Worried about declining investments? 58-year-old seeks advice on his portfolio

Ans: Kindly continue; markets are in corrective mode therefore the returns presently may not look good, however the funds are decent.

For SIPs you may consider a couple of schemes from:

1. UTI flexi cap fund – Growth.     
2. Parag Parikh Flexi cap - Growth 
3. Samco Flexi Cap – Growth
4. Axis Esg Equity Fund  Growth
5. Hdfc Index Fund - Sensex Plan - Growth

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/

Ans: You’ve structured a diverse investment portfolio which spans across small-cap, large-cap, multi-cap, and sectoral funds. This is commendable as it provides the necessary exposure to multiple growth areas of the market. At 45 years old, with 13 years left until retirement, you are in a critical phase where your investments should strike a balance between growth and stability. While your portfolio is already on the right path, there are several areas where you can optimize for better returns and reduced risks.

Let’s dive into a comprehensive analysis of your investments, their potential, and how you can further improve your portfolio.

Diversification of Funds
Currently, your portfolio is invested across various mutual fund categories, which include small-cap, large-cap, multi-cap, and sector-specific funds. While this provides diversification, it is crucial to evaluate if the overlap between similar categories (like having two small-cap funds) could result in over-concentration in one segment of the market.

Small-Cap Funds: These are known for higher volatility but potential high returns in the long run. However, investing in multiple small-cap funds could increase your risk exposure to market fluctuations, especially in periods of economic downturns when small-caps tend to suffer more. Having two small-cap funds could lead to duplication in performance and risk.

What you can do: Rather than having multiple funds in the same category, streamline your portfolio by focusing on a limited number of funds in each category. For instance, one small-cap fund is sufficient to capture this segment’s growth. Diversifying within other market segments or asset classes would offer better risk mitigation.

Growth vs. Stability
You’re currently at a stage where both growth and capital preservation are important. Small-cap and mid-cap funds tend to deliver higher returns over the long term, but they also come with increased volatility. As you get closer to retirement, the focus should slowly shift towards more stable investments that offer lower risk.

What you can do:
Continue investing in small-cap and mid-cap funds for now, but after 5 to 7 years, consider increasing your allocation towards large-cap and multi-cap funds. These offer more stability and are less affected by market volatility compared to small-cap funds.
Lump Sum Investment Strategy
You have Rs 8-10 lakhs available for lump sum investment. It's important to allocate this amount in a way that complements your existing portfolio without significantly increasing your risk exposure.

Large-Cap Funds: These funds invest in well-established companies that are less volatile compared to mid- and small-cap funds. Allocating a significant portion of your lump sum into large-cap funds will offer you stability and consistent returns over time.

Multi-Cap Funds: These funds invest across market segments—large-cap, mid-cap, and small-cap—and provide flexibility. They adjust based on market conditions, thus giving you balanced growth. This could be a good place to park a part of your lump sum as they can help mitigate risk.

Sectoral Funds: You’ve already invested in a sector-specific fund like the ICICI Prudential Energy Opportunities Fund. Sectoral funds tend to have higher risks as they depend on the performance of a particular sector. For example, if the energy sector underperforms, this fund will suffer. Therefore, it's better not to concentrate more of your lump sum in sectoral funds.

What you can do:
Consider investing around 40% of your lump sum in large-cap funds, 30% in multi-cap funds, and the remaining 30% in a more stable option like debt mutual funds or a balanced hybrid fund. This allocation will provide both growth and safety.

Regular SIPs vs. Lump Sum
SIPs help average out the cost of investment over time and are an excellent strategy for long-term wealth creation. On the other hand, lump sum investments, especially during market lows, can yield good returns if timed well. However, trying to time the market can be risky.

What you can do:
Continue with your regular SIPs, as they provide disciplined investing and rupee cost averaging. For your lump sum investment, consider deploying it through a Systematic Transfer Plan (STP). This will allow you to invest a lump sum in a liquid or debt fund and gradually transfer it into equity funds, reducing the risk of market volatility.

Tax Efficiency
Your investment in the Nippon India ELSS Tax Saver Fund helps you save on taxes under Section 80C. ELSS funds are great for tax-saving purposes, but they come with a 3-year lock-in period, which limits liquidity. Having more than one ELSS fund in your portfolio could unnecessarily lock up a large part of your capital.

What you can do:
Stick to one ELSS fund for your tax-saving requirements. Avoid over-allocating to this category, as it could reduce your portfolio’s liquidity. Instead, focus on diversified funds that offer both tax benefits and liquidity.

Liquidity and Emergency Funds
Although you have Rs 50,000 invested in Liquiloans, it's important to ensure that you have sufficient liquid assets available for emergencies. Liquiloans provide relatively stable returns compared to market-linked funds, but they also carry certain risks, which I will discuss in more detail below. It's essential to balance liquidity with return expectations to ensure you can meet short-term financial needs without disrupting your long-term goals.

