I am 46. Keeping retirement requirements in mind, I have started my investment journey with mutual funds. Let me know if my decisions are prudent. I have lumpsum investments in Axis Long Term Equity, Nippon’s Gold ETF, Multicap, Growth, Banking, Pharma and Taxsaver, Aditya Birla Sun Life’s Frontline Equity and Midcap, Sundaram Large & Midcap and Midcap, HDFC’s Top 100, UTI’s Midcap and Dividend Yield, IDFC’s Flexicap, SBI’s Consumption Opportunities and ICICI Pru’s Long Term Equity, Value Discovery and Technology funds. I also made lumpsum investments in PGIM Flexicap, Axis Bluechip, Midcap and Smallcap Funds this month. I have started SIPs this month in MOSL Nasdaq 100, PGIM Midcap, Canara Robeco Bluechip, Mirae Asset Emerging Bluechip, Parag Parikh Flexicap and Kotak Smallcap. I am an independent tax consultant. I also have approximately ₹6,50,000 in shares and ₹5,00,000 in PPF and NSC. Kindly let me know if my investment strategy will help me to retire in 15 years.
Sudati P
We’re afraid you’ve accumulated too many funds in your portfolio for you to be able to monitor and manage them well. To get to your retirement goal, you need to take a more planned approach to your investments.
Before you even begin selecting funds, the first step is to estimate the size of corpus you’d need to accumulate to see you through your post-retirement years. Start with your current living expenses, apply a likely inflation rate over the rest of your working life and arrive at the likely level of monthly living expenses you’d require by the time you retire. This will allow you to estimate the size of monthly SIPs you’d have to commit to and the asset classes you will have to park them in.
Here are some illustrative numbers on how you can go about this exercise. If your current expenses are ₹50,000 per month, for instance, applying a 6 per cent inflation rate to them for the next 15 years would result in estimated monthly expenses of ₹1.19 lakh by the time you turn 61. As per the information provided by you, you have so far accumulated an investment corpus of ₹41.94 lakh, ₹30.44 lakh in equity MFs and ₹11.5 lakh in debt options like PPF and NSC. Assuming your investments so far generate a blended 9 per cent CAGR till retirement (as they have both an equity and debt component), you would get to about ₹1.5 crore with your current corpus by the time you retire.
However, assuming that you live on until 85 post retirement, you’d need a sufficient corpus at 61 to fund your living expenses for the next 24 years. Post-retirement you would also have to move more of your corpus to safe avenues that don’t expose you to very high capital losses and this will mean lower returns. As a thumb rule, you will be comfortably placed to fund your post-retirement life if you manage to accumulate a sum equal to 25 times your inflation-adjusted living expenses at age 60. In your case, you’d need a corpus of about ₹3.6 crore by age 61, assuming current living expenses of ₹50,000 a month and an inflation rate of 6 per cent. This will mean accumulating another ₹2.1 crore in the 15 remaining years of your working life, which may require a monthly investment of ₹50,000.
Based on the above assumptions, we suggest the following.
To ensure that your current MF investments give you optimal returns, you’ll need to considerably prune the number of funds you own. Do get down your portfolio size from over 20 funds to just 6-7 funds. While switching funds, you can leave out thematic and sector funds (they will need timely entry and exits), avoid investing in multiple funds from the same AMC (you may not get enough style diversification), focus mainly on flexicap, ELSS, mid-cap and small-cap funds and select funds based on their 10-year performance record and fund manager.
We would suggest retaining funds such as Axis Bluechip, Mirae Asset Emerging Bluechip, Sundaram Large and Midcap, UTI Dividend Yield and Axis Smallcap. We also suggest switching ICICI Pru Value Discovery to ICICI Pru India Opportunities and HDFC Top 100 to HDFC Midcap Opportunities. You can continue to own Motilal Nasdaq 100 and Parag Parikh Flexicap for their overseas exposure and Nippon Gold ETF as a portfolio hedge.
As there are no guarantees with equities, it would be prudent to continue with your 70-30 allocation between equity MFs and debt options like the PPF for retirement. You can continue with an annual allocation to PPF and open an NPS account and invest regularly in the Corporate Bond and G-sec portions of the NPS for your debt allocations.
Your SIPs can also go into the same set of funds to avoid complications. Raise your SIP amounts to ₹5,000-10,000 per month to get to your required corpus.
Redeeming and switching such a large number of legacy funds will carry tax and timing implications. We suggest you make this move in phases over the next one year.
Do note that all the above numbers are based on assumptions and you will need to work them out for yourself. There are many good online retirement calculators that help you to arrive at the targeted sum, which will allow you to retire comfortably.
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