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Low on Equities

I am a 66-year-old retired person. Is my portfolio a suitable one? Please advise.
-F. C. Fernandes

I am a 66-year-old retired person. Is my portfolio a suitable one? Please advise.
-F. C. Fernandes

You haven't mentioned what your risk profile and investment horizon are. While your age seems to suggest that you should invest conservatively, we think your current portfolio is far too conservative. Many investment advisors have a knee jerk reaction to an older investor and suggest very low equity exposure because this is supposedly 'low-risk'.

We believe that the issue has to be examined more closely in light of the fact that equity exposure has more to do with your time horizon rather than your age.

You may be 66 years old, but what that means is that god willing, your investments will have to fight inflation for maybe more than three decades. The tiny equity exposure you have is no way to do that.

The Portfolio Checkup tool on valueresearchonline.com shows that fixed income account for more than 91 per cent of your portfolio, while only 7.68 per cent is invested in equities.

The real high-risk option for you is to have so little invested in equity that the value of your investments fails to even keep pace with inflation. This is bound to happen if you stick to your current debt-intensive asset allocation.

Depending on what your financial situation is otherwise, you would do well to gradually increase your equity exposure to 20 or perhaps even 30 per cent.

However, this equity exposure should be in conservatively managed large-cap funds. your current equity holdings fail in this regard as around two-thirds of them are in riskier mid- and small-cap funds.

We also feel that Birla Dividend Yield Plus, Birla India Opportunities and Reliance Diversified Power Sector Fund is not for you. We are not saying that these funds are bad investments, but they are relatively new and aggressive funds. We have a one-point suggestion for you and that is that you should increase your equity exposure.

While doing so, you can avoid the funds that we talked about in the previous paragraph (you can even consider exiting them while keeping tax implications in mind). If you have additional funds, park them in one or two good diversified equity funds.

You already have them in your portfolio. You can also try a large-cap oriented fund like Franklin India Bluechip. In case you don't have additional funds, divert your Fixed Deposits (of course as and when they mature) to equity funds. Please remember that while its important to make these changes, they should be made gradually.

In case you want to play ultra safe and still benefit from rally in the equity markets, you can try equity-oriented hybrid funds--you already have two of them.

Fernandes Portfolio
Bank FD  7.50
LIC Varishta  13.00
NSC  20.00
P.O. Senior Citizen Scheme  20.00
P.O. Time Deposit  2.50
PO MIS  15.00
RBI Relief Bonds  9.00
UTI US 64 Bonds  4.00
Mutual Funds  % Allocation
Birla Div. Y. Plus  1.25
Birla India Opp  1.50
HSBC Equity  1.25
IL & FS G & V (UTI G&V)  0.50
Kotak Balance  0.50
Reliance Growth  1.25
Reliance Power  1.25
UTI US 95 (Balanced)  1.50
Total 100