I am nearing 60 years of age and have mutual fund holdings worth over ₹33 lakh that I have accumulated through SIPs over a period of 12-15 years. The holdings are in Aditya Birla Sun Life Frontline Equity, Axis Bluechip, Franklin India Bluechip, ICICI Prudential Bluechip, HDFC Gold Fund, HDFC Long Term Advantage, HDFC Top 100, ICICI Prudential Equity & Debt, ICICI Prudential Multi Asset, IDFC Multi Cap and Kotak Standard Multicap.
Please advise me on the following, considering my present age: Should I exit the above investments now and invest the lump sum in debt funds? Should I continue the same for some time longer? If so, how long? I am not in need of the above funds in the next 2-3 years at least.
Given that the stock market valuations are at record high levels and you are at the cusp of retirement, it does make sense to book profits on some portion of your equity portfolio and move the proceeds to safer avenues. This will ensure that the gains you have accumulated over the last 12-15 years are protected and not lost to a nth-hour market correction.
However, whether you should sell most of your fund investments or just some of them will depend on three factors. One, whether you have an independent source of pension after retirement or are looking to your mutual fund portfolio to generate regular income. Two, whether you have other goals coming up over the next 3-5 years where you will need to use this accumulated lump sum. Three, whether apart from these funds, you have other investments in safe debt avenues such as Employees’ Provident Fund (EPF), Public Provident Fund (PPF), FDs or post office schemes.
If you do not have a pension and are looking for regular income from this accumulated corpus, you can liquidate funds valued at 80 per cent of ₹33 lakh (about ₹26 lakh) and leave the rest in equity funds. If you already have a pension and are looking at this as an additional savings buffer, you can liquidate a smaller proportion. This proportion will depend on where your other investments are. Any money that you need towards goals coming up in the next 3-5 years should also be moved out of equities into safer avenues.
Given your life stage, it would be desirable to make sure that of your overall portfolio (including not only funds but other investments such as PPF, EPF and deposits) 75- 80 per cent is parked in safer debt avenues, with a 20-25 per cent allocation to equities.
The limited equity allocation is essential even after retirement to ensure that your portfolio has a growth component that is able to deliver inflation-beating returns in your post-retirement years.
Sticking only to debt investments can leave you short of income in later years to fund your expenses. We, therefore, suggest that you take stock of all your investments and sell equity investments that are found to be in excess of the desirable equity allocation of 20-25 per cent.
Coming to which of your equity funds you should sell, the decision should be based both on performance and the funds’ mandate. Given your risk profile, it would be best today to stay with funds with a large-cap tilt with a reasonable record. Axis Bluechip and ICICI Prudential Bluechip meet the brief.
You can also invest instead in Nifty 50 and Nifty Next 50 index funds from the same AMCs to reduce costs and save the trouble of active fund selection.Given your situation, we believe that it is best not to continue with multi-cap funds, multi-asset funds or hybrid funds at this juncture as you can route your debt exposure through other vehicles.
As to the debt avenues you should park your money in, today, the post office Senior Citizens Savings Scheme (7.4 per cent), GOI Floating Rate Savings Bonds (7.15 per cent) and LIC’s Vaya Vandana Yojana (7.4 per cent) are high-return choices, though they come with long lock-ins. If regular income is your priority, these should be your top choices.
You can invest a limited portion of your portfolio in debt funds for liquidity and tax efficiency. At this juncture, though, it is best to stick to debt funds with very low maturity (maximum 1-2 years) and high-quality portfolios with mainly AAA or sovereign debt. Returns from these avenues, though, are likely to be quite low owing to record-low market interest rates.
Send your queries to firstname.lastname@example.org