Retirement planning: Cushion yourself against inflation

If the time frame is long, one should be invested in equities and choose a pension plan. Navlakhi believes, "The biggest worry post retirement would be in a scenario like we are in today where inflation is higher than safe investment option. So, if you were to invest in a fixed deposit, your returns are lower than the inflation.

You need to have enough cushion to protect against a two or three year stretch where you are actually losing. You will need to accumulate more to retirement, and during retirement, I would certainly suggest investors that they don’t look at 100% safety because if they have to beat inflation, they will have to be in some risk assets."

Below is the edited transcript of Navlakhi's interview with CNBC-TV18.

Q: I would like to invest Rs 50,000 per month for retirement. How should I allocate the money?

A: You need to look at retirement planning from two perspectives, one is how much you can accumulate till the time you retire, and two, how much money do you require after retirement and for how long you need that to last. So, typically what would happen is that because you have a 13 years’ timeframe which is good so there is a decent amount of time needed before you retire.

You can invest money in equities, you can look at a pension plan and you can possibly see whether you are already have some property investment from which you are going to get rental income so you need to distribute your investments so that your retirement goals are met.

The biggest worry post retirement would be in a scenario like we are in today where inflation is higher than safe investment option. So, if you were to invest in a fixed deposit, your returns are lower than the inflation. So you need to have enough cushion to protect against a two or three year stretch where you are actually losing.

You will need to accumulate more to retirement, and during retirement, I would certainly suggest investors that they don’t look at 100% safety because if they have to beat inflation, they will have to be in some risk assets. If retirement will take 20-30 years, certainly in the first few years, maybe the first decade itself, you can have a decent amount of equity exposure.

Since there is a 13 year time horizon, we can possibly look at some large cap exposure, maybe couple of large cap funds and one maybe a midcap and a multicap fund. I would think of something like HDFC Top 200 and ICICI Dynamic plan , IDFC Sterling Equity and HDFC Midcap Opportunities and a DSP Blackrock Top 100 .