Jyoti Sharma is 92 years old. She is widowed. She has a pension of 75,000 per year adjusted for inflation. She owns a house which she used to live in and is now rented and generates a rent of 30,000 per month. She now lives with her 62-year-old son and daughter-in-law and two adult grandchildren in a multigenerational household. She contributes her pension to the household expenses. The rest is saved. She has an equity portfolio worth 95 lakhs which is invested in individual stocks that have been held for many years and have large gains. She has 90 lakhs in fixed deposits that are maturing and wants to know what she should do.
Analysis and Recommendations
The Identified Quick Wins in her case are:
- She should move her fixed deposits into Government Savings Schemes
Observations
Jyoti Sharma is in a very good financial position, anchored by her inflation-linked pension which covers her expenses. Her portfolio of real estate, equities and fixed deposits is quite balanced and is efficient in that it is incurring practically no costs for asset management and advice. Some of the assets may be required in the event of extraordinary health expenses, most of them are going to go to her only son and grandchildren. When considering the appropriate asset allocation, it would be appropriate not just to consider it from her standalone perspective, but from the perspective of the family to whom she is planning to leave the assets.
Asset Allocation
Our recommendation for a 92-year-old is a range of 40% to 10% equity, depending on risk tolerance. The recommendation for those with average risk tolerance is 25% equity. Jyoti’s financial assets are currently allocated 51% equity and 49% to fixed income. On a standalone perspective, given her age, we would be recommending that she reduce her equity allocation towards 40% and possibly down to 25%. However, when we look at the asset allocation from the perspective of her son, our recommendation is a range of 60% to 28%. The recommendation for those with average risk tolerance is 48% equity. Jyoti’s inflation-linked pension, expenses less than her income, more assets than are needed to support her lifestyle allow her and her family to tolerate the risk from a 51% equity allocation. Her current equity allocation is appropriate from her son’s perspective. We therefore recommend no change to the asset allocation.
Investment Recommendations
Keep the equity portfolio. Reinvest 30 lakhs of the maturing fixed deposits into the senior citizen savings scheme. The current interest rate is 7.6%. It is higher than the fixed deposit rate and has a lower level of risk because it is explicitly government risk. Bank fixed deposits are riskier. Of the balance of 60 lakhs, she should put 10 lakhs into the SBI liquid fund. This is available very quickly in case of any emergency need of funds for healthcare or other emergency needs. The remaining 50 lakhs can be invested in 5 year Indian Government Bonds through the RBI portal for retail investors – https://rbiretaildirect.org.in. These are low risk, have no risk to the five year maturity, no fees and can be easily sold if the funds are needed earlier for health or other reasons. There is no penalty for early withdrawal though prices can fluctuate based upon interest rates.
