Financial Planning. Asset allocation: Hitting the sweet spot

Many of us strive hard to build a healthy corpus to ensure the financial security of our immediate family. While saving is just the first step in the process of wealth creation, investing in the right asset classes is critical to achieving financial goals.

Hyderabad-based Shiv Chandra, 48, who works for a financial services firm, is anxious about his nine-year-old daughter Sreya’s future and wants to save for her higher education and wedding. Chandra’s wife, Durga, is a home-maker.

The family spends about ₹60,000 every month. Chandra’s monthly take-home salary is ₹1.2 lakh. In addition to the house they reside in, the couple also own an apartment in Hyderabad, which fetches them ₹7,000 every month.

Chandra currently invests ₹50,000 every month in a recurring deposit scheme. He has also been investing ₹5,000 in a gold scheme run by a leading jeweller to save some gold for his child’s wedding. He has a corpus of ₹15 lakh in bank fixed deposit schemes, ₹10 lakh in RDs, and ₹15 lakh in mutual funds. He has been investing in mutual funds over the past five years.

He wants an investment plan that meets three of his goals — his daughter’s education and wedding, and his retirement.

Chandra wants to accumulate a corpus of ₹40 lakh for his daughter’s higher education, which he will require eight years from now. Given the time to goal, he can consider investing in balanced funds with an aggressive approach and a good performance record.

These schemes, with the flexibility to juggle between equity and debt, can contain downsides better. Chandra can invest ₹27,000 every month in schemes such as HDFC Children’s Gift, ICICI Prudential Equity and Debt, and Principal Hybrid Equity, that have delivered in excess of 20 per cent annualised over five years.

Assuming an annualised return of 10 per cent over the next eight years, he should be able to mop up ₹40 lakh by 2026.

Equity exposure

Chandra expects to continue working until his daughter’s wedding, which he anticipates will happen 15 years from now. He wants to save ₹30 lakh for the wedding. Given that the time to goal is considerably long, he can consider aggressive equity schemes — a combination of large-, mid- and small-cap-oriented schemes. Assuming a conservative return of 13 per cent over 15 years, an investment of ₹15,000 every month should help him save ₹83 lakh by 2033. Aditya Birla Sun Life Frontline Equity, HDFC Mid-Cap Opportunities, Mirae Asset India Equity (multi-cap with a large-cap skew) are some of the schemes that have managed to deliver consistently robust returns.

Instead of ₹50,000, he can invest ₹15,000 in the RD scheme. This, over the next 15 years, will fetch him ₹46 lakh.

After keeping aside ₹30 lakh for his daughter’s wedding, from the corpus of ₹83 lakh earned from MFs, Chandra will have a balance of ₹53 lakh. This, along with the RD corpus of ₹46 lakh, will total to ₹99 lakh. This can be used to meet his needs post-retirement. Besides this, his existing investments in mutual funds, assuming an annualised gain of 12 per cent, should grow to ₹82 lakh, 15 years from now. His current FD and RD investment corpus of ₹25 lakh should grow to ₹75 lakh by 2033. This assumes an interest of 8.5 per cent for FD and 6.5 per cent for RD.

Gold investment

Given that even large jewellers have faltered in meeting the obligations in gold investment schemes, Chandra can consider systematically investing ₹10,000 in gold ETFs and sovereign gold bonds (SGBs) that pay an additional 2.5 per cent annual interest, instead of chit schemes. Gold ETFs and SGBs are more liquid and better regulated.

The writer is co-founder, RaNa Investment Advisors.

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