I am a 55-year-old individual employed in a private organization. My net salary after taxes is ₹20 lakh a year. My spouse is a homemaker. Together, we have a ₹5.93 crore investment portfolio. Approximately, 55% of this is allocated to debt instruments, with 5% kept in a savings account and another 5% in a provident fund (PF). About 43% is invested in equities and the remaining 2% is in gold. I have a 26-year-old son who is currently pursuing an M.Com degree after working for approximately three years. Therefore, I do not anticipate significant education expenses for him. However, I do need to plan for his wedding, which will likely take place four years from now. I also plan to retire in the next six months. My annual expenses amount to ₹10 lakh .
Under these circumstances, will my investment portfolio be sufficient for retirement? Also, how do I generate a regular income after retirement.
—Name withheld on request
You have created a diversified and strong portfolio. We think you are well set to retire considering the corpus you have built. We would, however, suggest you re-balance your combined portfolio in the following manner:
You can move your savings account funds to fixed income instruments like non-covertible debentures (NCDs), fixed deposits (FDs), which will give regular income. You will have to withdraw your PF investment post your retirement. This can also be invested in fixed income instruments like NCDs and FDs.
Any shortfall can be plugged by having a systematic withdrawal plan in your debt mutual fund (MF) and starting an annuity on your National Pension Scheme. As for your son’s wedding, we would suggest you sell a mix of debt MFs and equity MFs/stocks and maintain the asset allocation at current levels.
When investing in corporate bonds and FDs, try to diversify among various issuers and not take excessive credit risk.
I am 26 years old and have a systematic investment plan (SIP) of ₹1,000 in SBI Small Cap Fund since 2018. However, since July 2022, I have increased my total allocation to ₹6,000. My monthly net salary is ₹75,000, and I have an education loan of ₹3 lakh that needs to be repaid within three years. In the short term of three years, my objectives include loan repayment and building an emergency fund equivalent to 1-2 times my annual income. For the long term, my goal is to build a portfolio of ₹15-20 crore over the next 25 years, considering an annual salary increment of 5%. I am also open to increasing my SIPs, if necessary. Additionally, I would like to know if I should continue investing in regular plans or switch to direct plans in mutual funds?
—Monil Shah
For loan repayment and building an emergency fund, you will need to save ₹30,000 per month and invest it in liquid/ ultra short mutual funds.
For your long-term requirement of creating a corpus of ₹15-20 crore, we would suggest you to invest ₹25,000 in monthly SIPs. This would have to be stepped up by 10% each year. At an expected return of 12% for 30 years, you would be able to reach your target of ₹20 crore.
Right now, your portfolio is skewed towards small and midcap funds. To reduce volatility, we would suggest that you start some SIPs in large cap funds too. You can keep the large:mid:small cap exposure as 50:30:20. For taking large cap exposure, you may invest in either Nifty index funds or Nifty ETFs (exchange traded funds). You can continue investing in regular funds provided your financial advisor is adding value.
Vijay Kuppa is the chief executive officer of InCred Money (formerly Orowealth).
Updated: 28 Jun 2023, 09:58 PM IST