Retirement Planning

Corpus ~ 300 times current annual expenses Corpus ~ 38 times annual expenses at retirement

Invest as much as you spend each month for retirement!

Inputs of a retirement calculator Age (end of current year)39 Year of retirement2039 Life expectancy *90 * married couples should choose life expectancy of younger spouse Current monthly expenses30000 Other Annual expenses Expected inflation up to retirement8-10% Expected inflation after retirement8-10% Anticipated post-retirement rate of interest (post-tax)7% Net rate of interest (pre-retirement) (post-tax)9-10% Amount invested so far (end of current year) rate of interest for this amount (post-tax)7.00% Annual increase in monthly investment8.00%

Corpus required for funding retirement for 27 years 10,77,43,888 Initial monthly investment required = 46,310 Output This is not a one-time process! The investment amount will decrease down the line

Current date Years to retirement24 Age at the end of current year40 Years in retirement26 Total annual expenses Annual expenses when you retire 44,42,903 Corpus required 14,70,12,786 Corpus accumulated so far (updated from mf holdings) 20,82,664 When you retire the corpus from other sources will grow to 98,46,585 When your retire the current mf corpus will grow to 2,05,13,686 If you were to retire today the current corpus will last for (years)6.63 If you were to retire as intended you will be financially independent for (years)6.49 Net corpus required 11,66,52, investment required each month 41,118 Provided this investment increases each year at the rate of10.00% EPF or NPS divided by investment amount54%

Financial Goal Tracking Be obsessed over goal planning entries not over mutual fund corpus

Retirement Life, health, accident insurance etc Emergency fund Other long-term goals

Retirement Planning: Inflation-protected Income Strategies

The Income drawdown strategy Decreasing Corpus Drawback: Large initial corpus

Retirement Bucket Strategy 5Y 10Y 15Y 20Y 6% 8% 10% 12%

Real-life Example Couple both aged 60 Monthly expenses 10K Both diabetic, no mediclaim ~ 35 L corpus Bucket 1: 5-6L for medical corpus + emergencies Bucket 2: income ladder for 5Y with 6.5L using FD Bucket 3: Invest 6.5L in a banking debt fund Bucket 4: 6.5L in a monthly income plan Bucket 5: About 9.5L in a balanced fund

Essentials of a good portfolio Minimalist : We must be able to justify the presence of each asset class or instrument. Minimum number of asset classes Minimum number of stocks, equity funds or debt products This will typically make the folio diversified among and within asset classes

Simple portfolio ideas Equity (60%)  10% return 1.Single Large Cap fund 2.One large cap +one mid/small cap fund 3.Single Large and mid-cap fund 4.Single equity oriented balanced fund Debt (40%)  8% return (pre-tax) PPF for 15+ Y goals for options 1,2 & 3 (do not max!) Ultra-short-term liquid funds for less than 15Y goals Banking debt mutual funds Long-term goals (10+ years)

Simple portfolio ideas Equity (0-40%)  8% return 1.Single Large Cap fund 2.One large cap +one mid/small cap fund 3.Single Large and mid-cap fund 4.Single equity oriented balanced fund 5.Single debt oriented balanced fund Debt (100-60%)  8% return (pre-tax) Ultra-short-term liquid funds for less than 15Y goals Banking debt mutual funds Medium-term goals (5-10 years)

Simple portfolio ideas Equity (0-10%)  expect nothing! 1.Single Large Cap fund 2.One large cap +one mid/small cap fund 3.Single Large and mid-cap fund 4.Single oriented debt balanced fund (5Y) Debt (100-90%)  6-7% return (pre-tax) FDs, RDs Ultra-short-term liquid funds for less than 15Y goals Banking debt mutual funds Short-term goals (0-5 years)

Return expectation Equity allocation  60% Debt allocation  40% Equity expectation  10% (after tax) Debt expectation  6-7% (after tax) Portfolio expectation 10%(60%) + 7%(40%) = 8.8% (approx.) Investments are assumed to start simultaneously

Years to goal Present cost Inflation Post-tax rate of return of portfolio8.8.00% Future Cost Amt invested so far Post-tax rate of return on current investment Future value of curr. Inv. Annual increase in monthly invest. % Initial monthly investment required Annual increase in monthly invest. % Initial monthly investment required Goal Planner

How many funds should I hold? Minimum: 1 fund! (all goals combined into one) Maximum: No of long-term goals (10Y+) x (1 or 2)

How Important is Mutual Fund Selection?

Large Cap Funds Computed with SIP calculator, thefundoo.com

Large Cap & Large/Mid-Cap Funds Computed with SIP calculator, thefundoo.com

Large Cap, Large/Mid-Cap & Mid/Small-Cap Funds Computed with SIP calculator, thefundoo.com

Lump sum returns

Minimalist Portfolios Single Large Cap mutual fund (60%) + PPF (40% only!) Single Equity-oriented balanced mutual fund Single Large Cap or Large and Mid-cap fund with exposure to international stocks. Equity fof + Debt fund of fund Single portfolio fund of fund

How to select an equity mutual fund? Decide on the strategy. (1)Why are you investing? (2) What kind of portfolio will you be using?

Equity mutual funds: How to select/evaluate

Upside Capture ratio: When the benchmark has given a positive return (> 0), has the fund outperformed it? Higher (> 100%) the upside capture ratio, the better. Downside Capture Ratio: When the benchmark recorded a loss, that is a negative return (< 0), did the fund record a lower or higher loss? Lower the downside ratio (<100%), the better. Equity mutual funds: How to select/evaluate

Optional additional steps Today Last 3Y Last 5Y Last 10Y Rolling return Equity mutual funds: How to select/evaluate

Rolling returns analysis 3Y Fund (blue) Vs benchmark 5Y

How to select a debt mutual fund? Use only if your goal is more than 3 years away and less than 15 years away Understand risks interest rate risk  capital gain/loss credit risk  accrual

How to select a debt mutual fund? Interest rate risk Credit risk

How to select a debt mutual fund?

Gold Fever!

Gold Rolling Returns

Gold vs. Stocks

An all-weather portfolio?

33% gold, 33% equity, 33% debt Source: Value Research

33% gold, 33% equity, 33% debt Source: Value Research

33% gold, 33% equity, 33% debt Source: Value Research

Portfolio Rebalancing Intended Asset allocation: 60% Equity 40% Debt SIP with annual increase in monthly investment = 10%

Portfolio Rebalancing Intended Asset allocation: 60% Equity 40% Debt SIP with annual increase in monthly investment = 10%

Portfolio Rebalancing Intended Asset allocation: 60% Equity 40% Debt SIP with annual increase in monthly investment = 10% Difference between the corpuses ~ 7%

Portfolio Rebalancing

What does it take to do your own financial planning? Confidence: to DIY. Doing it yourself, means doing it yourself. Inclination: to take control. Clarity: investing with priorities, something I would like to call contented investing Recognition: Portfolio management of long term financials goal is the most important task of financial planning.

Keep it Simple Discipline! Monthly review of investment schedule Annual review of value Rebalance periodically after several years! Manage risk close to due date

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