Should I change my investment strategy after retirement?

I am 50 years old and planning to retire this year. My liabilities include : 1) Higher education of my daughter and Son 2) Their marriage My assets include: 1) One house worth 10 crore plus rental income of 30000/- per month 2) Second house due for completion worth 2.5 cr 3) AIF worth 1.5 cr 4) FDs worth 40 lakhs 5) Equity holding worth 1.5 cr 6) MF worth 70 Lakhs with SIP of 40000/- per month going on 7) Mediclaim cover of 50 lakhs 8) Ppf worth 30 lakhs 9) Life insurance policies worth with 2 cr life cover Going forward how should I plan my portfolio growth and regular income

Ans: At 50, your priorities include securing retirement income, meeting your children’s goals, and growing your wealth. Here’s a detailed plan to achieve these goals while maintaining financial stability and peace of mind.

Current Financial Strengths
Diversified Asset Base
Your portfolio includes real estate, equity, mutual funds, and fixed deposits.
Assets like AIF, PPF, and life insurance offer additional diversification.
Stable Rental Income
Rs 30,000 monthly rental income provides a consistent cash flow.
Comprehensive Health and Life Cover
Mediclaim of Rs 50 lakh ensures healthcare expenses are well-covered.
Life insurance of Rs 2 crore protects your family’s financial future.
Areas for Improvement
Overexposure to Real Estate
A significant portion of your wealth is locked in illiquid assets like real estate.
Rental income may not grow in line with inflation.
Insufficient Liquidity
While you have a large asset base, liquid cash for immediate needs seems limited.
Need for Inflation-Adjusted Income
With retirement ahead, ensuring inflation-adjusted income is critical.
Recommendations for Portfolio Growth
Consolidate Real Estate Holdings
Consider selling the second house after completion to unlock liquidity.
Redeploy proceeds into financial instruments for better returns and liquidity.
Increase Exposure to Mutual Funds
Allocate funds from real estate or AIF into actively managed equity funds.
Focus on large-cap and balanced advantage funds for stable, long-term growth.
Strengthen Debt Portfolio
Increase allocation to debt mutual funds for stable returns and capital safety.
Ensure liquidity through short-term debt funds or fixed-income instruments.
Planning for Children’s Goals
Higher Education
Use proceeds from fixed deposits and PPF for education expenses.
These are low-risk instruments suitable for short- to medium-term needs.
Marriage Expenses
Start a targeted investment plan for marriages using balanced advantage funds.
Gradually move these funds to safer options as the events near.
Securing Regular Retirement Income
Systematic Withdrawal Plan (SWP)
Set up SWPs from mutual fund investments for steady monthly income.
This provides tax-efficient cash flow while preserving capital.
Rental Income
Retain rental income as part of your overall income strategy.
Consider enhancing property value to increase rental yield.
PPF and FDs
Use PPF maturity and FD interest for emergency funds or specific short-term needs.
Addressing Tax Efficiency
Equity Mutual Funds
Long-term capital gains (LTCG) above Rs 1.25 lakh will be taxed at 12.5%.
Systematic withdrawals from mutual funds should consider tax implications.
Debt Mutual Funds
Gains from debt funds will be taxed as per your income tax slab.
Insurance and Contingency Planning
Maintain Adequate Health Cover
Rs 50 lakh mediclaim is sufficient for now.
Reassess based on inflation in healthcare costs.
Life Insurance Review
Your life cover seems adequate for liabilities.
Ensure policies remain active until critical liabilities are settled.
Optimising Asset Allocation
Suggested Allocation Strategy
Equity Funds: 40% of the portfolio for long-term growth.
Debt Instruments: 40% for stability and regular income.
Liquid Funds: 10% for emergencies.
Other Investments: 10% in alternative assets like AIF or gold.
Periodic Review
Review your portfolio annually with a Certified Financial Planner.
Adjust allocation as per changing market conditions and personal needs.
Final Insights
Your financial situation is strong and diversified. Focus on enhancing liquidity, reducing real estate exposure, and optimising your asset allocation. A disciplined and well-planned strategy will ensure a secure and comfortable retirement while meeting your family’s needs.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: First, congratulations on building a substantial and diversified portfolio. Your assets include Rs 2.7 crore in fixed deposits and bonds, Rs 1.2 crore in mutual funds, Rs 37 lakh in equity for short-term investments, Rs 15 lakh in gold, and Rs 27 lakh as a bank balance. You own a house valued at Rs 1.3 crore, and you have a clear goal to send your son abroad for his studies next year. Additionally, you are aiming to accumulate Rs 10 crore in the next 8 years for your retirement. Your existing investments are spread across various asset classes, and you have a Rs 35,000 monthly SIP that is professionally managed. As an NRI, your income from fixed deposits and bonds is tax-free, adding a significant advantage to your financial planning.

Given your current assets and retirement goal, a well-planned investment strategy is essential to achieve financial independence within your desired timeline.

Assessing Your Current Portfolio
Fixed Deposits and Bonds:

You have Rs 2.7 crore in fixed deposits and bonds, which are providing stability and safety. As an NRI, you are not paying tax on the interest income from these instruments, which enhances their net returns. However, these are relatively low-yielding investments, and their returns may not keep pace with inflation over the long term.

Consider whether these funds are appropriately diversified across different types of bonds (e.g., government, corporate) and fixed deposits to maximize returns while maintaining safety.

Mutual Funds:

Your Rs 1.2 crore in mutual funds is well-diversified across all asset classes. Mutual funds offer a balanced approach to wealth creation with the potential for higher returns than fixed deposits and bonds. Since your SIPs are actively managed, you benefit from expert oversight, which helps optimize your returns and manage risk.

