Sir,
Im 45 year old and I will be retiring at the age of 58 and I have been investing in following SIP.
1. Aditya Birla Sun Life Small Cap Fund – GROWTH investing Rs.2000/- every month since 2021 and I even do top up.
2. Aditya Birla Sun Life Small Cap Fund – GROWTH - investing Rs.2000/- every month since 2021 and I even do top up.
3. Canara Robeco Emerging Equities - Regular Plan – GROWTH - investing Rs.2000/- every month since 2017 and I even do top up.
4. Franklin India Multi Cap Fund – Growth – invested lumpsum of Rs.1,00,000/- in 2024 and I even do top up.
5. HDFC Large and Mid Cap Fund - Regular Growth Plan - investing Rs.2000/- every month since 2018 and I even do top up.
6. ICICI PRUDENTIAL ENERGY OPPORTUNITIES FUND – Growth - invested lumpsum of Rs.1,00,000/- in 2024 and I even do top up.
7. ICICI Prudential Flexicap Fund – Growth - investing Rs.2000/- every month since 2021 and I even do top up.
8. Kotak Bluechip Fund – Growth - invested lumpsum of Rs.50,000/- in 2024 and I even do top up.
9. Nippon India ELSS Tax Saver Fund-Growth Option - investing Rs.2000/- every month since 2017 and I even do top up.
10. Nippon India Small Cap Fund - Growth Plan - Growth Option - investing Rs.2000/- every month since 2024 and I even do top up.
And I even have invested in Liquiloan of Rs.50,000/-
And I even want to invest lumpsum of Rs. 8 to 10 lacs in which of the above stock should I invest pls suggest and how much corpus can i expect at the time of retirement..
Pls revert back at the earliest
Ans: It's wonderful to see that you have been consistently investing in a range of mutual funds. This disciplined approach will certainly work in your favour as you move closer to your retirement at the age of 58. Since you're currently 45 years old, you still have 13 years to build a solid corpus, and you're on the right track. Let's evaluate your portfolio, suggest improvements, and explore how you can maximise your retirement corpus.
Portfolio Overview
Your portfolio includes investments in:
Small-cap funds
Large and mid-cap funds
Multi-cap funds
Sector-specific funds (Energy)
Tax-saving ELSS fund
Liquid loans
Your strategy of monthly SIPs and lump sum investments is a balanced approach, but there are a few points you should consider to optimise it.
Assessing the Current Funds
Here’s a detailed look at the types of funds you're investing in and their potential for growth:
Small-Cap Funds: Small-cap funds tend to offer high returns but come with a higher risk. Given your age, it’s good that you started early. Small caps should ideally constitute around 10-15% of your total portfolio due to their volatility. You can continue your SIPs here, but I would suggest focusing on more balanced funds as you approach retirement.
Large and Mid-Cap Funds: These are relatively safer than small-cap funds and can generate steady returns. As you near retirement, it's wise to increase your allocation to large and mid-cap funds, as they are less volatile and offer more stable growth. These funds should make up a larger portion of your portfolio (at least 30-40%).
Multi-Cap Fund: This type of fund provides exposure across large, mid, and small-cap companies. It’s a good diversification tool. You can maintain this as a core part of your portfolio.
Sector-Specific Fund (Energy): Sector-specific funds can be highly volatile as they depend on the performance of a particular industry. While these can give significant returns during an industry boom, they also carry high risk. As you get closer to retirement, it might be prudent to limit your exposure to sector funds. Consider gradually shifting this amount into more balanced funds.
ELSS (Tax Saver Fund): ELSS funds are a great way to save on taxes under Section 80C and generate long-term capital appreciation. However, as this is an equity-based investment, its returns can be volatile in the short term. You may want to continue this for tax benefits but avoid adding too much to it close to retirement.
Liquid Loans: While this is a low-risk investment, it may not provide returns that align with your long-term goals. Since you already have significant exposure to equity through your SIPs, liquid loans can be retained for liquidity but shouldn’t be the focus for long-term wealth creation.
