Fixing a target corpus first step for retirement savings

I have started an SIP of ₹ 6,000—Mirae Asset Emerging Bluechip Fund ( ₹ 1,200), SBI Small Cap Fund ( ₹ 1,200), Motilal Oswal Multicap 35 Fund ( ₹ 1,800) and Kotak Standard Multicap Fund ( ₹ 1,800). My target is creating wealth for retirement, which is 30 years from now. Kindly assess the portfolio. I am aiming to build a corpus of ₹ 2 crore. —Abhijit A

Planning your investments for a long-term retirement goal is a three-step process. The first step is to figure out how much you would need to save and invest regularly to reach a well-defined goal (well-defined in terms of target corpus and the number of years to get there). In your case, the target corpus is ₹ 2 crore and you have 30 years to get there (of course, you have to adjust for inflation to see if ₹ 2 crore will suffice in 30 years for a worry-free retirement). Given these numbers, a quick calculation, assuming 12% long-term returns, tells us that you need to be saving and investing ₹ 7,000 a month to get there. At present, you are investing ₹ 6,000 a month which is not far off. You would want to raise it as much as you can periodically.

Now that you know how much to invest, the second step is to decide the asset allocation of your portfolio. Given the long term, an all-equity portfolio like the one you have is fine, as long as you have the risk appetite to withstand all the volatility over the years (periodic bear markets, global recessions, elections etc). Within the equity portfolio, it is also important to be exposed and invested in the right sub-categories of funds.

This brings us to the third step which is the choice of funds that you are going with in these categories. At present, you are going with a large- and-mid-cap fund (Mirae fund), a small-cap fund, and two multi-cap funds. The chosen funds are good and well-rated. If and when you add more funds to your portfolio, please consider adding a large-cap fund such as ICICI Prudential Nifty Next 50 fund.

Srikanth Meenakshi is co-founder and COO, FundsIndia.com. Queries and views at mintmoney@livemint.com