mutual funds has emerged as the preferred vehicle for household investors. According to this report, financial inclusion is on the rise and there is greater confidence in the mutual fund industry. Interest rates on bank deposits are on the decline and therefore there is a shift to investments which fetch a higher return.

Many senior citizens prefer to invest in mutual fund schemes having a systematic withdrawal plan. Under this plan, an amount can be withdrawn every month which could be used by investors for their maintenance and household expenses. Therefore, based on the corpus that your mother has, a systematic withdrawal amount can be determined by financial advisers to take care of all household expenses. The advantage of this is that even after withdrawal of funds from such a scheme every month, the rest of the corpus would continue to grow over a period of time.