Optimising Your Portfolio for Retirement
As you have 13 years until retirement, it's essential to ensure that your portfolio gradually shifts from high-risk, high-reward options to more stable ones. Here’s how you can optimise it:
Gradually reduce exposure to small-cap and sector-specific funds as you near retirement. While these funds are great for growth, they can be too volatile for someone approaching retirement. By the time you are 55, your exposure to these funds should be minimal.
Increase your allocation to large-cap and balanced funds. These funds provide stability and reasonable returns without the risk of small caps. Large and mid-cap funds, as well as multi-cap funds, should be your focus for the next 10-13 years. This will ensure you don’t lose your wealth to sudden market dips.
Top-Up Strategy: You mentioned you regularly do top-ups on your investments. It’s a great practice, but make sure you’re topping up in funds that are balanced or stable, especially as you move closer to retirement. I would suggest diverting top-ups to large-cap or balanced funds.
Lump Sum Investment: You have a lump sum of Rs 8-10 lakhs that you want to invest. Since you are already heavily invested in equity funds, you should consider diversifying into debt funds to reduce risk. A combination of balanced funds (with a mix of equity and debt) would provide stability while still offering growth. Avoid parking this entire amount into small-cap or sectoral funds due to their higher risk.
Corpus Expectations at Retirement
Predicting the exact corpus at the time of retirement depends on several factors, such as market performance and fund growth. However, based on historical performance, equity mutual funds have provided average returns between 10-12% over the long term. With your diversified portfolio, you could expect a similar range of returns, but it's crucial to stay realistic and plan for conservative outcomes.
Here’s how you can align your expectations:
Equity Investments: If the equity market performs well, your investments in large, mid, and small-cap funds could generate returns in the range of 10-12%. However, volatility is inevitable, and therefore, diversification is crucial.
Debt Investments: By gradually shifting towards debt or balanced funds, you can expect more stable returns (in the range of 6-8%). This will safeguard your corpus as you near retirement.
In 13 years, considering a disciplined investment approach, you can aim for a corpus that comfortably supports your retirement lifestyle. You may want to review your investments every few years and rebalance your portfolio based on market conditions and your risk appetite.
Disadvantages of Index Funds
You didn’t mention index funds in your portfolio, which is good. While index funds are often recommended for their low cost, they come with some disadvantages:
No Flexibility: Index funds follow the market index strictly, which means they cannot capitalise on opportunities when certain stocks are undervalued or avoid overvalued stocks. This lack of flexibility could result in lower returns.
Underperformance in Bear Markets: Index funds mirror the market performance, so in a bear market, they will automatically underperform without any risk management.
No Active Management: Unlike actively managed funds, index funds do not have fund managers who can make strategic investment decisions based on market conditions.
For these reasons, I would suggest continuing with actively managed funds where the fund manager can make informed decisions to maximise your returns.
Disadvantages of Direct Funds
Investing in direct funds may seem appealing due to their lower expense ratios. However, there are some critical disadvantages:
Lack of Guidance: Direct plans require you to make all the investment decisions yourself, which can be overwhelming without professional guidance. Certified Financial Planners (CFPs) help you navigate the complex world of investments.
Missed Opportunities: A Mutual Fund Distributor (MFD) who is also a CFP can guide you towards funds that suit your long-term goals. Without this expertise, you might miss out on better-performing funds.
Higher Risk of Mistakes: Direct investors may make emotional or uninformed decisions, especially during market volatility. This can negatively impact long-term wealth creation.
Final Insights
You have a well-structured investment portfolio that is geared towards long-term growth. However, as you approach retirement, it's essential to gradually reduce risk and focus on stability. Balancing your equity exposure with more stable funds will ensure that you have a solid corpus at retirement.
To summarise:
Gradually shift from small-cap and sector-specific funds to large-cap and balanced funds.
Continue topping up in more stable, diversified funds.
Use your lump sum investment in balanced funds rather than high-risk options.
Review and rebalance your portfolio every 2-3 years.
Stick to actively managed funds for better flexibility and higher potential returns.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
Instagram: https://www.instagram.com/holistic_investment_planners/