Financial Guidance - Invest In Bond Funds

Q. I am 40 years old. I want to know about an investment wherein I could invest monthly and will receive Rs 50,000 every month for the next ten years after 22 years, ie when I am 62 years old. How much should be the monthly investment?
It is always said that invest in debt, but which are the good debt funds? Also, give information about other options, NSC, PPF, Bank FDs, etc. I also want to invest in bonds, so kindly suggest a few names. I have heard that bond prices and interest rates are inversely related. Please explain how this is so. Are bonds tradable? Is it good to invest in bonds, when interest rates are falling?
Suggest some investment plans for children, where after 15 years from now, children could get a lump sum of Rs 15 lakh. To achieve this, suggest the amount of one time investment required or investment on monthly basis. Suggest both the ways.

RNG, Mumbai

A. It is good to invest in bonds/bond funds when interest rates are falling. The logic is simple to grasp. If rates have fallen, and you are owning a bond which had committed to pay the old rates of interest (read, higher), it is more valuable than a new bond which will pay the current rates of interest (read, lower). The fact that it is more valuable results in the bond having a premium or capital appreciation when sold. Conversely, when rates are rising, older bonds will see a capital depreciation when sold.  In a mutual fund, whether you sell the units or not, the NAV gets valued at current value of the bonds (which factors in the bond appreciation or depreciation as the case may be). In the current economic situation, I see interest rates dipping further during the course of the year. Hence, I would recommend an investment in bond funds. Good performers have been ICICI Pru Income Fund, HDFC High Interest Fund and Birla Sun Life Dynamic Bond Fund (for conservative palyers).

As regards your need for a pension after the age 62, the simple method is to buy an annuity at the time you reach 62. One cannot buy an annuity in advance, so you will have to accumulate the corpus required to buy the annuity, till then. Currently, LIC’s Jeevan Akshay – V is paying an annuity at rates between 5.6% to even 10% pa. depending on the option that you choose.  To accumulate Rs .60 lakh over 22 years, an SIP of Rs.12,000 (all bond portfolio) or Rs. 6,300 (half bond and half equity portfolio) will be required.

Alternatively, Rs.45 lakh would also be sufficient, if one were to draw Rs. 50,000 pm from it which includes interest and some capital. In this method, you will exhaust the corpus over a 10 year period.

For your children, the table below suggests a plan for lump-sum investment and also an SIP alternative. I recommend mutual funds, as they are easier to manage and hassle-free.