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I want advice on Bharat Bond Fund 2031. Can I invest as retired person who will invest in funds of funds to avail of systematic withdrawal plan after three years for rest of life. Withdrawal will be at the rate of 5% returns. Please advise me how to proceed on funds in debt with low risk.

-Surendra Bhatia

Answer by Harshad Chetanwala, co founder, MyWealthGrowth.com

In current times, having only debt investment in your portfolio for post-retirement needs may not necessarily work most of the time. You may need to have some allocation in the equities as well. The allocation in debt and equities investments are based on your monthly withdrawal and the number of years to withdraw. Also, would suggest you consider inflation in your monthly withdrawal as usually, the post-retirement phase is for 20 to 25 years. A monthly requirement of Rs. 50,000 today after 10 years will be Rs.90,000 and 20 years will be Rs.160,000 considering inflation of 6%. Hence, your overall portfolio needs to generate more than 6% to ensure that invested money does not de-grow.

Bharat Bond Funds are a good option to invest a part of your debt allocation as this fund invest only in PSUs and hence the portfolio is relatively safe due to the quality of companies. Bharat Bond 2031 has a yield to maturity of 6.83% which means if you hold the fund up to maturity you will get close to a 6.83% annual return. However, the maturity of the fund is in the year 2031 which is quite a long term for debt investment. While the fund has very low credit risk, but due to the long term maturity of the portfolio interest rate risk is high for this Bharat Bond Fund. In case the interest rate increases in future, which is anticipated in the present environment, the portfolio of this fund may get impacted.

You may have some allocation in Bharat Bond 2031 and at the same time invest in low-to-medium duration debt funds in the present scenario where interest rates are expected to increase in future. In debt investing, the longer the maturity of the portfolio; the higher is the interest rate risk. Hence, the funds with an average maturity period of 2 to 4 years may work better for you over the long term. You may invest in longer duration funds when the interest rate starts increasing. You can consider investing in a mix of short duration, medium duration, and banking and PSU Funds for your debt allocation from a long term perspective as well.

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