Mutual Funds

SIPs for your silver years

Anand Kalyanaraman | Updated on June 16, 2019 Published on June 16, 2019

The plan offers age-based asset allocation and auto-rebalancing

Edelweiss Asset Management recently launched a retirement plan for investors (individuals including NRIs). Under this plan, individuals can invest for their retirement through the SIP route in two open-ended Edelweiss mutual fund schemes (growth plans) of their choice — one equity and one debt. Based on the investor’s age, the asset allocation is calibrated along a glide path — with a higher weight to the equity scheme (riskier asset) when the investor is young and more weight to the debt scheme (less risky asset) as he/she ages and approaches retirement.

How it works

An investor can choose either the ‘Auto Option’ or the ‘My Custom Option’. In the auto option — the default one — there is a predefined asset allocation between equity and debt at every age. Under the custom option, the investor can customise equity and debt allocation as per his/her risk appetite and investment tenure. The minimum entry age is 18 and the maximum is 50 (under auto option) and 55 (under custom option). The minimum tenure of investment is 60 months or 20 quarters.

In the auto option, the asset allocation is 80:20 (equity:debt) until the age of 30, and thereafter, equity allocation is 110 minus age.

So, calibrated asset allocation for new investments happen every year. Besides, the portfolio is automatically rebalanced between equity and debt (based on market value) at predefined intervals — every five years starting from age 40.

In the custom option, the investor can rebalance the overall portfolio by giving manual instructions based on his/her preferences and risk appetite. The FIFO method will be used for rebalancing purposes — fund units purchased first will be redeemed first.

Investors can opt for any one open-ended equity scheme offered by Edelweiss (except its ELSS scheme and some ETFs) and one of its open-ended debt schemes, under the growth option. The funds can be changed during the term of the facility, and fresh investments will be made in the new schemes.

Our take

Some mutual funds in the market already offer retirement schemes. Edelweiss claims its plan is different in that it offers age-based asset allocation and auto-rebalancing. This plan can form one part of your retirement portfolio if you understand how it works and if well-run schemes with a good long-term record are chosen. The plan carries some concentration risk as the two schemes are only from the Edelweiss stable and the money will be deployed in only one equity and debt scheme each. You should ideally have a well-diversified mutual fund portfolio with 5-6 schemes across categories and a few fund houses to avoid concentration risk.

Note that periodic rebalancing of the portfolio has tax implications. Shifts between equity and debt schemes under this plan will be considered redemptions, and capital gains tax be will be applicable each time a change is made. Investments under the plan are not eligible for tax benefits under Section 80C.

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