Is your retirement round the corner? How to allocate your money among various assets to generate a decent return maintain a healthy lifestyle as long as you are alive. As a thumb rule, retirees should have an asset allocation which is based on their needs and not age.
The person should have some equity allocation to take care of higher life expectancy to counter inflation since not all money will be required in the coming 1-5 years. One should thus invest the income required in the initial 5-6 years in government senior citizens savings schemes, fixed deposit, arbitrage funds & debt funds, with the remaining amount being allocated to equity-oriented mutual funds. After every five years, reallocation of equity to debt can be done in order to generate income and rebalance one’s portfolio.
*In Mutual funds debt/hybrid funds one should go for a growth option & opt for a SWP option for regular option withdrawing ~ 6-7% of your portfolio per year (1.5% every quarter or 0.5% every month) to save on taxes. Dividend payment on debt funds is taxable in the hands of the fund house.
An ideal portfolio at the time of retirement should look something like this:
Product | Category | Maximum Investment | Expected Return | Lock in Period | Premature Withdrawal | Taxable | Ideal Allocation |
Senior Citizen Savings Scheme (SCSS) | Debt | 1500000 | 8.5% | 5 years | 1 year | Yes | 15% |
Bank Fixed Deposit (Senior Citizen) | Debt | No Limit | 6.7%-7.2% | Varies as per tenure | Anytime | Yes | 10% |
Pradhan Mantri Vaya Vandana Yojana (PMVVY) | Debt | 750000 | 8% | 10 years | Medical Illness | Yes | 10% after SCSS quota is invested |
Corporate FD (HDFC, PNBHF etc) | Debt | No Limit | 7.5%-8% | Varies 1-3 years | Anytime | Yes | 10% after SCSS quota is invested |
Debt MF* | Debt | No Limit | 8%-8.5% | Anytime | Anytime | LTCG after 3 years | 25% |
Hybrid MF* | MIP, Equity Savings, Balanced Fund | No Limit | 9%-10% | Anytime | Anytime | LTCG after -MIP 3 yrs, rest tax free-1 yr) | 20% |
Equity MF-Growth | Equity | No Limit | 14%-16% | Anytime | Anytime | Tax free after 1 year | 10% |
Retirement Planning – Invest Early, Invest Wisely
How much should one invest for a comfortable retirement today?
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’