Hi Purushottamji, My age is 49 years. I wanted to know what should be the corpus I should create if I have to retire around 65 years. I have invested in FD's for Rs 6 lakhs and equity mutual funds for Rs 19 lakhs. I have some funds of Rs 6 lakhs which I want to invest to create the retirement corpus. Should I consider investing in equity mutual funds or a multi cap mutual fund? Please provide some insights and advice.

Ans: You have started well, Purushottamji. Having Rs 19 lakhs in equity mutual funds and Rs 6 lakhs in FD at 49 years shows discipline. Planning now for retirement at 65 gives you around 16 years. This is a very useful period to grow wealth with a balanced risk approach. Let us see how to create the right corpus.

» Importance of Retirement Corpus
– Retirement corpus must replace your income after salary stops.
– It should cover monthly expenses for 25 to 30 years post retirement.
– Medical, lifestyle, and inflation must be considered.
– Without a strong corpus, you may depend on children or compromise lifestyle.
– A focused investment plan from now will give confidence and peace.

» Existing Position Assessment
– Equity mutual funds of Rs 19 lakhs is a good base.
– FD of Rs 6 lakhs is stable but returns are low.
– FD may give safety but inflation reduces its value.
– Keeping Rs 6 lakhs idle in FD may not help for retirement growth.
– Your extra Rs 6 lakhs available is an opportunity to boost growth.

» Role of Equity Mutual Funds
– Equity mutual funds give higher growth over long term.
– They are volatile in short term but reward patience.
– Over 16 years, market cycles balance out.
– Equity can multiply wealth faster compared to FD or debt.
– For your profile, equity allocation is essential.

» Role of Multi Cap Funds
– Multi cap funds invest in large, mid, and small cap in fixed ratio.
– They give exposure across market segments.
– Large cap offers stability, mid and small cap add growth.
– However, they do not give flexibility to fund manager.
– Some years, mid and small cap underperform badly.
– A pure multi cap fund may carry more risk than you want.

» Why Flexi Cap is Better than Multi Cap
– Flexi cap gives manager freedom to choose allocation based on market.
– When small caps look risky, manager can stay with large caps.
– When mid caps look attractive, allocation can be shifted.
– Multi cap funds do not allow this flexibility.
– For medium risk investors, flexi cap is usually better than multi cap.

» Why Not Index Funds
– Some investors think index funds are safer.
– But index funds cannot beat the index; they just copy it.
– They also fall when markets fall, without control.
– No active management, no protection, no chance of outperformance.
– Actively managed funds with expert decisions are better for retirement corpus.

» Why Not Direct Funds
– Direct funds look cheaper with low expense.
– But wrong selection without CFP guidance can reduce returns.
– Monitoring and rebalancing are not easy without expertise.
– Regular funds through Certified Financial Planner give right advice and support.
– Saving a little cost cannot match the value of right guidance.

» Ideal Allocation for You
– You have 16 years before retirement.
– 65 to 70% equity is suitable for you.
– Balance can go into debt mutual funds for stability.
– Within equity, combine large cap, flexi cap, and some mid cap.
– Avoid putting entire new Rs 6 lakhs into only multi cap.
– Split between large cap and flexi cap for balanced growth.

» Importance of SIP and Discipline
– Lumpsum investing in equity can be risky due to timing.
– Convert Rs 6 lakhs into systematic transfer to equity over 12 months.
– Continue monthly SIPs in equity mutual funds.
– This reduces risk and smooths out market ups and downs.
– Over 16 years, SIP discipline is more important than chasing best category.

» Monitoring and Rebalancing
– Review your portfolio every year with a Certified Financial Planner.
– Rebalance if equity grows beyond 70% or falls below 60%.
– Shift some gains from equity to debt closer to retirement.
– This protects your capital as retirement nears.
– A structured plan prevents emotional decisions during market falls.

» Tax Angle on Mutual Funds
– Long term equity gains above Rs 1.25 lakh taxed at 12.5%.
– Short term gains taxed at 20%.
– Debt fund gains taxed as per your income slab.
– Keep equity investments for long term to enjoy lower tax.
– Proper planning reduces tax outgo and increases net corpus.

» Lifestyle and Expense Planning
– Calculate current yearly expense.
– Assume inflation of 6% yearly till retirement.
– Retirement corpus must cover this rising expense for 25+ years.
– Health care costs will rise faster than inflation.
– Keep separate health insurance to protect corpus.

» Insurance and Protection
– Ensure you have term insurance till at least 60 years.
– This protects your family in case of uncertainty.
– Health insurance is equally critical.
– Without health cover, medical expenses can eat retirement corpus.
– Insurance acts like a shield for your investment plan.

» Finally
– You have made a strong start, Purushottamji.
– Rs 19 lakhs in equity and more to invest shows foresight.
– Avoid multi cap only; prefer a mix of large cap and flexi cap.
– Allocate 65 to 70% equity, balance in debt for stability.
– Avoid index funds and direct plans for your retirement goal.
– Invest Rs 6 lakhs systematically into equity over one year.
– Continue SIPs and review yearly with Certified Financial Planner.
– This approach can create a sufficient retirement corpus by age 65.

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

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