Expert advice

Nov 07, 2016,11.05 IST

How to build a retirement portfolio using mutual funds

Arnav Pandya

An investor looking to have a mutual fund portfolio that they can use in their retirement needs to be clear about the strategy that they are following and the manner of exposure that they are getting. There are some guidelines that they should follow and this would help them to ensure that their planning remains on strong grounds. Often there is also the need to go beyond the traditional way of thinking and have a strong portfolio that meets the needs of the individual. This should be given priority and here is a look at five factors that one should follow when dealing with these funds.

Have some equity

If a person has just retired or there is a long retirement period ahead then this does not mean that the full amount of funds should be in debt oriented funds. A small exposure to equity is still fine provided there is a long investment period ahead and this will help the portfolio to post better results over the longer time period. The manner of equity funds that can be taken could be either some large cap fund or it could be through the balanced fund route but there has to be a check on the overall exposure to equities in the portfolio.

Restrict the funds

There is often a tendency to have too many funds in the portfolio in the attempt to diversify the portfolio by inclusion of multiple holdings. There should not be a proliferation of funds just because risk has to be reduced but rather attention has to be on the nature of the funds to reduce the risk. This along with the extent of the exposure will ensure that overall the risk remains within tolerable limits. Too many funds will just make the management of the money harder than before.

Monitor the holdings

The need to monitor what has been included in the portfolio has to be cultivated because this will give a better idea of the manner in which the performance is being seen. This should be done at regular intervals and it will have to be followed by action because if things are not going according to plan then there should be some corrective measures. This would be essential to bring things back on track. There should not be a long time gap between the monitoring periods as this could lead to large changes which might affect the overall plan.

Regular income

It might be required that the individual have some amounts in schemes that generate regular income for the individual. This has to be the first priority as the regular income would be able to meet the daily expenses that are incurred during retirement. Once the basic requirement is met then efforts can be undertaken to look at some other investments that might even have a slightly higher amount of risk present in them. Safety has to be the first priority so that even if things take a nosedive it does not have a big impact.

Steady the ship

There has to be a long term plan in place and this means that things have to be built steadily and managed over a period of time. There should not be sharp knee jerk reactions on some developments but rather the long term impact of the changes need to be taken into consideration. This calls for a steady pair of hands and it also means that the investments related to retirement should not be changed frequently. This will help in the better management of the portfolio and is something that needs to be followed.
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