Rustagi recommends, "The focus for an individual close to retirement has to be primarily on investing predominantly in debt instruments. If he is looking at earning healthy return and a more tax efficient return, he can look at mutual funds. There are debt oriented hybrid funds. These are typically monthly income plans. He can opt for growth option under these plans. These funds typically invest around 80-85% money in debt and the balance is invested in equity. These are more tax efficient compared to traditional options like bonds and fixed deposits."
Here is the edited transcript of the interview on CNBC-TV18.
Q: An investor can invest Rs 2000 per month. He has a time horizon of three years. He wants to invest for his retirement. How should he allocate his money?
A: He has mentioned that he is 57 years old and will retire in the next three years. It is quite evident that he should not take too much of risk at this stage because once he retires, he has to ascertain what his needs are and may be then realign his portfolio.
Currently, his focus has to be primarily on an option which is investing predominantly in debt instruments. If he is looking at earning healthy return and a more tax efficient return, he can look at mutual funds. There are debt oriented hybrid funds. These are typically monthly income plans. He can opt for growth option under these plans. These funds typically invest around 80-85% money in debt and the balance is invested in equity. These are more tax efficient compared to traditional options like bonds and fixed deposits.
He can consider investing through SIP in Reliance MIP . He also invests around Rs 50,000 per month in gold. Looking at the return that gold has given over the past few years, my recommendation is that he should reduce his exposure to gold because it is very high compared to his overall portfolio. Some part of it can also go into debt oriented hybrid fund that will also help in terms of diversification and given better returns over the next couple of years.
There are two more funds that I recommend in the same space, Canara Robecco MIP and HDFC MIP long-term.
Q: An investor can invest Rs 5000 per month. His time horizon is 10-12 years. He wants to invest for his child's education. What is your advice?
A: Since he has a time horizon of 10-12 years, he can afford to invest predominantly in equity funds. Both funds that he is currently invested in are of good quality. These are HDFC top 200 and DSP Blackrock equity fund .
What he can do is he can invest around 60% of the money of Rs 5000 in these existing funds because there is no point in adding too many funds. So I would recommend that he can add Rs 2000, put additional money in HDFC top 200 and Rs 1000 in DSP equity and may be add one balance fund to create the right balance in the portfolio. He can look at HDFC balanced fund .
If I assume returns of around 12% over the next 10 years, he can hope to build a corpus of around Rs 11 lakh. He is looking to build a corpus of Rs 25 lakh for which he will have to invest Rs 11,000 per month. If he can't invest Rs 11,000 then I would say that he can begin with whatever he has right now and try and increase it over a period of time.
Another area where he needs to focus is also his insurance portfolio. He has two insurance policies - money back policy and endowment policy. These are basically not the right products to give you the adequate risk cover.
My recommendation is that he should look at a term plan and try and separate his risk cover from investments. For long-term investment, he can continue with the existing mutual funds because these two products that he has will give him guaranteed return but he will have to struggle to beat inflation.
Since his time horizon is 10 years, the bigger risk is inflation. He needs to invest to beat inflation. Debt funds have a role to play while investing for short to medium term because there the focus has to be on capital protection. While he needs to look at diversification in the portfolio, it need not be done for each of the goals because the time horizon is 10 years and because he is investing regularly. So the volatility risk automatically is taken care of.
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