Equity investment post-retirement

I am a retired, 60-year-old investor, with low-to-medium risk appetite. My investments are spread across various categories such as mutual funds, public provident funds, fixed deposits, post office schemes and shares. I started investing in shares from May 2009. My mutual fund investments vary between Rs 10, 000 and Rs 20, 000. I have opted for growth options in all the funds.

Funds: Birla Sun Life Equity, Birla Sun Life Income, DSP BR Top 100, Fidelity Wealth Builder, Franklin Templeton India Growth, HDFC Prudence, HDFC Top 200, HSBC Equity, ICICI Pru Infrastructure, ICICI Target Return Fund, JM G-Sec, Reliance Infrastructure, Reliance Regular Savings Fund, Reliance Vision, SBI Magnum Contra, Sundaram BNP Paribas SMILE, Tata Gilt, UTI Wealth Builder.

My queries are: Is it advisable to enter the equity market at my age? If so, when should I book profit — when the shares move by 10, 15 or 20 per cent? With mutual funds, I normally wait for a year and book profits. Does my mutual fund portfolio need pruning?

Soundarraj

Your allocation pattern, including your provident fund, suggests that your portfolio is tilted towards debt — perhaps a reflection of your risk appetite. Age need not be the only factor that determines investment in equities. Much would depend on whether you have sufficient savings or other sources of income to meet your post-retirement living and medical expenses and whether you have surplus funds that you can afford to lose in the stock market.

If you have traditionally invested higher sums in debt and have not been actively observing the stock market, it may not be an easy task to enter the equity market at this stage, unless you have a dependable advisor/broker. Based on the value of investments disclosed by you, we suggest that you restrict your direct equity investing to a small sum – say 10-15 per cent of your total equity investment that includes mutual funds.

Hold a compact portfolio of less than 5-8 stocks and book profits by setting target returns of at least 15 per cent (the upper limit would be entirely based on your comfort level and risk appetite). Importantly, be prepared to lose the capital. As for mutual funds, the risks associated with equities are very much present in this mode of investment as well. The only difference is that there are experts to handle your money in a more cost-effective manner. If you are looking at investing in mutual funds to build wealth, then a one-year time frame may be too short.

Agreed, that you may have every reason to sweep some profits during bull markets such as the one in 2007, when many funds even returned 100 per cent over per cent in a year. Conversely, if you had invested at the beginning of 2008, would you have had the frame of mind to book losses as high as 75-80 per cent after a year? Hence, do not fix a period for booking profits; instead review it periodically, preferably at least once in a quarter and cash-in if your exposure in equity appears inflated.

Exit mediocre performers


Coming to your mutual fund portfolio, some of the funds you hold have a well-tested track record of performance over different market cycles. However, you may have to exit some mediocre performers/risk laden bets. Among the equity funds, you are locked in to UTI Wealth Builder; avoid close-end funds in future as they have not demonstrated superior performance over open-end funds. Exit Reliance Infrastructure. Similar theme from ICICI Pru would provide you the same exposure; the latter also boasts of a longer track record.

Likewise, exit Reliance Vision, Reliance Regular Savings (we assume that you are invested in the fund’s equity scheme) and Sundaram SMILE. While these funds have performed well, they may not fit you low risk profile. Exit Tata Gilt as it has been an underperformer.

JM G-Sec would provide you exposure to government securities. However, note that gilt funds also carry interest rate related risks. Prune your exposure in these funds. Birla Sunlife Income fund has been a laggard in recent times. You can consider shifting funds from above exits made to monthly income plans such as Birla Sunlife MIP II Wealth 25 and Reliance MIP. Among other debt options, you can shift funds from public provident fund (we assume you would be able to withdraw now) to post office senior citizens’ scheme, which is also eligible for tax deduction under the Rs 1 lakh limit and also provides 1 percentage point higher return than PPF. Unlike PPF the interest is also paid out by the post office.