BackEquity:debt of 60:40 is ideal for a retirement MF portfolio
Ensure that the actual funds that you choose are good funds such as those in the Mint50
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I am 45 years old and will retire by the age of 60. At present, I have around 90% of my savings in fixed income instruments, and the remaining in equity. My equity fund investments are in large-, mid-cap and small-cap funds. Since I will be retiring in another 15 years, should I increase my equity fund allocation? If so, what are the kinds of MFs that I should invest in?
—Srijesh Saxena
A few months ago, I had the opportunity to meet a famous fund manager in India. We were discussing his views on investing for retirement and I asked him his formula for deciding the asset allocation between debt and equity. His response was quite brusque: “What formula? There is no formula. You invest 100% in equities. That’s it!" After a moment of thought, he added, “Well, maybe you can move 20-30% to debt, but only after retirement."
I would like to think that he was speaking in hyperbole to emphasize the importance of equity investing, given the paucity of people doing so in India. While one may not agree with such an aggressive retirement investment plan, it is undeniable that a significant allocation to equity investing is a must for saving and for retirement planning. Equities offer the best way to put your savings to work and generate an inflation-beating corpus of money to deliver regular and sufficient post-retirement income.
In your case, at present, you are investing only 10% of your money in equity-oriented instruments. This is grossly insufficient. At 45 years of age and with 15 years more to go for retirement, you still have an opportunity to make amends and restructure your portfolio to build a good retirement fund. For an average investor in your situation, I would suggest that you reverse your current asset allocation and go with 90% in equities. However, your current asset allocation suggests you have a conservative outlook towards investing, and hence, I would temper my advice. Please move to a 60:40 allocation between equities and debt instruments (including fixed deposits, debt mutual funds, and others). You are investing in diversified funds across market segments, and that is good. Please ensure that the actual funds that you choose are good funds such as those in the Mint50 list of top mutual funds across categories. Please maintain this asset allocation pattern with annual reviews and rebalancing for the next 10 years.
At that point, consult a financial adviser to figure out how to restructure your portfolio over the remaining five years to balance between safety and growth.
Queries and views at mintmoney@livemint.com
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