Disadvantages and Risks in Liquiloans
While Liquiloans offer an attractive investment option for those looking for relatively low-risk, fixed-income investments, they come with their own set of risks and drawbacks. Here's what you should be aware of:

Credit Risk: Liquiloans involve lending money to individuals or businesses. The risk is that the borrower might default on their loan, leading to potential loss of capital for the lender (i.e., you). While Liquiloan platforms often conduct credit checks, no investment is entirely risk-free.

Liquidity Risk: Liquiloans are not as liquid as traditional investments like mutual funds or fixed deposits. If you need access to your money quickly, withdrawing from a Liquiloan can be difficult. This is because loan repayments follow a specific schedule, and premature exits may incur penalties or delays.

Interest Rate Risk: Interest rates in Liquiloans can fluctuate based on market conditions or changes in economic policy. If interest rates decline, your returns from Liquiloans might also reduce. In contrast, your returns are generally more stable in debt mutual funds.

Platform Risk: Liquiloan platforms themselves may face operational or financial difficulties, which could affect your investment. If the platform fails, it may result in delays or even loss of capital. It’s crucial to ensure that the platform you choose is financially stable and has a strong track record.

Diversification Risk: Investing a large portion of your capital in Liquiloans could lead to concentration risk. As it’s a relatively niche product, having too much invested in this area can reduce the overall diversification of your portfolio, increasing your risk profile.

What you can do:
Limit your exposure to Liquiloans. Keep it to a small portion of your portfolio, and consider reallocating some funds to more liquid and secure options like liquid mutual funds or fixed-income instruments. These alternatives offer better liquidity and potentially less risk.

Corpus Expectation at Retirement
It's important to assess how much you can expect at retirement based on your current investments. Although exact returns are difficult to predict due to market volatility, you can expect significant growth given your current investment strategy. Assuming an average annual return of 12% on equity investments, your SIPs and lump sum investments could grow substantially over the next 13 years.

However, to maintain a more accurate and stable financial projection, it would be wise to review your portfolio every few years. Adjustments in asset allocation may be needed as you approach retirement to ensure that your capital is preserved while still allowing for growth.

What you can do:
Set clear retirement goals and work towards achieving a target corpus based on your expected lifestyle needs. You may want to consult with a Certified Financial Planner (CFP) who can provide a more detailed analysis and ensure that you’re on track for retirement.

Fund Selection and Regular Plans
Your decision to invest through regular plans instead of direct plans is a smart move, especially if you are relying on professional advice. Regular plans come with a slightly higher expense ratio, but the value of having expert guidance can often outweigh the cost difference. Direct plans require investors to manage their portfolios themselves, which can be challenging for those without deep market knowledge.

What you can do:
Stick to regular plans, especially since you are benefiting from professional advice and monitoring. It’s essential to have expert input as you grow your portfolio, particularly when retirement is approaching. Avoid the temptation to switch to direct plans purely for lower costs, as this could compromise your overall financial strategy.

Final Insights
You have structured a strong and diversified portfolio that aligns well with your goals. However, there are a few key areas where you can improve your investment strategy for even better results:

Streamline your portfolio: Consider reducing overlap in small-cap funds and diversify into other categories.
Focus on growth for now, but plan for stability: Continue with your current strategy, but gradually increase your exposure to large-cap and stable funds as you approach retirement.
Deploy your lump sum wisely: Allocate your Rs 8-10 lakh across large-cap, multi-cap, and hybrid funds for balanced growth and risk management.
Watch your liquidity needs: Ensure you have enough liquid assets to cover short-term goals or emergencies. Limit your exposure to Liquiloans due to the risks involved.
Review your portfolio regularly: Work with a Certified Financial Planner to keep your asset allocation in check, especially as retirement nears.
With these strategies, you are well on your way to securing a solid financial future while mitigating risks.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Ans: It is good to see your dedication towards systematic investing.
You have invested consistently for many years.
Thank you for sharing your detailed portfolio.
Your disciplined habit is very positive.
Let me give you a 360-degree view.
We will focus on your current investments, future strategy, risks, tax impact, and alternatives.

» Current portfolio review

– You invest in multiple mutual fund categories.
– Small-cap, multi-cap, large & mid-cap, sector funds, ELSS, and flexicap.
– You also invested in Liquiloan for short-term liquidity.
– Current portfolio value is around Rs.16.5 lakh.
– Your total investment is Rs.13.7 lakh.
– This means an overall gain of about Rs.3 lakh.
– However, you feel growth is not satisfactory.
– Small-cap and sector funds are more volatile.
– Gains depend on market cycles.
– Past performance shows fluctuations, not consistent growth.

