I’m a 30-year-old married man and I want to have a balanced growth portfolio. Every month, I invest ₹11,000 in the following categories: Large and mid-cap ( ₹3,000), mid-cap ( ₹2,500), small-cap ( ₹3,500) and US equity ( ₹2,000). I’m planning to invest an additional ₹9,000 every month. Please advise whether I should add a debt fund or index fund or add the amount to existing SIPs?
Your allocation is skewed heavily towards domestic equity funds across categories. Since you are going to be adding a substantial amount to your SIP, it gives us an opportunity to address the situation.
Your desire is to have a ‘balanced’ portfolio, and your young age suggests that you are investing for the long-term (and hence a ‘growth’ portfolio). We can address these twin requirements with an asset allocation that looks like the following: 60% in domestic equity funds, 20% in international equity funds and the remaining 20% in a combination of debt and gold funds.
That would translate to ₹12,000 in domestic equity funds, up from the current ₹9,000. You can do that by adding an index fund in the large-cap category; a Nifty 100 fund, for example. You can double your investments in US equity to ₹4,000. The remaining ₹4,000 can be invested in a low-duration debt fund such as Kotak Savings Fund or SBI Ultra Short Fund. You can also split the debt investment with some allocation to gold in the form of a gold savings fund.
Such an asset allocation would be aggressive, yet balanced and diversified across asset classes, global markets and market segments.
My retirement corpus is worth about ₹1 crore. I plan to park 40% of the amount in two-three dynamic asset allocation funds and do a SWP (systematic withdrawal plan) of 8% of the amount invested every month. Please suggest the viability of the same. I’m assuming a CAGR of 9-10% on these funds. Is this assumption realistic? I plan to invest the remaining 60% as follows: 25% in SCSS, PMVYY and ultra-short debt fund and 35% in flexi and large-cap funds.
Over the past eight years, the average rolling returns of the dynamic asset allocation MF category is 7-9% annually. So, a 8% expectation would be more realistic than a 9-10% expectation. In that situation, you would have to assume that your capital would get steadily diminished as you withdraw at a rate of 8% (annually, I’m assuming) from these funds. And you would be assuming an additional risk by exposing the capital you need for expenses to the equity market.
A better approach would be to calculate what you need for, say, five years and place it in safe debt funds such as ultra-short debt funds and do SWP from there. In your situation, that would come to ₹16 lakh.
The money remaining can be placed in a 60-40 portfolio with 60% going to large-cap and flexi-cap funds and the remaining 40% going to the debt options you mention.
Every two-three years, you can move some money from this to your SWP portfolio and continue. This ‘ladder’ approach would have a better return/risk profile and a higher success probability.
Srikanth Meenakshi is foun-ding partner, PrimeInvestor.
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