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Portfolio Makeover: Retirement Planning

I will retire soon. I intend to remain invested for the next five years. Apart from investments in mutual funds, I have close to Rs 40 lakh in bank fixed deposits. Please advise me how much more should I invest. Keep in mind that I will have no source of income after retirement by way of provident fund or any pension scheme

I will retire soon. I intend to remain invested for the next five years. Apart from investments in mutual funds, I have close to Rs 40 lakh in bank fixed deposits. Please advise me how much more should I invest. Keep in mind that I will have no source of income after retirement by way of provident fund or any pension scheme.
- JP Dhandha

Given that you will retire soon, your asset allocation is optimal. In reviewing your portfolio, our objective has been two-fold. First, to rationalise your mutual fund holdings. Second, to allocate monies to debt instruments capable of yielding an income, post retirement. You have Rs 10.71 lakh in 10 funds and what needs to be corrected is the skewness in the allocation. Your picks have been good, with a high weightage to 5- star and 4 -star funds. Even among the non-rated funds, Franklin India Flexi Cap has been a good performer.

JP Dhandha's Portfolio
Funds  % Allocation
ABN AMRO Opportunities-D 4.68
Franklin India Flexi Cap-G 2.34
Franklin India Prima-G 12.63
HDFC LT Advantage Fund-G 4.68
HDFC Taxsaver-D 3.28
HDFC Taxsaver-G 6.56
HDFC Top 200-D 4.68
Magnum COMMA-G 9.36
Magnum Contra-G 29.03
Reliance Growth-G 18.07
Reliance Vision-D 4.69
Total  100
Running SIP  
Funds  Per Month Amount
Reliance Growth 2000
Reliance Vision 1000


Equity Portfolio
What is a little worrisome is the level of concentration in your portfolio. A high allocation of 29 per cent to a single fund is not recommended and we suggest some rationalisation. It would be advisable for you to book your profits in Magnum Contra and invest in another large-cap fund of a fund house other than SBI. Funds such as Reliance Vision, HDFC Top 200 and Franklin India Flexi Cap, which already exist in your portfolio in small proportions, fit the bill. Similarly, your exposure to Reliance Growth is very high. But rather than exiting, we would suggest you to stop making incremental investments to this fund and move it to DSPML Opportunities. Another step towards consolidation would be to move out of ABN AMRO Opportunities and Magnum COMMA and use these funds to increase holdings in Reliance Vision and Franklin India Flexi Cap.

Income Yielding
Your Rs 40 lakh in bank fixed deposits is what you should be looking at for regular income, post retirement. We would recommend Post Office Monthly Scheme and the Senior Citizen Savings Scheme. Both are available at post offices. You can download the forms from: http://nsiindia.gov.in/.

The Senior Citizen Savings Scheme is available for people above 60 years and gives an interest of 9 per cent per annum paid quarterly. This interest payout would be taxable. The maximum amount that can be invested is Rs 15 lakh with five year tenure. The Post Office Monthly scheme will give you 8 per cent per annum payable monthly. The maximum one can invest here is Rs 3 lakh under a single account and Rs 6 lakh under a joint account. The maturity period is six years with a 2 per cent exit load for withdrawal after one year but before three years and a 1 per cent deduction on the deposit will be payable for withdrawal after three years.

You can look at Monthly Income Plans (MIP) managed by various mutual fund houses. These funds do not have any lock-ins, and you can redeem this money to meet any contingencies. However, the quantum and frequency of dividends paid here will not be assured.

Even the bank fixed deposits are yielding attractive returns these days, but they score poorly on the regularity of income. If you think that you would have a stash left after investing in the above-mentioned instruments to generate income for you, then it may not be a bad idea to invest the remaining amount in bank deposits. As a senior citizen you will receive additional benefits as well.

In a Nutshell
You must first assess your monthly expenses before making this allocation. We would suggest you to exhaust the limits under post office monthly scheme and the senior citizen savings scheme, and work out an allocation for the remaining between bank fixed deposits and MIPs, depending upon your income and liquidity needs.

Suggested Portfolio
Funds  % Allocation
DSPML Opportunities 8.78
Franklin India Flexi Cap-G 12.00
Franklin India Prima-G 12.63
HDFC LT Advantage Fund-G 4.68
HDFC Taxsaver-D 3.28
HDFC Taxsaver-G 6.56
HDFC Top 200-D 10.00
Magnum Contra-G 12.00
Reliance Growth-G 18.07
Reliance Vision-D 12.00
Total  100.00