I am 37. An NRI. I have Rs 30 lakh sitting in a private bank fixed deposit.
I would like to invest it for 20 years. By then I shall return to India for retirement.
During this span, how many crores will it be?
- Madhav
Non-resident Indians, or NRIs, can invest in mutual funds in India as long as they adhere to the Foreign Exchange Management Act (FEMA). However, not all Indian mutual funds accept NRI investments.
Mutual funds in India are not allowed to accept investments in foreign currency.
For investing in Indian mutual funds, an NRI needs to open one of the following three bank accounts viz. an NRE (non-resident external rupee) account, an NRO (non-resident ordinary rupee) account or FCNR (foreign currency non-resident) account with an Indian bank.
Since we know nothing about your other investments, we shall look at Rs 30 lakh as your total portfolio.
For portfolio construction, an asset allocation-based approach (mix of equity, debt, commodities) 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. One should also have some exposure to international equities, which offer diversification across geographies via exposure to different economic growth drivers and also act as a hedge against domestic currency risk.
Assuming an aggressive risk profile, given the long investment horizon till retirement, you should ideally invest with a portfolio mix of about 80% into equities and 20% into fixed-income.
Equity:
- 50%: Large cap
- 10%: Mid cap
- 5%: Small cap
- 15%: International
When it comes to debt, you can consider fixed income funds with a high credit quality portfolio such as Banking & PSU debt funds, and Corporate Bond funds.
As your retirement goal approaches (3-4 years before retirement), shift allocation out of equity into fixed-income to lower the portfolio risk.
Given the investment horizon of 20 years and investing as per the recommended asset allocation, you would garner about Rs 1.7 crore at retirement.
To achieve a higher retirement corpus, it is advisable to top up your investments whenever you have any excess savings or any windfall gains. The corpus amount has been computed assuming equity market returns of 10% per annum and fixed income returns of 6% per annum.
When putting a financial plan in place, one must also look at health insurance, life insurance, an emergency fund, and saving for various goals including retirement. It would be helpful to consult a financial adviser.
To evaluate mutual funds across categories, one can look at the performance charts and the analysis of select funds.
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