I am 55, and work in a PSU. I retire at 60 with no pension benefits. I have generally invested in all the ‘conservative’ financial instruments such as VPF, PPF, bank fixed deposits, NSC, gold and insurance policies of LIC. I have also purchased a flat. I keep reading that investing in mutual funds is the only way to beat inflation and that it will add significantly to the retirement kitty.

I would like to invest Rs 15,000-20,000 every month for the next five years. Considering my profile, can you suggest 4-5 mutual funds I can invest in? These investments should not be too risky. I am looking at returns of around 15 per cent. Once I retire should I move to MIPs?

C.A. Rao

As you yourself have stated, most of your investments are in traditional products — mostly debt oriented schemes.

You should have started investments in mutual funds a little earlier, say, at 45 or 50. That would have enabled your investments to grow at a fair pace to give you a healthy corpus.

Investments in equity or equity mutual funds give you a better chance at beating inflation. But over the last 4-5 years, inflation itself has been in double digits and most diversified equity funds failed to even match this rate, let alone beat it.

Of course, if you take a 10-year horizon, then diversified equity funds have handsomely beaten inflation.

That is why we insist on longer term investments of 10-15 years for you to have meaningful capital appreciation.

So, with your low risk appetite and investment horizon of five years, achieving 15 per cent annual returns may be quite challenging. You will do well to temper it down to 10 per cent.

Split Rs 20,000 as follows: invest Rs 5,000 each in Franklin India Bluechip, HDFC Equity and Quantum Long Term Equity. Park Rs 3,000 in HDFC Balanced and Rs 2,000 in IDFC Premier Equity.

The portfolio is mainly large-cap focused, which is relatively less risky. We have included a mid-cap fund to perk up returns.

At the end of five years, reduce exposure to equity funds substantially or exit them altogether if you have little penchant for risk. If there is any abnormal rally in the market, book profits and move the proceeds to safer avenues.

Move to safe debt avenues or MIPs after you turn 60 and opt for monthly or quarterly payouts, especially as you have no pension benefits, post-retirement. Some of the MIPs you can consider are: HDFC MIP Long Term, Canara Robeco MIP and Reliance MIP.

*** I am 47 years old and have been investing Rs 30,000 every month for the past one year under SIP mode in the following funds: HDFC Mid Cap Opportunities; ICICI Pru Focused Bluechip; UTI Opportunities; Reliance Banking; IDFC Premier Equity and ICICI Pru Discovery.

I am investing this for developing a corpus for my old age. Are my investments on the right track?

Subramanyan

It is nice to note that you have been investing systematically for your retirement. Having said that, there seems to be no specific focus to your portfolio and choices appear quite random.

Also, there are too many mid-cap funds in your portfolio and a banking fund as well. For the record, Reliance Banking is a fund with an excellent track record over the long-term. But sector funds require timing for entry and exit. So, stay away from such funds for long-term portfolio building purposes. Also, we assume that you have made sufficient allocation to other investment avenues such as debt (FDs, RDs, PPF, etc), gold and real-estate.

You have not stated the allocation to each scheme. So consider splitting Rs 30,000 as follows: invest Rs 6,000 each in ICICI Pru Focussed Bluechip Equity, UTI Opportunities and Quantum Long Term Equity. Invest Rs 4,500 each in IDFC Premier Equity and HDFC Midcap Opportunities.

Exit ICICI Pru Discovery, even though it has a proven track record as you already have two mid-cap funds in your portfolio and another scheme from the ICICI stable.

Your portfolio now has a blend of large-, multi- and mid-cap funds, making it a balanced portfolio.

Park the balance Rs 3,000 in Birla Sun Life Dynamic Bond Fund. If you already have sufficient debt investments, invest Rs 3,000 in Reliance Gold Savings. Review your portfolio once every year and take corrective action to rebalance. Also, try to weed out underperformers.

Move proceeds from equity funds to safer debt avenues if you reach your target corpus ahead of the anticipated time.

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