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Allocation for gold funds should be 10-15% of portfolio

Gold does not merit high allocation in a long-term portfolio
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First Published: Mon, Nov 05 2012. 01 01 PM IST
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Since the past one year, I have been investing in systematic investment plans (SIPs) of Reliance Vision (Rs.2,500), HDFC Top 200 (Rs.2,500), HDFC Equity (Rs.3,000), Franklin India Blue Chip (Rs.2,500) and Reliance Gold (Rs.5,000). I plan to invest in them for as long as possible. However, I will require Rs.50 lakh 10 years from now for my son’s education and a retirement corpus of Rs.5 crore after 20 years. Can it be achieved or should I change the composition of my holding?
—G. Mehta
Your ability to meet your twin financial targets will depend as much on the amount of money you save as on how and where you invest the savings. To achieve a corpus of Rs.50 lakh in 10 years, you need to be saving and investing about Rs.22,000 a month. For a retirement corpus of Rs.5 crore in 20 years, the monthly requirement would be about Rs.52,000. Put together, you would need to invest Rs.75,000 a month to achieve the two goals (assuming a 12% per year long-term return). If this seems daunting, you can consider one of the two approaches—you can modify the time line of your goals or moderate the target amount. While you may not be able to change the time line of the education goal, you can consider retiring a few years later. The sum of Rs.5 crore in 20 years works out to a monthly living expense of above Rs.80,000 in terms of today’s money. If you think a lesser amount would suffice, then your retirement needs would come down substantially. If, for example, you can bring down your post-retirement living expense needs to Rs.50,000 per month (in terms of today’s money), your target would come down to a more manageable Rs.3 crore and you would need to save close to Rs.30,000 per month for this purpose. You can do a similar exercise for your son’s education goal as well if that’s appropriate.
Regarding your portfolio, there are two comments that can be made—one regarding the choice of a fund and another about the asset allocation ratio. There are better funds in the Reliance stable compared with Reliance Vision fund that features in your set. You can consider Reliance Regular Savings Equity fund instead. Regarding asset allocation, you have about a third of your portfolio in gold. While this asset has performed spectacularly in the past few years, going by historic patterns, gold does not merit this high an allocation in a long-term portfolio. A more moderate 10-15% would be sufficient.
Queries and views at mintmoney@livemint.com
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First Published: Mon, Nov 05 2012. 01 01 PM IST
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