Should I Increase My Risk for Higher Retirement Returns at 45?

Ans:

Ans: Your commitment to building wealth through systematic investment plans (SIPs) at the age of 30 demonstrates foresight and financial discipline. Planning for early retirement reflects your proactive approach to financial management.

Understanding Your Goals:

With a target retirement age range of 45-48, it's crucial to align your investment strategy with this ambitious goal. As a Certified Financial Planner, I understand the importance of optimizing your portfolio to maximize returns while managing risk.

Assessing Current Allocations:

Your current SIP allocations provide a diversified mix across various asset classes, including equity, gold, and debt. This diversified approach reflects a balanced risk profile, which is essential for long-term wealth accumulation.

Evaluation of Funds:

ICICI US Bluechip Equity Fund and ICICI India Bluechip Fund offer exposure to established companies, providing stability and growth potential. Axis Gold Fund acts as a hedge against market volatility, offering diversification benefits.

Nippon Money Market Fund and ICICI All Seasons Bond provide stability and liquidity through investments in low-risk debt securities. Kotak Small Cap Fund and Kotak Emerging Equity Fund offer growth opportunities by investing in small and emerging companies.

HDFC Nifty 50 Fund tracks the performance of the Nifty 50 index, providing exposure to large-cap companies in India.

Recommending Adjustments:

Given your long-term retirement horizon, a higher allocation to equity funds may be beneficial to capitalize on their potential for long-term growth. Consider increasing allocations to equity funds while reducing exposure to debt and money market funds gradually.

Rebalancing your portfolio periodically, perhaps annually, will help maintain the desired asset allocation and manage risk effectively. Additionally, consider reviewing your portfolio with a Certified Financial Planner regularly to ensure alignment with your retirement goals and risk tolerance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hi Chethan,
Such good portfolio at your age is commendable. Your goal of early retirement at the age of 51 is easily possible.

Total stocks and mutual fund portfolio valut after 15 years will grow to approx. 7 crores if you continue investing 45000 monthly with 10% step-up.
PF amount will help in managing the debt allocation of your overall portfolio and will be helpful for retirement.

You can retire with this amount if your monthly expenses does not exceed 1 lakh. It also assumes that you have no current liabilities and other financial goals.

Wrt to existing MFs shared by you, seems you have selected funds based on random online suggestions. These were top performer once. But you need to reallocate your current and future SIPs judiciously into a mix of equity and hybrid mutual funds.

Kindly eliminate Index Funds (over-hyped by Fin-Fluencers), Quant Fund and Value Fund. It is not easy for an individual to select mutual fund from a pool of funds.
Just like you need an expert doctor for your health, you also need an expert advisor for your wealth. Otherwise it can backfire.

Kindly consult a Certified Financial Planner - a CFP who can guide you with exact funds to invest in keeping in mind your age, financial goals and risk profile.

Best Regards,
Reetika Sharma, Certified Financial Planner
https://www.instagram.com/cfpreetika/

Ans: You have built an impressive portfolio already. Your commitment with a step-up strategy shows discipline. Many investors fail to take this path. You are already creating a strong foundation for your retirement goal. Let us look at your portfolio in detail and see how it can be made more effective.

» Current allocation analysis

– You are investing across large, mid, small, flexi, quant and index.
– This shows a diversified structure on the surface.
– However, there is overlap among schemes.
– Too many schemes can reduce efficiency.
– Your PF corpus of Rs 35 lakhs adds stability.
– Stocks worth Rs 23 lakhs bring more risk but also higher growth.
– Current SIP commitment is strong at Rs 45K monthly plus 10% yearly step-up.
– Over 15 years, this discipline can create a very large corpus.

» Risk and return balance

– Your PF is a low-risk asset.
– Mutual funds are growth-oriented.
– Stocks are high risk and need review.
– Current allocation leans more towards mid and small caps.
– Small and midcaps bring volatility in short term.
– For a 15-year horizon, they may reward well.
– But too much exposure here can disturb sleep during market falls.
– Balance with more exposure to large cap and flexi cap.
– Ensure stability in long-term wealth creation.

» Overlap in mutual funds

– You are holding seven active funds plus index funds.
– Many of these have common holdings in large cap space.
– Mirae Asset Large Cap, Parag Flexi Cap, and index funds overlap.
– This means duplication without real extra benefit.
– More funds do not mean better diversification.
– Four to five carefully chosen funds are often enough.
– Fewer schemes make review and monitoring easier.
– Consider trimming overlapping schemes to improve efficiency.

» Concerns with index funds

– You mentioned index funds of Rs 5K monthly.
– Index funds follow market passively.
– They do not protect in falling markets.
– They carry concentration risk in top stocks.
– They cannot adapt to changing market cycles.
– Expense looks cheaper but hidden cost is higher risk.
– In India, active funds have proven better long-term record.
– Especially in mid, small, flexi cap spaces.
– For 15 years horizon, active management is more suitable.
– Reconsider index allocation and shift to strong active funds.

» Issue with direct funds

– You are investing through direct plans.
– Direct funds look cheaper by expense ratio.
– But there are disadvantages hidden.
– You miss guidance from a Certified Financial Planner.
– Mistakes in fund choice or timing can cost more than saved expenses.
– Direct investing needs constant review and expertise.
– Regular funds via MFD with CFP credential bring personalised advice.
– This ensures asset allocation matches life stage changes.
– Also helps in handling tax planning and portfolio corrections.
– For retirement goal, professional support adds safety.

» Portfolio improvement suggestions

– Reduce fund count to avoid clutter.
– Retain a mix of large cap, mid cap, small cap and flexi cap.
– Give higher allocation to large and flexi cap for stability.
– Keep limited exposure to quant fund style as it can be unpredictable.
– Review small cap allocation, currently at Rs 10K monthly, which is high.
– Bringing it down slightly will lower risk without hurting return.
– Exit index funds and redirect SIP to active diversified funds.
– Move from direct funds to regular with CFP support.
– This small shift improves discipline and reduces risk of wrong calls.

» Review of other assets

– PF corpus of Rs 35 lakhs is growing safely.
– Stock market holdings of Rs 23 lakhs need proper strategy.
– If these are direct stocks, risk is higher.
– Consider gradually reducing direct stock exposure.
– Reinvest into managed mutual funds with discipline.
– This will bring professional management to that part of portfolio.
– Avoid holding too much in unmanaged stocks.
– This step brings uniformity and reduces monitoring stress.

» Retirement corpus visibility

– You are in strong position with current pace.
– 15 years horizon with step-up SIPs can build sizeable wealth.
– PF will add safety cushion.
– Even with some market volatility, discipline will pay.
– With portfolio corrections suggested, chances improve further.
– You are on right path to meet retirement goal comfortably.

» Tax aspects

– When selling mutual funds, note new taxation.
– For equity mutual funds, LTCG above Rs 1.25 lakh taxed at 12.5%.
– STCG taxed at 20%.
– For debt funds, gains taxed as per income slab.
– Keeping funds for longer horizon reduces tax impact.
– Rebalancing should be tax-efficient and not too frequent.

» Final insights

– You are already disciplined and consistent.
– Portfolio has good base but needs trimming.
– Overlap reduction, lowering small cap exposure and exiting index funds will help.
– Moving from direct to regular with CFP support is recommended.
– Stock portfolio should be reduced and shifted to mutual funds.
– This will create a balanced, growth-oriented and safer path for retirement.
– Your focus and discipline will surely reward you with a strong corpus.

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

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