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Invest after retirement

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I started investing in 2006. Recently, I have moved to gilt funds. Is it the right choice in the coming months? What should I do to achieve my targets?
– Satish Venugopal


* 30 years old

* Two dependents - wife and 7-year old daughter

* Based in Dubai, UAE

Mutual Fund investment Schemes Amount (Rs) ICICI Pru Gilt Investment 26,880 Birla Sun Life Frontline 21,000 Magnum Contra 19,320 Reliance Equity Opp 16,800

Yearly contribution (%) Mutual Fund Debt 27 Ulips 27 Gold 23 Mutual Fund Equity 17 PPF 06

* To retire by the age of 45

* To attain Rs 50 lakh in liquid cash by retirement (15 years)

* To save Rs 10 lakh for daughter’s marriage (11 years)

* To save Rs 7-8 lakh for daughter’s higher education (8 years)

Rebalance your portfolio

It’s interesting to see that you have diversified your investments across asset classes. Unfortunately, you only have 1 per cent invested in equity. You need to ramp up this exposure, since it is the asset class that delivers the maximum returns in the long run. The high debt tilt will offer a stable portfolio, but with a heavy compromise on returns.

Also, a lot of your assets arein real estate and gold. Besides ahigher exposure to equity, you need to have a specified amount in a relatively liquid asset for emergencies, like a liquid fund or bank fixed deposit.

You do not require a Unit Linked Insurance Plan (Ulip), as your equity needs will be catered to by mutual fund investments and your insurance requirements are taken care of by your insurance policies.One should stay away from Ulips, as they are costly avenues and carry hidden charges as well. You should stop the premium in the Ulip as soon as the lock-in period expires and invest the accumulated premiums in mutual funds.

Increase allocation to funds

When we look at your annual contribution towards various assets, the allocation towards mutual funds accounts for 44 per cent (equity: 17 per cent, debt: 27 per cent). On the other hand, 23 per cent goes towards gold and 27 per cent towards the Ulip.

Right now, you should focus on wealth accumulation, not wealth protection. So do increase your investments to equity mutual funds.

This brings us to your investment in gilt funds. The portfolio of a gilt fund consists of debt instruments issued by the Government of India. The market value of these instruments depends on the interest rate movement in the economy.

As the interest rates go down, the price of the instrument rises, taking up the net asset value (NAV) of the fund.

The same happened in late 2008. Due to successive rate interest rate cuts by the Reserve Bank of India, the gilt fund category (medium and long term) started delivering fabulous returns.

However, the performance of gilt funds have started to decline and the category delivered a return of -6.28 per cent in the month of January 2009. A better option would be income funds as they have the leeway of investing in both government securities and corporate debt.

Be smart with your retirement corpus You have stated that you would like your entire retirement corpus to be in cash. Why?

You want to retire at the age of 45 years. With a life expectancy of 80 years, you will have around 35 years post retirement.

Your only source of income would be your retirement portfolio. A part of your portfolio can be invested to generate some return. The rest can be invested for growth.

Ideally, you should always keep the money that you need for meeting your expenses for the next three months in liquid form.

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