A suitable asset allocation is typically based on one’s investment horizon and risk appetite.
I am 45 years old and investing Rs 3,000 each in nine SIPs since July 2017. My goal is to build a corpus of around Rs 1.5 crore for retirement and I can invest for 12-13 years. What should I do?
– Sumeet Arora
A suitable asset allocation is typically based on one’s investment horizon and risk appetite. Over 5-10 years, equities are known to beat inflation and outperform debt, although they can be volatile over the short term. For an investment horizon of 12-13 years, 70-80% of your investment portfolio could be allocated to equity and the remainder 20-30% to debt and cash.
Also, portfolio diversification cannot be achieved just by investing in different equity funds. To achieve holistic diversification, the portfolio should include allocation to international equities (atleast 10% to 20% of the overall portfolio). International equity markets such as US, Europe and Asia (ex-India) exhibit a low to moderate correlation vis-à-vis Indian equities and are considered effective diversifiers. Such exposure can be obtained through various international funds domiciled in India. The current SIPs of Rs 27,000 per month, if continued for the next 13 years could result in a corpus of around `1crore assuming an annualised return of 12%. To achieve a corpus of `1.5 crore, the SIP amount needs to be increased by around
10% per annum.
– I have invested for four years in a SIP. Now I want some money. Will I have to pay tax at the time of withdrawal?
Budget 2018 introduced long-term capital gains (LTCG) tax on equities including equity mutual funds. LTCG tax at 10% would be applicable on gains of above Rs 1 lakh. The cost of holdings for the purpose of calculating LTCG would be based on NAV as on January 31, 2018. Short term capital gains tax, on capital gains for units held for less than one year would be payable at 15%. It would be advisable to consult your tax advisor with regard to tax implications.
– Is there any limit on the amount one can invest in ELSS? Can I get tax exemption for the full amount?
Under Section 80C, investments in ELSS up to Rs 1,50,000 per annum would be eligible for tax exemption, subject to other provisions of the Act.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to firstname.lastname@example.org