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Confused About Retirement Portfolio Allocation?

Ramalingam Kalirajan |8077 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Feb 01, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Saravanan on Jan 31, 2025Hindi

Sir, thanks for your advice. I have below questions: 1. For retirement goal, you have mentioned as below - "Reduce index funds to 40%. Allocate this to a mix of large-cap and flexi-cap funds. Increase flexi-cap funds from 15% to 30% for better returns. Keep 15% in mid-cap funds for growth potential." But if I add 40% in index funds (nifty 50 and nifty next 50), 30% to flexi cap and 15% to midcap, the total allocation is coming around to 85%, what about the remaining 15%? 2. Since I am new to mutual funds, I have allocated small amounts to active funds, as I have fear over the long term on how it will perform and fund manager issues. But you have asked to increase 30% to flexi cap and 40% to hybrid funds, Will it have high risk, as I am a moderate risk taker and how about for my goals of 7 years and 10 years? Is it worth to increase the allocation to active funds by decreasing the allocation on index funds? 3. You asked me to diversify among debt funds instead of single corporate bond fund, I want to keep my portfolio very simple with max of 3 to 4 funds, so that it will be easy to rebalance every year. Kindly suggest as having multiple funds will increase expense ratio as well?

Ans: Retirement Portfolio Allocation
You are correct in pointing out the missing 15%. That portion should be allocated to a balanced advantage or dynamic asset allocation fund. This will provide an automatic equity-debt rebalancing mechanism and reduce volatility as you approach retirement.

Active Funds vs. Index Funds for a Moderate Risk Taker

Index funds offer stability but may underperform in certain market conditions.

Actively managed funds, particularly flexi-cap and hybrid funds, provide professional fund management and potential outperformance.

A 7- to 10-year horizon allows active funds to navigate different market cycles.

Flexi-cap funds provide diversification across market caps, reducing the risk of fund manager bias.

Hybrid funds manage volatility, making them suitable for a moderate risk taker.

Keeping some allocation in index funds for predictability while increasing active fund exposure ensures better risk-adjusted returns.

Keeping the Portfolio Simple with Fewer Debt Funds

You can simplify the debt portion by choosing a dynamic bond fund instead of multiple debt categories.
A balanced advantage fund also manages equity-debt allocation dynamically, reducing the need for separate debt funds.
This keeps the portfolio easy to manage while ensuring proper diversification.
Expense ratios remain manageable with this approach.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

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