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	Twin benefits: Save and prepay home loan   Retirees earning a pension hope to manage all their finances with this income, without depending on anyone else. However, most feel this might not be sufficient, owing to the rising inflation and the desire to pass on wealth to the next generation.   For such individuals, there is no dearth of advice. While some say sticking to fixed deposits is the best option to ensure capital safety and sufficient funds, some suggest renting a second property. In case of a severe fund crunch, one could reverse- mortgage a house or pledge gold. But zeroing in on an option isn't easy, especially as the income flow is likely to slow, while expenses would either rise or remain the same. Also, one has to balance these factors for 20- 25 years, with the inflation sword dangling overhead.   Therefore, it might be sensible to avoid traditional risk- averse instruments and channel a part of the portfolio to high- risk instruments.   After retirement, growth of capital is important, as the income flow falls. And, a retiree might be looking at a horizon of at least 20 years, while fighting inflation… riskier instruments can be included in a retiree's portfolio.   Of course, the instruments have to be evaluated on factors such as risk tolerance, investment horizon, growth target, etc.   One should divert the portion of the portfolio not required for at least five years. Or, the surplus on which one could afford to not earn substantially.   Relying on settlement corpus   There is a large category of people who rely on the final settlement corpus they receive on retirement; in all likelihood, they might not earn a pension. Financial planners encounter such people on a daily basis. Majumder's advice for these people — start whenever you can; you would be able to save something, if not a lot. Protection of capital is very important.   The plan of action would, of course, depend on post- retirement needs. After setting aside enough for health care (as this is a necessity), invest 30- 40 per cent of your investment between large-cap equity funds and balanced funds (dividend payment option). If you have some high risk tolerance, a large-cap fund can be replaced with an equity diversified one. Invest the remaining amount in a combination of fixed deposit (quarterly payment option) and debt mutual funds ( dividend payment option). As there is a need to be aggressive with the investment, you could also replace pure debt funds with debt- oriented balanced funds for an equity booster. In such situations, a (second) property that could provide rental income could be helpful. This, however, doesn't mean you buy a property with the retirement corpus.   Retirees should not invest in real estate. The case is different if one already has a spare property. Real estate is an illiquid asset class and requires chunky investment, which eats into one's retirement corpus. And, once the real estate market cracks, there would be very heavy losses or no exit route.   The best option in such situations is delaying the retirement age, if possible. An alternate employment can promise a fixed monthly income flow.   Large- cap funds have given 22 per cent returns through last year; equity diversified funds gave 21.5 per cent and balanced funds 18 per cent. Short- term debt funds returned 11 per cent, though in the current market, opting for medium- to long- term debt funds could be helpful (annual returns of 14.5 per cent). Debt- oriented balanced funds returned 12 per cent in the past year. State Bank of India's one- year fixed deposit is offering 8.75 per cent.   If you Planned late, pension will be small   An important question is whether the pension amount can bridge the gap. In case it cannot do so completely, but after taking the pension into account, if the gap isn't very wide, stick to debt funds and fixed deposits for 85- 90 per cent of the corpus.   Or, you could lock- in a portion of your money in closed- ended schemes such as fixed maturity plans ( FMPs), which can be directly compared to fixed deposits, and medium to long- term ( open- ended) debt funds, which could earn a tad more than fixed deposits. Last year, FMPs earned 8.5- 13 per cent. These schemes should account for about 20 per cent of the portfolio; the deposits portion could be lowered to 60- 65 per cent. If the pension amount doesn't help much, opt for large- cap funds or balanced funds and earn from dividends — up to 30 per cent of the portfolio. Again, rental income, if available, could help, but the exposure should be restricted to 30 per cent to ensure this money also contributes towards savings. Here, too, delaying the retirement would be a smart move.   Started late then no pension   Here, protection of capital is more important than the two previous scenarios. Therefore, being aggressive might not be a good idea. After retirement, try to get another job, instead of losing money in high- risk instruments. Limit your risk- taking ability to debt mutual funds — up to 80 per cent.   Go slow with investment and build a higher corpus with the new income stream, along with periodic payments from fixed deposits and debt funds.   What to do Planned early, but corpus eroded?   Consider a case when you had planned for retirement early, but due to unforeseen circumstances, had to use the corpus before retirement.   Here, the need to generate 910 per cent returns to bridge the gap arises suddenly. Equity funds are the best solution, as delaying retirement at the last moment might not be easy. Opt for equity- diversified and large- cap equity funds for high returns with safety and liquidity — 45- 50 per cent of the portfolio.   And, if the corpus erosion isn't much, avoid taking too many risks.   Planned properly, but no pension   In this case, generating four to six per cent returns would be enough. Therefore, stick to prescribed assets and allocation. Concentrate only on fixed deposits (75- 80 per cent), debt funds ( 10- 15 per cent) and invest the rest in gold or equity.   