» Understanding small-cap and sector fund behavior

– Small-cap funds perform well in bullish markets.
– They underperform during downturns.
– Small-cap stocks have higher risk due to business size.
– Sector funds focus on one industry, e.g., energy.
– Energy sector depends on commodity prices and regulations.
– Such funds can have high ups and downs.
– Long-term small-cap investing works if held for 10+ years.
– But since you aim to retire in 13 years, timing matters.
– Small-cap should be only a portion of total equity.
– Over-exposure increases portfolio risk unnecessarily.

» Multi-cap and large-mid cap funds analysis

– Multi-cap and large-mid cap funds offer diversification.
– These invest across large, mid, and small companies.
– They are relatively safer than pure small-cap or sector funds.
– You have invested in them since 2017-2018.
– This is good for moderate, long-term wealth creation.
– Consistent top-ups show commitment.
– Keep holding these for stability and growth.

» ELSS Tax Saver Fund – its role

– ELSS provides tax deduction benefit under section 80C.
– Lock-in period of 3 years exists.
– You invest Rs.2000 monthly since 2017.
– This creates a disciplined tax-saving habit.
– It also offers long-term capital growth.
– Keep this as part of your portfolio.
– Do not surrender ELSS without a strong reason.

» Liquiloan investment review

– Liquiloan is used for emergency or liquidity needs.
– Rs.50,000 seems low given your monthly investments.
– It provides instant liquidity but low returns.
– It should not be a significant investment portion.
– Better to use liquid mutual funds for flexibility and returns.

» Taxation impact on your investments

– Equity mutual funds (small-cap, multi-cap, ELSS)

LTCG above Rs.1.25 lakh taxed at 12.5%.

STCG taxed at 20%.
– Debt funds are taxed as per income slab.
– Avoid frequent switching to reduce tax burden.
– Systematic Investment Plan (SIP) is tax-efficient long term.
– No need to redeem frequently.
– Aim to hold for at least 5-7 years.
– This allows better compounding and lowers tax impact.

» Issues with index funds and direct funds

– You did not invest in index funds, which is good.
– Index funds follow market blindly.
– They don’t protect during market downturns.
– Active funds managed by experts can beat index over time.
– You invest in regular mutual funds.
– Regular funds help through professional monitoring and rebalancing.
– A Certified Financial Planner (CFP) can suggest timely shifts.
– Direct funds lack such guidance and discipline.

» Portfolio rebalancing suggestions

– Your portfolio is heavily focused on small-cap and sector funds.
– I suggest reducing small-cap and sector fund portion.
– Allocate more to balanced multi-cap and large-mid cap funds.
– Consider increasing exposure to debt mutual funds.
– Debt portion should be at least 30%-40% now.
– Helps safeguard corpus as you near retirement.
– Liquid funds should hold 5%-10% for emergencies.
– Avoid lump-sum switching.
– Make gradual changes over 6-12 months.
– Rebalance every 6 months to maintain correct mix.
– Do not chase high returns blindly.

» Systematic Withdrawal Plan (SWP) for retirement

– Post-retirement, SWP helps steady cash flow.
– Rs.16.5 lakh corpus can be used to generate monthly income.
– Decide the monthly requirement during retirement.
– Keep a portion in debt funds for SWP.
– Maintain some in multi-cap funds for moderate growth.
– Reduces dependence on lump-sum redemption.
– This creates a planned income stream without capital shock.

» Importance of health insurance and emergency fund

– At 45, health risks rise yearly.
– Keep at least Rs.15-20 lakh health cover for self and family.
– Top-up plans reduce premium burden.
– Emergency fund of 6-12 months expenses is critical.
– Use liquid mutual funds, not Liquiloan.
– Provides quick access during medical or personal emergencies.
– Helps prevent forced withdrawals from investments.

» Avoid annuities for retirement income

– Annuities lock capital for fixed payouts.
– They offer poor inflation adjustment.
– Returns are low versus mutual funds.
– Lack of flexibility is a drawback.
– Systematic Withdrawal Plan from mutual funds is a better solution.

» Tax-efficient wealth transfer

– Plan for wealth transfer to family or charity.
– Set nominee details properly in mutual funds.
– Draft a simple Will to avoid legal hassles later.
– Mutual fund units are easy to transfer.
– Keeps process simple and avoids tax complications.

» Final Insights

– Your commitment to investing is excellent.
– But small-cap and sector funds are too risky now.
– Aim for a balanced equity and debt mix.
– Hold multi-cap, large-mid cap, and ELSS for long term.
– Keep liquidity fund ready for emergencies.
– Reduce small-cap and sector allocation gradually.
– Avoid index and direct funds due to lack of active management.
– Avoid annuities for retirement planning.
– Health insurance cover is essential.
– Plan systematic withdrawal post-retirement.
– Rebalance portfolio every 6 months.
– Tax planning is important to reduce capital gain impact.
– Use a Certified Financial Planner for professional guidance.
– This helps stay focused, avoid wrong moves, and build wealth steadily.
– With small changes, your retirement goal becomes achievable.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

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