When retirement is not very far away

By Larissa Fernand |  20-02-20 | 
 
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About the Author
Larissa Fernand is Website Editor for Morningstar.in. She would like to hear from you and welcomes your feedback.

You can post your query by accessing the Ask Morningstar tab. Our team will endeavor to answer queries ONLY related to mutual funds and portfolio planning from our registered readers.

I invest in SIPs in 4 large-cap funds and 1 multi-cap fund. Total SIP investment now is Rs 40,000. I require about Rs 50 lakhs in another 13 years - 2033 for my child’s marriage. And Rs 2.3 cr for my retirement in 13 years – 2033. This amount is considering inflation. Am I on track?

- Pookkattil

I am 49. I need to save for my retirement.

I have a PPF account. I have an insurance policy for Rs 50,000/per annum premium. I have another insurance policy with a premium of Rs 10,000.

I have 2 fixed deposits of Rs 15 lakhs.  No mutual funds. No stocks. No medical insurance.

I have cash of around Rs 1 lakh per month to invest. But I need to set up an office and would need liquid cash of around 50,000 for that. So let’s say that I can invest up to Rs 50,000 per month.  Can you guide me on how to set up my portfolio?

- Purva

Suggestions for both

For portfolio construction, asset allocation-based approach (mix of equity and debt) should be followed as it is one of the key determinants of the portfolio’s performance. Higher the investment horizon and risk appetite, higher can be the allocation to riskier asset classes such as equity, which have the potential to deliver relatively higher returns compared to fixed income over the long term.

Assuming an aggressive risk profile given the long time horizon, you may invest with a portfolio mix of about 70% into equities and 30% into fixed income funds. The allocation can be to Large cap (45%)/ Mid cap (10%)/ Small cap (5%)/International (10%).

The international equity allocation offers diversification across geographies via exposure to different economic growth drivers and also acts as a hedge against domestic currency risk. Do read Should you have a global allocation in your portfolio?

For investment in fixed income, you can consider fixed income funds with a high credit quality portfolio such as Banking & PSU debt funds, Corporate Bond funds, Medium to long term funds.

As retirement goal approaches (2-3 years before retirement), shift allocation out of equity into arbitrage funds, as they more tax efficient than fixed income funds for shorter holding periods.

The corpus amount has been computed assuming equity market returns of 11% per annum and fixed income returns of 7% per annum.

For Pookkattil

Given no information on market value of existing investments, by investing as per the recommended asset allocation you would be able to reach about Rs 1.2 crore at retirement.

To achieve your goals, you would need to increase the existing monthly SIP amount of Rs 40,000 by about 16% per annum to reach Rs 2.8 crore at retirement.

It is advisable to top up your investments whenever you have any excess savings or any windfall gains.

For Purva

You can deploy the current fixed deposit corpus as per the recommended asset allocation, keeping in mind the higher return potential of equities over the long term and favourable tax treatment of mutual funds relative to fixed-deposits.

It is recommended to have a medical insurance in place to safeguard yourself from unplanned medical emergencies.

Investing as per recommended asset allocation, you might garner about Rs 1.5 crore assuming retirement at the age of 60 years. To attain a more sizeable corpus, it is advisable to increase your investments inline with rise in income and top up your investments whenever you have any excess savings or any windfall gains.

While we suggest that you consult a financial adviser for specific advice, here is some help for the DIY investor. 

You can view individual notes on fund analysis and compare the performance of various funds.

One may also consider Morningstar Investment Packs, offered exclusively on the Paytm Money app, as a solution to help you meet your goals. These investment packs are the outcome of Morningstar Investment Adviser India’s asset allocation and fund selection expertise. Each investment pack has 3 to 5 underlying funds, and are diversified across large cap, mid cap, multi cap, small cap equity categories as well as debt categories like liquid, ultra-short, low duration and banking & PSU. Based on an investor’s risk suitability assessment created by Paytm Money, a risk profile (Low Risk, Conservative, Moderate, Growth and Aggressive ) is identified and an appropriate investment pack is recommended to the investor. These packs are monitored on an ongoing basis and reviewed by Morningstar. Please note, the investment packs are exposed to market risk and do not guarantee the protection of the investors’ money against capital market movements.

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Swapnil Patil
Mar 10 2020 01:17 AM
 Nice article!!!
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