Your demands and financial goals will inevitably change as you go through life. When you get closer to retirement, your 20s investment approach might not be the best one. For long-term financial success, you must make adjustments to your asset allocation, or the combination of items in your portfolio. This is the shift in approach you should make from an early career until retirement.
-In your 20s and early 30s: Take calculated risks.
Retirement is far off, so you can afford to take on greater risk in exchange for possibly larger profits. A portfolio that favors equities may be yours. Perhaps you should combine large-cap and mid-cap funds. Mid-cap funds, as categorized by AMFI based on market capitalization, invest in the next 150 stocks, whereas large-cap funds invest in the top 100 stocks. The systematic investment plan (SIP) approach is the better choice. With this approach, you can begin investing with a sum that suits your budget and increase it as your income increases.
Regarding debt, the Employees’ Provident Fund (EPF) and Public Provident Fund (PPF) may be the primary emphasis for security. By investing in liquid funds, you can also accumulate an emergency fund that can cover three to six months’ worth of costs.
-Forty to late-thirties: Strike a balance and get ready.
It’s possible that you are making plans for important life events like purchasing a home or providing for your kids’ schooling. For stability and growth, equity exposure at this point may be taken into account in a combination of large-cap and multi-cap funds. Large-, mid-, and small-cap stocks account for at least 25% of the investments made by multi-cap funds, under the SEBI circular on the categorization and rationalisation of mutual fund schemes. Additionally, You can continue investing EPF and PPF while also considering quality corporate bond funds.
-Fifties: Make a safe turn
Retirement is soon, therefore now is the time to go from growth to preservation in order to lower risk. Reducing your equity allocation may therefore be the better course of action. On the equity side, categories such as balanced advantage funds and large-cap funds might provide stability. Depending on market prices, a balanced advantage fund, sometimes referred to as a dynamic asset allocation fund, dynamically changes the asset allocation between debt and equity. The goal of this plan is to lower volatility by spreading assets among debt and equity securities. Regarding debt, exposure to government securities could be taken into.
-After the age of sixty: preserve and make money
Preserving money and generating consistent revenue are the main objectives at this point. To fight inflation, it is advisable to keep some equity exposure by investing in large-cap and balanced advantage funds. Create a systematic withdrawal strategy (SWP) to ensure consistent cash inflows. On a certain date, SWP will automatically withdraw a certain amount from your mutual fund investments and deposit it into your bank account. Instruments for debt management include the Senior Citizen Savings Scheme (SCSS) and high-caliber short-term debt funds.
Lastly, remember to be adaptable and modify your plan in response to important life events or changes in the market for all age groups. The distribution of assets may vary depending on an individual’s risk tolerance and investment horizon of each individual investor, and many additional aspects.
Disclaimer :The schemes mentioned above are mainly meant to be used as references. To invest, speak with a financial counselor first.