I am 59, planning to retire at 65. I have no liabilities to worry about. What changes should I make to my portfolio?
You have no liabilities, therefore, you may forget about life insurance. What you need is health insurance for yourself and spouse as healthcare costs are rising and one would be better with de-risking finances than dipping into reserves. You can also look at creating an emergency fund worth a couple of months' household expenses in a liquid fund or with your bank account to have reserves if required.
Current portfolio quality
Your earliest mutual fund investments are 16 years old and over years, you have built a well diversified portfolio of funds riding on equity diversified funds across market caps. While it is not clear if the investment in these funds have been periodic or in a single go, you have demonstrated the discipline to stay invested in funds over market cycles, which has helped your investments swell into a sizeable corpus.
However, there are a few issues. You have opted for the dividend option in the funds you invested in. If you do not have the need to supplement your current income from these investments, you should consider sticking to the growth option. With the Direct Taxes Code (DTC) coming from next year, this will help you reduce your tax burden because mutual funds’ dividends would be taxable.
You should track funds’ performance frequently to move out of non-performing ones. Choice of an ultra short-term debt fund is not clear, if you seek growth. With 23 per cent in this fund, you should consider deploying it in funds that will help achieve growth.
Five years prior to retirement is when one needs to evaluate goals and have a realistic picture of expenses thereon. Earlier, those near retirement were told invest savings and lumpsums in ultra-safe debt funds. But, with rising inflation and life expectancy, one should increase his/herexposure to equity for high returns and hedge against inflation. The problem, however, is to create a portfolio that will be stable, offering growth as well as income.
The suggested portfolio has 60 per cent equity exposure, providing scope for growth, with the balance acting as cushion against equity volatility. You can retain your holding in DSPBR Top 100, Franklin India Bluechip and HDFC Top 200, all three have a proven record to fit in any portfolio. But, gradually move your other investments into the suggested portfolio with equal allocation across all the four funds. As the mandated three-year lock-in in Magnum Taxgain is over, you should consider exiting it. Also, make use of tax benefits in tax-planning mutual fund schemes to the fullest this year and the next, before the DTC comes in, as these will not fall within the list of instruments that enjoy tax concessions.
Opt for systematic withdrawals when you need income, than being invested in dividend options, as funds do not regularly declare dividends. By setting up an systematic withdrawal plan (SWP), you will create a regular income stream, while the rest of your portfolio will continue to grow. And, make sure to review the performance of your fund holdings periodically to assess performance and growth. Stay invested in a more stable portfolio in retirement and you'll pay less for market volatility and sleep better. You will also raise the odds to spend more each year in retirement.