Mutual Funds

Fund Query: How to rejig portfolio in post-retirement phase

Aarati Krishnan | Updated on June 26, 2021

I am a 63-year-old retiree and my wife is a home-maker. I have a son employed in the US. I get a monthly pension of ₹45,000 and have unlimited cashless medical insurance for myself and my wife for life. I have been investing in the stock market since 1990 and have a sizeable corpus.

Post retirement, I am hoping to rejig my portfolio and need your advice. I don’t have any specific goal except to visit my son and travel to Europe for sightseeing. I have an allocation of 45 per cent to direct equity, 25 per cent to debt, 10 per cent in REITs, 15 per cent in Sovereign Gold Bonds, and 5 per cent in equity mutual funds. Of the 45 per cent direct equity exposure, 32 per cent is invested mainly in four bank stocks, with 13 per cent in small and mid-cap stocks.

In my debt portfolio, I have 5 per cent each in Axis Banking & PSU Debt Fund and ICICI Pru All Seasons Bond Fund and 3 per cent in the Senior Citizens’ Savings Scheme and LIC PMVYVY. FDs in ICICI Bank and Bajaj Finance make up 8 per cent of my portfolio. I invest in SIP mode in multi-asset funds from four AMCs, with different allocations between equity, debt and gold. I also own Parag Parikh Flexicap Fund and some international funds. Further, I started investiment recently in Motilal Oswal Asset Allocation Passive FoF (Conservative) and Parag Parikh Conservative Hybrid Fund. My equity fund portfolio is just 5 per cent of my overall portfolio and I plan to invest for 12 more years till I turn 75, as I hope to have 20-30 years of post-retirement life for myself and my wife. I have stopped investment in direct equity and started SIPs in mutual funds. I expect sustained corrections in the equity market from now onwards.

Nambiar K R

We must congratulate you on having the discipline to build a sizeable corpus through your working life, and also for your very balanced asset allocation. However, given that you are in a post-retirement phase where fresh income may not compensate for any market falls, you are quite right to worry about asset bubbles created by loose central bank policies. As to what your investment goals should be, we can perceive three from the details you’ve provided. One, de-risking your portfolio to protect the sizeable wealth you’ve painstakingly accumulated, in case the market crashes. Two, supplementing your income as your current pension may not compensate for inflation in the long run. Also, ensuring that your wife receives sufficient income in the event of your passing. Three, funding your international trips and leaving a legacy.

De-risking: Financial stocks have been big beneficiaries of the low-rate and free liquidity regime. Any global economic bust-up usually batters financial stocks. This makes your current concentrated direct equity portfolio very vulnerable to a correction. To reduce risks, we would suggest booking profits in all four stocks and investing in a more diversified equity portfolio. A low-cost route to achieve this is through a basket of index funds. We suggest investing in Nifty Next50 and Equal Weight Nifty Index Funds (ICICI Pru, UTI, DSP and Aditya Birla offer them). You can also consider ICICI Pru Low Volatility 30 Fund of Funds. You can perhaps retain your portfolio of small and mid-cap stocks and continue SIPs in hybrid and international funds. It may be wise to bring down your overall equity allocation through this rejig, to 30 per cent of your net worth, moving the excess to debt.

Supplementing pension: Fears of the asset bubble popping hold good not just for stocks but for bonds too, with near zero rates pushing bond prices to record highs. Your debt MFs could be subject to correction, should rates spike up sharply. To pre-empt this, reduce allocations to market-linked instruments and hike them in sovereign-backed investments. Open SCSS and PMVVY accounts in your wife’s name if not done already. Invest in GOI Floating Rate Savings Bonds which allow investments without a ceiling. Consider buying a guaranteed pension plan from established insurers like HDFC or LIC that can give your wife a lifelong pension .

Legacy: Your current finances can easily fund your travel plans. Your equity portfolio, after your passing, can be your legacy to your wife and son. Do ensure that nominations and a will are in place and your family has all the details of your investments.

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Published on June 26, 2021

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