2-3 years before retirement goal, secure your profits in debt funds

  • When reallocating your accumulated assets to debt funds, consult an advisor to do it effectively
  • The key is to stay disciplined with your investments during the tenure and periodical course correction with reviews as needed

I am 45 and I have been investing through SIPs in the following funds since 2017— 3,000 each in ABSL Tax Relief’96 (ELSS), Motilal Oswal Long Term Equity (ELSS), ABSL Equity Advantage, ABSL Frontline Equity, Mirae Asset India Equity and Kotak Standard Multicap; 4,000 in HDFC Hybrid Equity; and 5,000 in Motilal Oswal Multicap 35. I want to build a corpus of 1.50 crore for retirement after 12-13 years. Am I on track?

Sumeet Arora

You are currently investing 27,000 a month in an equity-heavy portfolio. You have been doing so for the past two years and plan to continue for another 12-13 years giving yourself a total of 15 years to build a corpus of 1.5 crore.

Calculations indicate that for you to reach this corpus in this time frame, you need to be investing 32,000 a month, assuming a 12% CAGR (compounded annual growth rate). If you assume an 11% CAGR, this amount goes to 35,000 a month. So, focus on how quickly you can raise the SIP amount. Even given best of market conditions, you will fall short if you don’t invest enough. Coming to your portfolio, you are investing predominantly in funds that invest across the equity market (counting ELSS funds as diversified equity funds as well). About 70% of your monthly instalments go to such funds. A more balanced approach might be helpful. Towards this end, you can replace the equity advantage fund with a large-cap fund from the ICICI Prudential AMC, namely ICICI Pru Nifty Next 50 Index fund. You can also replace another multi-cap fund with a mid or small-cap fund such as L&T Midcap fund or Franklin India Smaller Companies fund.

Any fresh money that you are bringing into the portfolio can be either added to the hybrid fund or to the large-cap funds. Remember that this is a very aggressive portfolio. As you get closer to your retirement, please start reallocating your assets to debt funds to secure the profits accrued. You should start doing this 2-3 years prior to your retirement.

I am 33 and married. I have been investing in SIPs for three years— 10,000 each in Canara Robeco Emerging Equities, Mirae Asset Emerging Bluechip and Motilal Oswal Focused 25; 5,000 each in ICICI Prudential Midcap fund and Aditya Birla Sunlife Frontline Equity fund. Should I replace any of the existing funds with small-cap, multi-cap or hybrid funds? My goals include creating a retirement corpus worth 5 crore in 30 years and 1 crore for our child’s wedding in 25 years.

Rajat Gandhi

To get to a total corpus of 6 crore in 25-30 years, you would need to be consistently saving and investing a sum of around 35,000 a month, assuming a 12% CAGR from your portfolio. Even assuming the CAGR at 11%, your SIP amount would need to be about 40,000 which is where you are at this point in time. So, you are well on your way to realising your goal by the time you need the money. Of course, the key is to stay disciplined with your investments during this tenure and periodically course correcting with reviews as needed. Regarding your fund choices, 25,000 or 63% of your investments are going to mid-cap funds with the remaining going to large-cap funds (Motilal Oswal fund and the Aditya Birla Sunlife Frontline equity fund). It would be better if you eased up on the mid-cap allocations and moved them into diversified (multi-cap) funds. Such a move would give you a cushion from the drastic falls that the mid-cap segment of the market experienced last year. To this end, I would suggest that you move from the Canara Robeco fund and allocate 10,000 to Parag Parikh Long term equity fund. This fund has the added advantage of having considerable exposure to the overseas (US) market as well. At this point in time, given your very long term horizon, I would refrain from adding a hybrid fund to your portfolio.

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

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