Having a goal-based portfolio

By Morningstar |  21-06-19 | 
 

The Morningstar Investment Management team provides guidelines when it comes to your portfolio.

Points to note with regards to the mentioned suggestions:

  • When it comes to portfolio construction, the asset allocation-based approach should be followed as it is one of the key determinants of the portfolio’s performance, in terms of risk and return. A suitable asset allocation is typically based investment horizon and risk appetite. Generally, longer the investment horizon and higher the risk appetite, higher would be the allocation to equity.
  • Given the prevailing market scenario with regards to debt paper downgrades and defaults, we find it advisable to invest in Banking and PSU debt funds, as these have a mandate to invest at least 80% corpus in banks and PSUs, which are safer bets from a credit perspective.
  • We strong believe that one should consult a financial adviser before investing.

Can you please outline how to invest Rs 70 lakh in mutual funds and fixed deposits for generating a regular monthly income of Rs 50,000? I can stay invested for 5-10 years.

– Padam Singh

Let’s assume a moderate risk profile, a 10-year horizon and the required monthly income as pre-tax income requirement.

You may have an asset allocation of 50% to Equity and 50% to Fixed Income. The suggested allocation has been computed assuming equity market returns of 11% per annum and fixed income returns of 7% per annum.

The equity exposure can be entirely into Large Caps.

For fixed income, mutual funds would serve as a better option since the regular outflows would call for short tenor fixed deposits which offer lower interest rates. For investment in debt mutual funds, you can look at accrual fixed income categories such as Banking and PSU Funds, Short Term Income funds, and Corporate Bond Funds.

You can withdraw the required amount periodically via the SWP (systematic withdrawal plan) route to meet your income needs.

I want to accumulate a sum of Rs 1 crore in 10 years. I can invest a sum of Rs 30,000 per month, and I will increase this amount every year by 30%. Will I reach my goal? Also, I have a moderate risk appetite.

- Sandeep Chaudhary

Given the moderate risk profile and the horizon of 10 years, you may have an asset allocation of 60% to Equity and 40% to Fixed Income.

The equity exposure can be about 50% into Large-caps and 10% in mid-caps. The fixed income allocation can be across accrual fixed income categories such as Banking PSU Funds, Short Term Income funds and Corporate Bond Funds. As your goal approaches (last 2 years), the allocation should shift around 10% each year out of equity into fixed income.

Investing Rs 30,000 per month as per recommended asset allocation, you may be able to attain your goal comfortably reaching about Rs 2.06 crore at the end of 10 years, assuming the 30% annual increase in SIP amount. The corpus amount has been computed assuming equity market returns of 11% per annum and fixed income returns of 7% per annum.

I am 41. I can invest Rs 35-40 k per month. I would like to diversify across the different market caps - large, medium and small. What should be the allocation and how many funds and which?

Goal: Son's higher education in 6 years. Home: In 10-15 years.

- Mustaque

Given no details on other investments, assuming a goal horizon of 15 years, a moderate risk profile and education goal amount of Rs 30 lakhs at the end of 6 years; you may allocate about 65% to Equity and 35% to Fixed Income.

The equity exposure can be about 50% into Large Caps (i.e. Rs 20,000 across two to three funds), 10% in mid-caps (i.e. Rs 4,000 in one fund) and 5% in small-caps (i.e. Rs 26,000 in one fund) for your equity exposure.

The fixed income allocation of 35% can be across accrual fixed income categories such as Banking and PSU Funds, Short Term Income funds and Corporate Bond Funds. As your goal approaches (last 3 years), the allocation should shift around 10% each year out of equity into fixed income.

Investing Rs 40,000 per month as per the suggested asset allocation, you may be able to reach close to Rs 85 lakhs at the end of 15 years (after meeting the education goal) which can be utilized for your home purchase.

The corpus amount has been computed assuming equity market returns of 11% per annum and fixed income returns of 7% per annum.

What is the maximum amount of exit load permitted by SEBI?

- Jayanta Kumar

Currently, there is no cap mandated by SEBI on exit load that can be charged to a scheme. It generally varies from Nil (eg. liquid funds) and goes as high as up to 3% (eg. credit risk funds). Equity funds typically have an exit load of 1% up to 1 year. Some funds have a staggered load structure with a higher load for redemptions up to a certain time period, which tapers as the holding period increases.

Time Horizon: 2.5 years / Investment Amount: Rs 10,000 per month / Where must I invest?

Time Horizon: 6-9 months (or less) / Investment amount: Rs 4,000 per month / Where must I invest?

– Saurabh

For the short- term goal, the corpus can be invested into money-market funds (Liquid, Ultra short funds) with a high credit quality portfolio.

For a time horizon of 2.5 years, assuming a conservative risk profile, you may invest the monthly corpus of Rs 10,000 with an allocation of about 15% to Equity and 85% to Fixed Income. The equity exposure should be entirely into Large Caps. The fixed income allocation of 85% can be across accrual fixed-income categories such as Banking and PSU Funds, Short Term Income funds and Corporate Bond Funds with a high credit quality portfolio.

I have invested for some goal which has 10 years to go. I have invested 70% in multi cap and 30% in medium duration debt fund. How should I change this allocation as my goal approaches?

– Abhas

The current allocation is more aligned to a moderately-aggressively risk profile. You need to assess your risk-profile with regards to your goals.

As your goal approaches (last 3 years), the allocation should shift around 10% each year out of equity into fixed income. The fixed income allocation can be across accrual fixed income categories such as Banking and PSU Funds, Short Term Income funds and Corporate Bond Funds with a high credit quality.

Post your query by accessing the Ask Morningstar tab. The Morningstar Investment Management team will endeavor to answer queries related to portfolio planning from our registered readers.

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