A reader writes, “I am a happy beneficiary of robo template, FB group subscription and tactical buy sheets among hundreds of articles and video posts. Thank you. I have started saving for education expenses for my 2-year-old twins. In essence, a goal that is 14 years away”.
“For the debt component, I had narrowed down on 50% ICICI Gilt + 20% Parag Parikh Conservative Hybrid Fund+ 20% HDFC Corporate Bond Fund and 10% ICICI Arbitrage Fund. These are based on average maturity, reducing risk and having liquidity to rebalance”.
“I have the following questions:
1. Should the rebalancing be done within debt funds also?
2. Should I keep moving a portion into fd’s/liquid funds from here as I draw closer to this goal, say around the 10th year onwards or perhaps 3% every year from the beginning?
3. Should I avoid Parag Parikh Conservative Hybrid Fund and invest more in Gilt and arbitrage instead? Worriedly asking this because your recent video post omitted this category.
4. In gilts, should one de-risk by splitting it into two funds, say, the SBI gilt, which is recently doing well(last ten years rolling returns) and ICICI, which seems a consistent performer? The overlap seems to be 5.5% only. Your inputs will be of great help!
I plan to use PPF and SSY for my retirement and their marriage goals, hence not included here”.
All the funds you have chosen are suitable for a long term goal (14Y away currently in your case). The only aspect that bothers me is that it is quite similar to mine – Lessons from investing for my son’s future for the last 12+ years or similar to what I have recommended – Can we use HDFC Corporate Bond Fund for long term goals?
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
Please build conviction around your investment choices and learn to review suitability and performance on your own. It is essential for DIY portfolio managers. You must appreciate that the NAV of your top three holdings will be quite volatile. You have started this journey at a time when interest rates have started increasing.
This will impact the returns from these funds. You will have to withstand this pain. If you wish to reduce this volatility, you can reduce exposure to the ICICI Gilt Fund and increase exposure to the Parag Parikh Fund and HDFC Corporate Bond Funds. See note about ICICI Arbitrage Fund below.
1. Should the rebalancing be done within debt funds also?
No. The primary rebalancing action is between equity to debt and debt to equity. As and when you do this, you can correct any excess weight in any of the equity or debt products.
You have mentioned that ICICI Arbitrage Fund has been included for rebalancing. This is not necessary at this stage of the investment journey. The other debt funds are open-ended and liquid enough at any time.
2. Should I keep moving a portion into fd’s/liquid funds from here as I draw closer to this goal, say around the 10th year onwards or perhaps 3% every year from the beginning?
This is a question based on our online course on goal-based portfolio management, where different equity reduction strategies are discussed to ensure the goal corpus is achieved regardless of market conditions.
The actual strategy used for equity reduction is up to your comfort level, the amount you invest each month and how far you are from the target corpus at any point in the investment journey. This is largely playing it by ear. That is reacting as and when it happens in yearly portfolio reviews. See: Why are you holding 55% equity with only six years left for your son to enter college?
You can use the ICICI Arbitrage Fund, a liquid fund, a money market fund or a fixed deposit for the de-risking purpose. I have used ICICI Gilt Fund and ICICI Arbitrage Fund for this purpose (see above link). I can afford this volatility as I have achieved my goal target well in advance. So, such decisions will vary from person to person. This is why a clear idea of what you want and conviction in your decisions is essential.
3. Should I avoid Parag Parikh Conservative Hybrid Fund and invest more in Gilt and arbitrage instead? Worriedly asking this because your recent video post omitted this category.
The article in question is: How to start investing in debt mutual funds – a primer. The video version is available on our YouTube channel. I did not talk about the Parag Parikh fund because I was not referring to hybrid funds! Again conviction!
Parag Parikh Conservative Hybrid Fund can be used for long-term goals as part of the debt portfolio. As with any fund, one should understand the nature of the fund. See: Who should invest in Parag Parikh Conservative Hybrid Fund? Also, see: Why I started to invest in Parag Parikh Conservative Hybrid Fund.
4. In gilts, should one de-risk by splitting it into two funds, say, the SBI gilt, which is recently doing well(last ten years rolling returns) and ICICI, which seems a consistent performer? The overlap seems to be 5.5% only. Your inputs will be of great help!
I am afraid you are suffering from a bout of FOMO (fear of missing out). After you make a choice, plenty of other funds will do better than what you hold. We can’t be buying all of them! If you want to reduce exposure to ICICI Gilt Fund, you can do so among your existing holdings, as noted above. There is no need for any more funds.