THE CASE:
My investments through SIPs are in 4 large-cap funds and 1 multi-cap fund. Total SIP investment currently is Rs 40,000. I need about Rs. 50 lakhs in another 13 years – 2033 for my child’s marriage and Rs. 2.30 Cr for my retirement in 13 years – 2033. Inflation is factored. Am I placed good?
THE SOLUTION:
For portfolio construction, asset allocation-based approach (mix of equity and debt) should be followed as it is one of the key determinants of the portfolio’s performance. Higher the investment horizon and risk appetite, higher can be the allocation to riskier asset classes such as equity, which have the potential to deliver relatively higher returns compared to debt category over the long term.
Assuming an aggressive risk profile given the long time horizon, you may invest with a portfolio mix of about 70% into equities and 30% into debt funds. The allocation can be to Large cap (45%)/ Mid cap (10%)/ Small cap (5%)/International (10%).
The international equity allocation offers diversification across geographies via exposure to different economic growth drivers and also acts as a hedge against domestic currency risk.
For investment in debt asset class, you can consider debt funds with a high credit quality portfolio such as Banking & PSU debt funds, Corporate Bond funds, Medium to Long term funds.
As retirement goal approaches (2-3 years before retirement), shift allocation out of equity into arbitrage funds, as they more tax efficient than fixed income funds for shorter holding periods.
The corpus amount has been computed assuming equity returns of 11% per annum and debt returns of 7% per annum.
Given no information on market value of existing investments, by investing as per the recommended asset allocation you would be able to reach about Rs 1.20 crore at retirement.
To achieve your goals, you would need to increase the existing monthly SIP amount of Rs 40,000 by about 16% per annum to reach Rs 2.80 crore at retirement.
It is advisable to top up your investments whenever you have any excess savings or any windfall gains.
Disclaimer: The above may not be the only solution and there could be multiple solutions for the same case. This is only a case study and should not be construed as any kind of advice. Personal and financial situations differ for each individual. Please consult a qualified licensed professional advisor before taking any action.
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