It’s important to review your mutual fund portfolio regularly to ensure that it continues to align with your retirement goals. Given the long-term horizon, consider maintaining a higher allocation in equity funds, which tend to offer superior returns over time compared to debt funds.

Equity Investments:

You have Rs 37 lakh in equity, which you use primarily for short-term investments. Equity investments offer the highest potential returns among asset classes but also come with higher volatility. Since these are for short-term gains, ensure that you are not overexposed to market risks that could negatively impact your overall portfolio.

If you consistently achieve positive returns, this portion of your portfolio can contribute significantly to your retirement corpus. However, short-term market volatility could be challenging, so it’s wise to manage this segment carefully.

Gold:

Your Rs 15 lakh investment in gold provides a hedge against inflation and currency fluctuations. Gold tends to perform well during periods of economic uncertainty, making it a valuable part of your portfolio. However, gold generally does not generate income, so it should remain a smaller portion of your overall investment strategy.

Consider holding gold in a way that minimizes storage and insurance costs, such as through Sovereign Gold Bonds or gold ETFs, rather than physical gold.

Bank Balance:

You have Rs 27 lakh as a bank balance, which provides liquidity for any immediate needs or emergencies. This is an essential part of your financial security, but holding too much in cash can be counterproductive due to inflation eroding its value over time.

Consider maintaining enough cash to cover 6 to 12 months of expenses and redeploy the excess into higher-yielding investments.

Strategic Recommendations for Retirement Planning
Increase Equity Exposure:

Given your 8-year retirement horizon, it’s advisable to increase your allocation to equities. Historically, equities have outperformed other asset classes over long periods, making them an essential part of any retirement plan aiming for significant growth.

Consider reallocating a portion of your fixed deposits and bonds into equity mutual funds or direct equity. Since your SIPs are already professionally managed, continue with this approach but consider increasing the monthly contribution to accelerate your corpus growth.

Maximize the Potential of Mutual Funds:

Your mutual funds are already spread across all asset classes, which is good for diversification. However, to achieve a Rs 10 crore corpus, you may need to enhance your exposure to growth-oriented equity funds.

Consider increasing your SIP amount or making additional lump-sum investments when the market presents buying opportunities. Regular reviews with your Certified Financial Planner (CFP) will help ensure that your portfolio stays aligned with your goals.

Short-Term Equity Strategy:

Your short-term equity investments can be beneficial, but they should not distract from your long-term retirement strategy. Ensure that the profits from these investments are periodically reallocated to your long-term portfolio to contribute to your retirement corpus.

Keep a disciplined approach to profit booking and reinvestment, so that short-term gains effectively contribute to your long-term goals.

Optimize Fixed Deposits and Bonds:

While fixed deposits and bonds provide safety, they may not offer the returns needed to grow your corpus to Rs 10 crore in 8 years. Consider reducing your exposure to these low-yielding instruments and redirecting those funds into higher-growth investments, particularly equities and equity-oriented mutual funds.

If you prefer the safety of fixed-income instruments, explore bonds or debt funds that offer higher yields, such as corporate bonds or dynamic bond funds. However, ensure these fit within your overall risk tolerance.

Maintain Sufficient Liquidity:

Keep your bank balance at a level that covers immediate needs and potential emergencies. Any excess can be invested in liquid funds or ultra-short-term debt funds, which offer slightly better returns than a savings account while maintaining liquidity.

Liquid funds can also serve as a parking space for funds before they are deployed into other investments, ensuring your money works for you at all times.

Focus on Tax Efficiency:

As an NRI, your tax-free status on fixed deposits and bonds is advantageous. However, consider the tax implications of your other investments, such as equity and mutual funds, especially when repatriating funds.

Work with your CFP to structure your investments in a tax-efficient manner, which could involve utilizing tax-saving instruments or investing in locations with favorable tax treaties.

Prepare for Your Son’s Education:

Since your son’s education abroad is a priority, ensure that the funds required for this purpose are readily accessible and not subject to market volatility. Consider using your bank balance or a portion of your fixed deposits to cover these expenses.

You may also consider an education loan if needed, which can provide tax benefits on the interest paid and allow your investments to continue growing.

Retirement Corpus Calculation and Strategy
Set a Target Growth Rate:

To achieve a Rs 10 crore corpus in 8 years, you need a disciplined investment approach. The target growth rate will depend on the current value of your investments and the additional contributions you can make.

Considering your substantial existing portfolio, aim for a balanced growth rate that reflects a mix of equities, debt, and alternative investments. Your CFP can help you set realistic expectations based on historical performance and market conditions.

Regular Portfolio Reviews:

Regularly review your portfolio’s performance with your CFP. This allows you to adjust your strategy based on market conditions, your financial situation, and any changes in your goals.

Ensure your portfolio remains aligned with your risk tolerance and that your investments are working effectively towards your retirement target.

Stay Disciplined with Investments:

Avoid making impulsive investment decisions based on short-term market movements. A disciplined, long-term approach is key to achieving your retirement goal.

Stick to your SIPs, regularly review your portfolio, and adjust your investments based on your progress towards the Rs 10 crore target.

Final Insights
You have a well-diversified and substantial portfolio that positions you well to achieve your retirement goal of Rs 10 crore in 8 years. However, optimizing your strategy with increased equity exposure, a focus on tax efficiency, and regular portfolio reviews will enhance your chances of success. By maintaining a disciplined investment approach and working closely with your Certified Financial Planner, you can achieve your retirement goals while ensuring your financial security.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in