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

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...
Read more

Use Mutual Fund SWPs for getting fixed payments

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Investors time withdrawals optimally to save on tax The systematic withdrawal plan, or SWP, could be called the lesser known cousin of the much talked about and publicised systematic investment plan (SIP). There's yet another cousin — the Systematic Transfer Plan ( STP ). In SIP, you invest a fixed sum of money at regular intervals (monthly/ quarterly) to buy some units of a mutual fund scheme. In SWP, as the name suggests, you do the opposite: You redeem some mutual fund units from your portfolio to get a fixed sum of money at regular intervals (monthly/quarterly/half year/yearly). In SIP, you get a higher numbers of units when the markets are down, and lesser in a buoyant market. In SWP, going by the product logic, you redeem higher number of units when the markets are do...
Read more

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...
Read more

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...
Read more

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...
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