Last Updated on February 12, 2022 at 6:23 pm
A reader who prefers anonymity writes, “I am 50 and have just started thinking seriously about financial planning for retirement. From reading your articles, I see that you recommend keeping it simple – invest in Nifty 50/Next Nifty 50 index funds and a gilt fund”.
“I can invest about Rs. 1.5 lakh per month. Is it ok to invest such large sums in 2-3 funds – i.e. about Rs. 50,000 per month per fund? Or should I try to diversify a little, also keeping in mind that I have at most 15 years before retirement”.
The following recommendations are based on the information provided and is generic as we are not aware of the entire portfolio of the reader and his circumstances. We want to remind readers that an investors age, proximity to a financial need and experience with capital market instruments determine recommendations. They should not be extrapolated without context.
Fund choices: At age 50, we would recommend only a Nifty/Sensex index fund. The Nifty Next 50 can be volatile and frustrating to hold and is unsuitable at that age, with retirement around the corner.
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Since you have started late, your portfolio may be heavy on fixed income (debt) such as EPF, PPF etc. Therefore it would be best to gradually increase the equity allocation (assuming you currently hold no equity) over the next few years.
Whether you need the gilt fund or not depends on your current asset allocation and how liquid the fixed income portfolio is. Assuming your portfolio is debt-heavy, if a good chunk is held in fixed deposits or liquid funds, there is no need for a gilt fund.
So this modifies your question to, “can we invest Rs. 1.5 lakhs a month in an equity index fund?” The answer is yes. However, this is a matter of personal comfort. So you can split this amount and invest two Nifty/Sensex funds. You can gradually increase the investment amount without starting any SIPs.
Asset allocation: We recommend no more than 40% of equity (assuming this can be accomplished in the next few years). After a few years, this will have to be reduced by about half depending on how corpus can be accumulated.
With the information, only so much can be suggested. We recommend two routes: (A) The DIY route with a comprehensive tool like our robo advisory template. This can factor in up to three post-retirement sources of income such as rent and pension and offer a bucket strategy for inflation-protected income. See, for example, Retirement plan review: Am I on track to retire by 50? (B) Consult a SEBI registered fee-only advisor from our list for a holistic financial plan.
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