I retired in 2009 and have an insignificant risk appetite. I have SBI Tax Advantage (Rs 1 lakh), SBI PSU Fund (Rs 50,000) and Kotak Indoworld Infrastructure (Rs 1 lakh). I hold a number of shares in physical form. Most of these belong to large-cap companies. Please suggest alternative utilization of redeemed funds.
It is two years since you have retired and I am sure you must have managed your assets well, but as far as equities are concerned—both mutual funds (MFs) and stocks—you have not acted prudently.
You should convert your direct stocks portfolio in the dematerialization mode immediately. For this, you first need to open a demat account, which can be done with any of the stock broking firms or banks offering the facility. It is preferable to open a demat account where trading facility is also available. You need to understand the purpose of the two accounts. Demat account is where the custody of your shares are held and trading account comes in play when you have to actually sell or buy any shares. Once converted, your stock portfolio will be available for selling. Similarly, you can redeem SBI Tax Advantage (make sure you have completed the three-year lock-in period as it is an equity-linked saving scheme) as well as other schemes.
At your life stage cycle, you should be having lower exposure to risk and hence your concerns are valid.
To a certain extent, you are responsible for your equities not performing well. You could have done things differently. You could have converted your stock portfolio in the demat mode earlier. As the retirement age was fixed, you could have planned to exit from the markets in a phased manner instead of doing it on a single day. This is because on the day you plan to redeem, the markets could be at lower levels, which could hamper the overall returns. Unfortunately, that’s the case at present. Also, your fund selection was not right. The performance of sectoral funds is typically dependent on that sector’s performance and hence they carry the highest risk within equities.
However, it is still advisable that you should have 10% exposure to risk, preferably in the form of large-cap MFs. You can look at ICICI Prudential Focused Blue Chip, HDFC Top 200 and Franklin India Blue Chip. You can also look at hybrid category where HDFC Balanced and HDFC Prudence are recommended. At the same time, have some exposure in gold (limit it to 5-10% of the total portfolio), which can be done through exchange-traded funds or gold funds. Another asset class you can consider is fixed maturity plans, which are pure debt products and are locked in for a specific time—six months to three years—and offer returns similar to fixed deposits but are more tax efficient.
Surya Bhatia is a certified financial planner and principal consultant, Asset Managers.
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