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Gift a monthly income!
November 17, 2003 13:02 IST
For most individuals living away from their family, life tends to be tough. The situation is further complicated by concerns for the family's financial well being.
This is a condition those staying away from home will easily identify with, including Non-Resident Indians.
So what can be done to ease the financial burden on the family within the given constraints? The solution lies in providing regular income to family members using financial tools like monthly income plans (MIPs) and pension plans.
Monthly income plans are a hybrid version of balanced funds; however, the composition is lop-sided in favour of the debt component.
The equity component (ranging from 0% to 20%) provides the much required impetus to the returns while retaining the relative safety and stability from the debt element.
Although MIPs (Why MIPs?) don't assure monthly returns, their performance history seems to suggest otherwise. Leading MIPs (Templeton MIP, Principal MIP) have consistently offered tax-free dividends to investors.
More importantly for the investors, investing is a one-time activity. All an investor needs to do is select a top-performing MIP and invest the appropriate amount for his/her dependants.
The MIPs' dividends will act as monthly income for the recipients. To make things even better, dividends can be credited directly to the unit holder's bank account using the electronic clearing system.
To gift an income of Rs 5,000 pm to your family…
|Templeton MIP||0.44%||0.44%||0.40%||1,250,000 ||NIL||Low|
|FT India MIP||0.79%||0.73%||0.70%||714,286 ||16.07%||High|
|Principal MIP||0.67%||0.62%||0.55%||909,091 ||8.55%||Medium|
|Birla MIP||0.60%||0.70%||0.65%||769,231 ||13.05%||High|
Pension plans are touted as ideal retirement tools; however their utility clearly transcends the stated purpose. Like MIPs, pension plans can also be used to provide regular income to dependents.
Here's what you need to do. Decide the amount you would like to gift your dependants, now opt for a pension plan which delivers the requisite amount in favour of your parents.
Gifting a pension plan need not involve any inconvenience. If paying annual premiums seems like a tough chore, the option of paying a single premium is always available. Effectively a one-time payment can ensure that your parents back home are provided with a monthly income.
If your dependant is currently 50 years of age, you can gift him/her a pension plan with a vesting period of 10 years i.e. from the age of 60 years, he/ she will start receiving a pension of approximately Rs 5,000 per month. This is what the pension plan will look like.
To gift Rs 5,000 pm to your family using a pension plan...
|Particulars||Rate p.a.||Amt (Rs)|
Effectively making a one-time payment of Rs 700,000 as a single premium towards the pension plan will provide nearly Rs 5,000 as a monthly income to your dependents back home.
Also a pure pension plan (like the one offered by HDFC Standard Life) works out to be very convenient vis-à-vis an insurance policy. The policy holder is not required to undertake medical check-ups or grapple with cumbersome paper work.
In both the above cases after the initial investment is made with the fund house/insurance company, the onus of providing regular returns lies on the respective entities, which implies that you are spared the bother of drawing drafts, delivering them and hoping that they are credited promptly.
Another aspect which needs to be highlighted is asset creation.
By investing in a monthly income plan or a pension plan, an asset is created which will provide for your dependants over a longer horizon. Clearly a MIP or a pension plan is a much smarter choice vis-à-vis a monthly draft.