Investment strategy for long-term goals: Balancing education, retirement and charity

I wish to diversify my investment portfolio to align with my long-term financial goals. At 40, I have a monthly income of ₹3 lakh, and expenses of ₹1.5 lakh. I invest ₹1 lakh per month in small, mid, and large-cap index funds through systematic investments plans (SIPs). My portfolio includes ₹2.85 crore in mutual funds, ₹80 lakh in equities, ₹52 lakh in EPF, ₹18 lakh in PPF, and ₹20 lakh in NPS. I wish to retire at 55, besides spending ₹3 crore on my children’s international schooling in 8-10 years, and set aside ₹15 lakh for charity post-retirement. I seek advice on optimal asset allocation, risk management, and cost-effective international diversification. I also need guidance on how often to review and rebalance my portfolio.

—Name withheld on request

Your present portfolio looks good and will help you reach your goals. Children’s education and retirement, both are long-term, as they are 10 and 15 years away. Hence, your plan of investing in equity mutual funds will work well for you. 

If we assume 10% p.a. growth rate from your equity portfolio, at the end of 10 years you will be close to ₹11.40 crore, with a monthly investment of ₹1 lakh as you have mentioned in your query. 

This ensures your children’s education expenses goal of ₹3 crore can be easily achieved from this investment. If you use this amount for their education, then the remaining ₹8.40 crore will continue to remain invested for your retirement. 

As your current expenses are ₹1.5 lakh per month, after 15 years with inflation of 6% p.a. you would need approximately ₹3.60 lakh to maintain similar style at retirement. Some of the current expenses, such as children’s education fees, and expenses related to them, will not exist at retirement. However, medical and health insurance-related costs would get added. 

While there does exist some buffer, if we assume the same amount for post-retirement then you may need a corpus of ₹8.75 crore to take care of your monthly expenses for the next 30 years from 55 years onward.  

While you do have a good amount already in PPF, EPF and NPS, it will also be available for your retirement years. The equity-based investment could also reach close to ₹14.40 crore when you reach 55, which can comfortably take care of your retirement along with PF and pension investments. 

Looking at the current portfolio you have nearly 80% equity-based investments, and as you have long-term goals, this should not bother you much. Reviewing the portfolio every six months can help you build it more efficiently. If there’s ever a need to rebalance the portfolio, it is better to make new investments in asset classes or avenues where the allocation has reduced, instead of exiting and reinvesting the amount as it may attract capital gains and other tax liabilities.

—Harshad Chetanwala, CFP, Co-Founder at MyWealthGrowth.com