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Choose MFs with good track record across market conditions

Choose funds with a longer pedigree and a proven performance across market conditions

I was told that the best way to save for one’s retirement is invest a lump sum, of, say, 1 crore, in 3-5 hybrid equity schemes with excellent track record of at least 10 years. Then, use systematic withdrawal plan (SWP). Do you think this is a good enough way to invest?

—Firoz

An investment plan for retirement has several parts to it. Broadly speaking, one has to decide how much one needs to invest, in what manner, for how long, where (as in which financial instruments), and when the time comes to retire, how the corpus should be consumed (withdrawn) for post-retirement expenses.

The answers to these questions are different for every individual. They depend on how old a person is, what their current savings are, their income level, savings potential, tolerance for risk in the markets, and so on. In the method outlined in the question, the investment amount is 1 crore, the investment method is lump sum, and the investment instruments are balanced funds (schemes that invest in both equity and debt markets). The consumption method is a SWP after retirement. Of these, the only element that could apply for a broad audience is the SWP method for how to consume the corpus after retirement.

Apart from that, not everyone has an amount of 1 crore lying around to invest for retirement. Investing as a lump sum is not the best way to choose, and doing so exclusively in balanced funds is not a good idea either, especially if retirement is at least 10 years or more into the future.

A better approach would be to invest systematically in a diversified portfolio. If you have a lump sum to invest, you can deploy it into your portfolio as well over a period of 6-12 months in instalments. The funds in your portfolio, assuming you have at least 10 years to go before retirement, should largely constitute equity funds, since these offer the potential for the best growth rate for your investments.

When choosing the schemes in the portfolio, you should, of course, look at the track record and choose funds with a longer pedigree and a proven performance across market conditions (10-year track record is a good benchmark).

If you do this and invest regularly for your retirement, you will very likely have a handsome corpus at the end, from which you can slowly withdraw a regular sum (using SWP).

Queries and views at mintmoney@livemint.com

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