Always include gold   Though gold prices have been falling for a month, the commodity is a must- have in all portfolios, as it is a hedge against inflation for a longer horizon ( five years or more). And, given the prices are low, this might be a good time to buy, though the prices might fall further. In the past year, gold prices fell 5.5 per cent. Gold jewellery, however, has limited usage, as the resale value falls by 10- 15 per cent due to making charges, cautions Ladderup's Nath. The best ways to invest in gold are through gold exchange- traded funds (ETFs) or gold feeder funds. Both are offered by mutual fund houses. However, while ETFs need a demat account, feeder funds don't. And, one can invest systematically in the latter. Ideally, restrict portfolio exposure to gold to five per cent.   Word of caution   Theoretically, retirees should stay away from high- risk instruments. But one can have a little exposure in equities (10- 12 per cent of the portfolio), only if the person is not dependent on this corpus. Early retirement planning to ensure one doesn't have to bother about such things later. Investment in the best- earning fixed deposits after retirement.   Remember, while it is always important to revisit your investment portfolio, this thumb rule is all the more significant in the case of retirees. Here, the investment is not as much about high returns as about refraining from undue risk.   Some exposure in equities is fine
Usually, a home loan is one of the biggest liabilities. Considering the huge amount and the long tenure involved, it is advisable to repay the loan at the earliest.   And, as both the Reserve Bank of India and the National Housing Bank have abolished the penalty on prepayment of home loans ( for floating rate loans), it is sensible to prepay your home loan and save on interest. For those lacking the financial discipline to save and build a corpus to prepay a loan, some banks offer aproduct through which one can deposit small surplus amounts into a current account. This can be offset against the due amount on the loan; this would reduce your loan tenure, as well as the interest. You could also link the loan to your salary account and withdraw only the amount required for essential expenses. This would ensure a substantial balance in the account, which could be offset against the due amount on the loan.   Consider a scenario in which one has availed of a home loan of ₹ 20 lakh and is paying an equated monthly instalment (EMI) of ₹ 22,000. Of this, ₹ 2,000 goes towards the repayment of principal, and ₹ 20,000 towards repayment of interest. If you deposit ₹ 10 lakh in the account linked to the home loan, the repayment on interest falls to ₹ 10,000. As the monthly EMI remains ₹ 22,000, the additional ₹ 10,000 goes towards principal allocation, which could effectively reduce the interest on the entire sum, as well as the tenure of the loan. Compared to prepayment, this is advantageous.   In the case of prepayment, banks might insist at least acertain amount be paid, say an EMI or three EMIs or, in some cases, a figure of ₹ 1 lakh. But in the case of an offset balance home loan, there are no such requirements — you could deposit any amount in the account, says Vipul Patel of Home Loan Advisors, an independent mortgage advisory firm.   A second advantage is if you decide to prepay a home loan, you would have to part with the money but for an offset balance home loan, if you deposit a certain amount in your current account, you could withdraw the money when required. Since the interest is calculated on a daily reducing balance, even if you withdraw money, the benefit you have received would hold. But the prospective benefit would reduce.   However, this advantage comes with a cost--banks offering this product charge interest 25- 50 basis points higher than that on normal home loans.   The savings on interest payments could be substantial, depending on how much money the customer chooses to deposit in his account. It also provides the borrower liquidity in managing the deposit float, as these excess funds can be utilised freely. Finally, the customer can use this account as a regular bank account, for which a cheque book and debit card are provided for routine banking transactions. Therefore, a nominal interest rate premium is levied for this significant advantage to the customer. Many banks offer these products — HSBC offers the Smart Home, State Bank of India's has the SBI Max Gain, while Standard Chartered Bank and Citibank offer Home Saver and Home Credit, respectively.   Since a current account has an overdraft facility, frequent withdrawals from the account could increase the tenure of the loan.   Is it better to invest in other instruments and use that money to prepay a home loan? Yes. Typically, the tenure of a home loan is about 10 years. This provides an opportunity to save in other instruments in a disciplined manner; these provide higher interest compared to home loan interest.   For instance, instruments such as equities, mutual funds, exchange- traded funds, corporate fixed deposits and National Spot Exchange- agricultural commodities provide annual yields of more than 12 per cent through three to five years. But for such instruments, it is important to have a systematic approach, not lump sum investments to average the cost of investments and match inflation rates. This product (offset balance home loan) is suitable for borrowers who lack discipline in savings on a regular basis, or those who don't retain savings. If you decide to invest the money in an instrument and use this to prepay the amount later, you should ensure the post- tax returns are higher than the interest charged by the bank on the home loan. Only then is this option viable

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