Today there are people who live up to the age of 95 as well as those who die at 59. Some of them have very smartly multiplied their money and some live on a hand to mouth basis.

Depending on what your parents have done, and what you have done with your own life, you will inherit anything between 0.1X to 10X of your net worth.

Without getting into too much of detail of how much you inherit, let us see what you can do with your inheritance.

Now unless the corpus is / was really big, or the person had a nice indexed pension, a 90 year old will not leave much behind for his progeny. Chances are he would have consumed most of his wealth, and may not have much. Of course if he had a house, that house would have appreciated – and that could be a decent inheritance. Also if a person dies at 90, chances are that his son is 65 years old, and thus nothing much can change in his life.

So assuming that you are 45 years of age, and have a networth of Rs. 1. 5 crore, what should you do with a Rs. 1 crore inheritance?

Assuming that the whole thing is in cash, you need to manage it. If it is in the form of a house in a location that you are not keen to use, you may first have to sell it. If it is in the form of shares or mutual funds you WILL have to get it transferred to your name.

Assuming it is cash of Rs. 1 crore, my suggestion is normally as follows:

1/3 goes towards loan repayment. In case you do not have a loan, it becomes an investment. Of course if you have a 7% fixed rate home loan, you may be tempted to invest it, that is your call. If your own net-worth is very high, you may even invest this in direct equities assuming you have the skill.

2. 1/3rd goes towards a pension plan: We normally underestimate our own needs at retirement. So putting an extra amount in the pension plan should help us build a corpus faster.

3. 1/3rd goes towards having fun: Changing your life-style based on an inheritance is foolish. Buying some asset is a no no….especially if you try some dramatic upgrading. For e.g. if you normally go around in a Maruti 800 or Indica buying a Mercedes makes no sense. Your income stream does NOT ALLOW you to be able to afford the regular maintenance , does it. So buying a Luxury apartment of 3000 sq ft with maintenance of Rs. 10 per sq foot may not beĀ  sensible thing to do if you cannot afford such lifestyle! However taking a vacation to a place of your choice with your family…does not bring in any baggage or recurring expense.

Moral is very clear – treat this as a ONE TIME gift. It will not happen again..

I know one guy who put it in a balanced fund – and takes a vacation with a part of that amount. In my estimate it will last him for 10 vacations – or if the markets are very kind about 15 vacations! Not bad, right?

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  1. Dr M Chandrashekhar

    Good post, Subra. I inherited a flat & around 12 Lacs cash. I used the cash for my son’s UG Education in US. The Flat is on rent in Chennai.

  2. Good one.
    Liked the balanced fund concept. Smart.
    this was v helpful cause I am the PPF nominee on largish funds and after paying off obligatories am not too sure what to do– so thank you, sir.

  3. I wish!

    Oh, how I wish!

    Subra Sir, you have taken me to a fantacy land!

    Now I will spend some time imagining about what to do with this hypothetical inheritance. Feels good.

    This is nice problem to have

  4. I wish!

    Oh, how I wish!

    Subra Sir, you have taken me to a fantasy land!

    Now I will spend some time imagining about what to do with this hypothetical inheritance. Feels good.

    This is nice problem to have

  5. I am in the similar situation. In search of a solution, I hit upon this site (a good one). However, seeking a guidance.

    In the above example, which of the following is better assuming that the money is for retirement.
    a) Invest the above corpus in an Index fund (Franklin Templeton BSE Sensex Plan), or
    b) Park the above corpus in a liquid fund and do a STP? or
    c) Build a equity portfolio as suggested in the post, or
    d) Buy a pension plan (Templeton pension plan or UTI pension plan)
    e) Invest the money in a debt fund and start a SIP

    Thanks in advance for help.


  6. Subra 2 questions … keep talking about ‘networth’ how do you calculate the ‘networth’ of a person?
    Two..what if its the other way round, parents asking you to fund for their vacation (pilgrimage etc..) how do you deal with it?

  7. suraj, my inputs
    1. networth of a person would be all assets (like cash, sellable [not wearable] gold, sellable [not stayable] property, bank balance, epf/ppf, mfs, shares, etc.) minus all liabilities (loans outstanding on house/car, any commitments to friends/family you cannot cancel, personal loans from banks & private parties, etc.). hopefully this number looks positive…
    2. any requests from family or friends should be managed as a gift you are willing & able to give. if you like your parents to enjoy & can afford to buy them a vacation, go for it. if it leads your finances to be in a mess, you should tell them & they should understand…

  8. My views are rather traditional,
    I believe what i get as inheritance, I will not use it and just pass it on to next generation. I did not earn it i will not spend it.

  9. @ Manjunath

    I absolutely agree. I would go further to say use only in case of dire emergencies. And use a significant percent in charity straight away.

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