Skip to main content

Retirement Portfolio needs to generate enough returns to support your lifestyle

You Should Slowly Start Reducing Your Exposure In Equity And Increase Your Holding In Debt

When you are close to retirement, there are many concerns. The critical one is ensuring that the retirement corpus that has been created over the year is safe. But the tricky part is that the portfolio also has to generate enough returns to beat inflation and give regular income.

You have to assess your monthly expenses and see if the pension is good enough to take care of them. If you have to be dependent on returns from the corpus for additional income, it has to be invested in a manner without harming the principal amount. What makes planning for a retired life a lot more difficult is that life expectancy is on the rise. The general tendency of people in this age group is to cut out all the risky asset classes from the portfolio. But being completely conservative is not a good idea, considering that you will have to plan your portfolio with at least 15 to 20 years in mind.

Say, your portfolio is worth 1crore at the age of 49 years with equity constituting about 70 per cent. But as you grow older, the ability to take risk comes down significantly.

The thumb rule is that as you approach retirement your exposure in high-risk asset classes should come down gradually. Every five to seven years you should slowly start reducing your exposure in equity and increase your holding in debt.

Financial advisors say that an exposure of between 10 and 20 per cent in equity is a necessity, even when you are planning your investments for retirement.

When looking at investing in equity mutual funds you should park your money largely in diversified mutual funds. "It is a safer bet. In case of sector funds, one needs to continuously monitor.

And if you are not so sure about pure equity funds, look at balanced or hybrid funds. There are balanced fund options with high exposures to either equity or debt. That is, 7080 per cent in equity or debt, depending on the fund's mandate. Choose the one that suits your needs. If you think there will be a high requirement for funds post retirement, go for the equity option.

However, remember that the taxation for both kinds of funds will be very different. For an equity-based balanced funds, there will be no tax on returns after one year. For debt-based funds, there will be 10 per cent without indexation and 20 per cent with indexation after one year.

But the present circumstances offer interesting options in the debt space. The present high interest rate scenario may offer good options. For instance, a five-year bank fixed deposit will fetch you anywhere 8.25-8.75 per cent annualised returns. Fixed Maturity Plans are also an investment option that should be considered as they give returns as high as nine per cent post tax.

One needs to have the right mix to beat inflation. Say if your portfolio constitutes 80 per cent debt and 20 per cent equity and inflation is around seven per cent. Your debt portfolio will give you returns of between eight per cent and nine per cent but say in the eventuality of the markets dipping, your equity portion takes a hit of 10 per cent or so, you would be still fine because there will not be any capital loss.
 

Popular posts from this blog

Rs 14,000 Crore worth of tax free bonds coming soon from NHAI , PFC

  NHAI, PFC file prospectuses, coupon rate not yet decided MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up. The National Highway Authority of India ( NHAI ) and Power Finance Corporation ( PFC ) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi). Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1. Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free. "NHAI's publ...
Read more

Change in Fund Manager for some of HSBC Mutual Fund Schemes

Buy Gold Mutual Funds Invest Mutual Funds Online Download Mutual Fund Application Forms Call 0 94 8300 8300 (India) However, this facility is only available to Unit holders who have been assigned a folio number by the AMC.   HSBC Mutual Fund has announced that the below mentioned schemes shall be managed by the new fund managers as stated in the table. The effective date will be July 02, 2012.   Amaresh Mishra 's will be Vice President and Assistant Fund Manager. Having done a Post graduate diploma in Business Management and Bachelor of Chemical Engineering, he has over seven years of experience in Equities and Sales.   Mr. Piyush Harlalka's designation shall be Vice President- Fixed Income. Qualified as a C.A., C.S. and holding M.B.A.( Finance degree), he has over six years of experience in Fund management and ...
Read more

How EEE and EET Tax affect Retirement Investments

  An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...
Read more

Personal Finance: You can insure your wedding

But luck may not always be on your side. With the frequency of such attacks, as also other risks and unforeseen accidents growing, a wedding insurance is something you may want to look at if a marriage is being planned in the family. Event insurance plans like this is still in its nascent stages due to low awareness. And given the sacred nature of the ritual, nobody wants to discuss or think negative. But as wedding spends and risks grow, it makes sense to cover the potential monetary loss. The policy in those countries even covers the loss of the wedding ring, the wedding gown not reaching on time and even the expenses/loss due to late or non-appearance of the photographer which may mean staging the event once again for the photograph. In India, most insurance companies — including ICICI Lombard General Insurance, Oriental Insurance, Bajaj Allianz and National Insurance — offer wedding insurance. The policy is tailor made to individual requirements and needs. The sum insur...
Read more

DSP BlackRock MidCap Fund

Best SIP Funds Online   HOW HAS DSP BlackRock Small & Mid Cap Fund PERFORMED? With a 10-year return of 14.61%, the fund has outperformed both the category average (12.34%) and the benchmark (10%) by a good margin. Should you invest in DSP BlackRock Small & Mid Cap Fund? This fund invests predominantly in mid-cap stocks but takes a sizeable exposure in small-caps as well. The focus is on nascent companies with high growth potential. The fund manager places emphasis on quality and avoids inferior businesses even if these look tempting from a valuation perspective. Over the past year, the fund portfolio has grown, having added to some of the underperforming sectors like chemicals and healthcare. Its portfolio churn has come down significantly. The heavily diversified portfolio is run completely agnostic of its benchmark index— most bets are from outside the index—which can at times lead to bouts of underperformance as seen in the recent years....
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now