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Which mutual fund to invest for meeting my goals

My friend aged 55 years, has opted for VRS and would be retiring by this month. He would receive around 1.25 crores as retirement corpus. He would be receiving regular pension only from April 2022. He receives monthly rental income of Rs 21000. He has got a monthly home loan EMI of Rs. 35000. The EMI would last for 15 more years. Post retirement, his monthly expense would be around Rs. 35000. He needs 20,00,000 for his sons marriage by 2020. He has got adequate medical and term insurance coverage for himself and for his wife. Kindly advice him as to how he should invest his retirement proceeds to meet the above commitments?

Sep 2, 2017 by V Chandrasekaran, Coimbatore  |   Mutual Fund

Your friends post retirement monthly expense will be Rs 35,000 out which Rs 21,000 will be taken care of through rent. That leaves Rs 14,000 of monthly expense and Rs 35,000 of home loan EMI, total Rs 49,000 to be met through investment income. Since he will need Rs 20,00,000 for his son’s marriage in three years, he needs to set aside around Rs 16 lakhs assuming 7% returns from fixed income investment (debt funds). That leaves your friend with a corpus of Rs 1.09 Crores for his retirement savings. His annual expenses will be around Rs 5.9 lakhs, which means he needs a yield of around 5.4% on his Rs 1.09 retirement savings. He should be in a comfortable position for retirements, if his expense assumptions are correct.

Since he is 55 years old, the asset allocation rule of 100 suggests that, his optimal asset allocation should be 45% Equity and 55% Debt. However, if he wants to be more conservative, then he can go for 40% Equity / 60% debt or an even higher debt allocation. However, he should know that, very high debt allocations may leave him vulnerable to inflation in the long term. Therefore, he should have sufficient equity allocation also, because he will have a very long retired life. Accordingly, he can invest his corpus in equity funds (100% equity), balanced funds (65% equity), hybrid debt oriented funds (25% equity) and debt funds (0%) in a proportion which meets his target asset allocation. For example, he can invest 20% of his corpus in equity funds, 25% in balanced funds and 20% in hybrid debt oriented funds, which will take his equity allocation to around 40%. The balance he can invest in debt funds (50% in short term debt funds and 50% in long term debt funds). Please note that these are simply examples. He can achieve his optimal asset allocation using different proportions of investment mixes. To select top performing funds in different categories, your friend can use our tool, Top Most Consistent Mutual Fund Performers.

Hope you find the above suggestions helpful.

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