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I’m a 30-year-old married man and I want to have a balanced growth portfolio. Every month, I invest 11,000 in the following categories: Large and mid-cap ( 3,000), mid-cap ( 2,500), small-cap ( 3,500) and US equity ( 2,000). I’m planning to invest an additional 9,000 every month. Please advise whether I should add a debt fund or index fund or add the amount to existing SIPs?

—Keshav

Your allocation is skewed heavily towards domestic equity funds across categories. Since you are going to be adding a substantial amount to your SIP, it gives us an opportunity to address the situation.

Your desire is to have a ‘balanced’ portfolio, and your young age suggests that you are investing for the long-term (and hence a ‘growth’ portfolio). We can address these twin requirements with an asset allocation that looks like the following: 60% in domestic equity funds, 20% in international equity funds and the remaining 20% in a combination of debt and gold funds.

That would translate to 12,000 in domestic equity funds, up from the current 9,000. You can do that by adding an index fund in the large-cap category; a Nifty 100 fund, for example. You can double your investments in US equity to 4,000. The remaining 4,000 can be invested in a low-duration debt fund such as Kotak Savings Fund or SBI Ultra Short Fund. You can also split the debt investment with some allocation to gold in the form of a gold savings fund.

Such an asset allocation would be aggressive, yet balanced and diversified across asset classes, global markets and market segments.

My retirement corpus is worth about 1 crore. I plan to park 40% of the amount in two-three dynamic asset allocation funds and do a SWP (systematic withdrawal plan) of 8% of the amount invested every month. Please suggest the viability of the same. I’m assuming a CAGR of 9-10% on these funds. Is this assumption realistic? I plan to invest the remaining 60% as follows: 25% in SCSS, PMVYY and ultra-short debt fund and 35% in flexi and large-cap funds.

—RS

Over the past eight years, the average rolling returns of the dynamic asset allocation MF category is 7-9% annually. So, a 8% expectation would be more realistic than a 9-10% expectation. In that situation, you would have to assume that your capital would get steadily diminished as you withdraw at a rate of 8% (annually, I’m assuming) from these funds. And you would be assuming an additional risk by exposing the capital you need for expenses to the equity market.

A better approach would be to calculate what you need for, say, five years and place it in safe debt funds such as ultra-short debt funds and do SWP from there. In your situation, that would come to 16 lakh.

The money remaining can be placed in a 60-40 portfolio with 60% going to large-cap and flexi-cap funds and the remaining 40% going to the debt options you mention.

Every two-three years, you can move some money from this to your SWP portfolio and continue. This ‘ladder’ approach would have a better return/risk profile and a higher success probability.

Srikanth Meenakshi is foun-ding partner, PrimeInvestor.

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