Outlook Money – 01.03.2018

http://www.outlookmoney.com March 2018 Outlook Money 13

Father’s pension: 30, Monthly contribution:44,
■ Mutual fund - 34, ■ Fixed income -10,
Split of monthly contribution: equity (77 per
cent) fixed income (23 per cent)
Fixed deposit and cash: 65, Insurance premiums (Annual):83,
Real estate asset: `35 lakh
Risk profile: Not known

Morningstar’s Assumptions
■ Expected annualised returns from equities is
around 12-13 per cent; fixed income is six to
seven per cent for the entire tenure

Review of Goals and Suggestions
While doing long-term investment planning,
a starting point would be to do one’s risk
suitability assessment. It helps to identify
the suitable asset allocation, which is based
on the investor’s investment horizon and risk
appetite. The asset allocation (mix of various
assets, including equity, debt, gold, etc) held
in a portfolio, is considered as one of the key
determinants of the portfolio’s performance.
Generally, longer the investment horizon and
higher the risk appetite, higher would be the
allocation to equity. Historically, over the
longer-term, equities have delivered higher
inflation-adjusted returns compared to debt.
In addition, staying invested for a longer
duration helps one derive the benefit of power
of compounding, whereby, the returns
generated from the original investments get
re-invested, which further generates returns,
thus, helping the corpus to grow at a

compounding rate. However, as time

progresses, to reduce the risk of your portfolio,

the asset allocation will need to be changed.

Your current split of monthly contribution,

i.e., 77 per cent in equity and 23 per cent in

debt, can continue for another 20 years. For

the remainder of the period, the asset

allocation for prevailing corpus and

incremental monthly contribution can be

changed to 50 per cent equity and 50 per

cent debt.

The key here is to stay invested for a longer

duration without making significant

withdrawals from the corpus. In your case, you

plan to make withdrawals at certain time

intervals. As can be seen in the table above,

assuming your monthly contributions in

various assets remain the same, i.e, `34,

for the entire duration, the total corpus you

may accumulate at the time of retirement

would be close to `1.3 crore, which is far less

than your goal of `18 crore.

You can consider reducing your interior

designing spending, as it hampers the growth

potential of your investments at the cost of

accumulating sufficient retirement corpus, or

any unforeseen expense that you may have to

incur in the future.

Instead of `50 lakh, if you spend `10 lakh on

interior designing, then your retirement corpus

could grow to `5.2 crore. That is the power of

compounding at play. However, to give a

realistic chance at achieving your goal of

accumulating a retirement corpus of `18 crore,

you will have to increase your monthly

contributions by nearly 10 per cent every year.

Five years later, you plan to buy a house with

Total Corpus (Without

incremental contribution)

Total Corpus (With 10%

annual increment in contribution)

investor’s

age (Yrs)

Goals /

Plans

required

amount in `

Before

Withdrawal in `

after

Withdrawal in `

Before

Withdrawal in `

after

Withdrawal in `

40 Interior Designing 50 L 1.0 Cr 50 L 1.5 Cr 1.0 Cr

48 Daughter’s Education 1.0 Cr 1.9 Cr 90 L 4.6 Cr 3.6 Cr

55 Daughter’s Marriage 1.5 Cr 2.3 Cr 80 L 11.1 Cr 9.6 Cr

59 Retirement Corpus 18.0 Cr 1.3 Cr 17.0 Cr