I intend to quit job very shortly and will have a Corpus of 1.25 crores and regular monthly pension of Rs.75k form work. Should I put invest in conservative Fd or MF. I am 51 years old without any liability or responsibility.

Ans: Given your risk appetite and investment horizon of 12-13 years, here are two investment strategies to achieve a corpus of 5-7 crore:

Option 1: Fresh Investment

Equity Mutual Funds: Allocate 60% of the portfolio (30 lac) to diversified equity mutual funds with a proven track record.
Direct Equity: Invest 20% (10 lac) directly in blue-chip stocks or through a well-researched stock portfolio.
Debt Mutual Funds: Allocate 10% (5 lac) to debt funds for stability and to balance the portfolio.
Gold or Gold ETFs: Allocate 10% (5 lac) to gold as a hedge against market volatility and inflation.
Option 2: Utilizing FDs

Equity Mutual Funds: Transfer 50% of the FDs (30-35 lac) into diversified equity mutual funds.
Debt Mutual Funds: Transfer 30% (20-25 lac) to debt funds for stability.
Direct Equity: Invest 10% (5-7 lac) directly in blue-chip stocks or a stock portfolio.
Gold or Gold ETFs: Allocate 10% (5-7 lac) to gold.
Regularly review and rebalance the portfolio to maintain the desired asset allocation. Consider SIPs for equity investments to take advantage of rupee-cost averaging. Consult with a Certified Financial Planner to tailor the investment strategy to your specific needs and objectives.

Ans: Based on your query, we understand that you are looking for investment options to plan for your younger son’s future (Education and Marriage) and your retirement life. You have mentioned that both goals have a similar time duration of about 12-13 years. You also mentioned that you have a good risk appetite now and have seen a good 5-year cycle in mutual funds (MFs).

To achieve a corpus of around Rs 5Cr by then, we have evaluated both the options:-

Option 1: Fresh Investment: This is the most recommended option from our end as considering your investment horizon and knowledge, we suggest you to rebalance your current fixed income oriented investments to equity orient funds with 20-25% allocation towards mid and small caps.
Benefits on shifting:
• Lower tax liability on returns generated.
• Tax deferment and compounding (higher returns) in long run.

Option 2: Continuing with Fixed Deposits (FDs) (Not suggested by us)
As you know, FDs are very safe asset class and yielding higher returns due to current interest rate scenario. Although, we all know sooner and later rates will came down to support the economy so does the FD rates.
Also, FDs as investment are not considered good for horizon of more than 5 years because:
a) Yearly taxation reduce the compounding and returns.
b) Equity generally outperform in terms of returns over the same horizon.

Final Recommendation:
We suggest you to shift 30-40 Lakhs from FDs and reinvest the same in a well-diversified portfolio of Equity and hybrid funds. Also, considering your goal of reaching a corpus of 5cr with current mutual fund investments it will require whopping returns of 20%+ on annual basis for a period of 12-13 years which is not very likely to achieve.

As a summary, allocate a total of Rs 80-90 Lakhs towards diversified equity-oriented funds and keep invested Rs 20-30 Lakhs in FDs in your wife’s name for taxation benefit.

Ans: Have 6-12 months of your monthly expenses as contingency in FD's, everything else can be deployed towards your goal.

Assuming you have 1cr today to allocate to the goals & need 6 cr in 12 years, you will have to do an SIP of 70K over & above the 1cr that you will allocate towards the goals.

MF's are the best way for you. Invest in 4-5 well diversified MF's & start an SIP in the same MF's

Ans: It is better to reinvest your FD into MF’s since you have 10 Years to retirement. You can look at a mix of Large, Mid & Small-cap funds with a higher ratio to Large & Midcap funds with a systematic transfer plan(STP) mode or one time. Some Large-cap funds to mention are Nippon India Largecap fund, ICICI Bluechip fund & Mirae Largecap fund. In the mid-cap category one may look at HDFC Mid-cap and SBI mid-cap funds. In the small-cap category one may look at ICICI Small-cap and Kotak small-cap funds. Small-cap funds can be through STPs through manage risk better. You are likely to build up a corpus of around Rs 4 cr.

Ans: Evaluation of Current Investments

Your current savings of Rs 1.22 crore is commendable. Having investments in mutual funds and fixed deposits shows a balanced approach.

However, evaluating the need for fixed deposits is crucial. Fixed deposits offer safety but low returns compared to mutual funds. Since you are retiring soon, it is essential to assess the balance between safety and growth.

Fixed Deposits: Pros and Cons

Pros:

Fixed deposits provide guaranteed returns.

They are safe and secure investments.

Liquidity is available but may come with penalties.

Cons:

Returns are lower compared to mutual funds.

Interest earned is taxable.

Inflation can erode the real value of returns.

Mutual Funds: Pros and Cons

Pros:

Potential for higher returns compared to fixed deposits.

Diversified investments reduce risk.

Flexibility to choose funds based on risk appetite and goals.

Cons:

Returns are market-linked and can fluctuate.

Requires regular monitoring.

May involve higher costs if not chosen wisely.

Assessing Your Needs

Given your retirement plan next year, stability and income generation become essential. Fixed deposits provide stability, but mutual funds can offer growth. A mix of both can provide balance.

Strategy for Retirement

Consider maintaining a portion in fixed deposits for safety. This portion can cover short-term needs. The rest can remain in mutual funds for growth. This strategy ensures a balance between safety and potential returns.

Final Insights

Your proactive approach is commendable. Maintaining safety with fixed deposits and growth with mutual funds can serve you well. Regular reviews with a Certified Financial Planner can ensure alignment with your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in