Balancing risk and return with goals of retirement planning

I am 40 and recently received a ₹50 lakh windfall. My portfolio is heavily weighted towards equity mutual funds (60%) with the rest in gold and fixed deposits. Since I already have significant exposure to equities, should I consider investing in real estate with a 15-year horizon, as I may plan for retirement around that time? Would real estate offer better diversification than equity or fixed deposits?

Additionally, how can I balance risk and return, considering my goals of retirement planning and funding my children’s education in 8-10 years? Should I invest in safer options like debt funds or keep liquid assets for emergencies? What tax-efficient investments should I consider? How often should I review and rebalance my portfolio? 

A ₹50 lakh windfall presents a valuable opportunity to reassess your financial strategy, particularly in the context of retirement planning and funding your children’s education over the next 8–15 years. With a 15-year-long investment horizon ahead, you are well-positioned to optimize risk-adjusted returns by diversifying your portfolio. 

On real estate investment for diversification: Given that 60% of your current portfolio is allocated to equity MFs, incorporating real estate can provide diversification benefits, especially with a 15-year time horizon. Real estate investments tend to offer capital appreciation over the long term, with the added potential for rental income. However, you must weigh the pros and cons carefully. Real estate can be illiquid, requires a substantial upfront investment, involves high transaction costs, and typically needs ongoing maintenance. This could tie up a significant portion of your funds in a less flexible or illiquid asset.

On dual objectives of retirement in 15 years and your children’s education in 8-10 years: A strategic approach would be to reinvest the ₹50 lakh windfall in a 60:40 split, aligned with your existing portfolio structure. Here’s a potential allocation:

• ₹30 lakh into a diversified equity MF portfolio, ensuring exposure across large-cap, mid-cap, and small-cap funds. This will allow you to continue capitalizing on market growth while spreading risk across different segments of the equity market.

• ₹20 lakh into safer fixed-income instruments such as long-duration secured bonds (10-15 years), which could lock in higher coupon rates and potentially benefit from future interest rate cycles. This will provide stability and protection from equity market volatility as you move closer to your financial milestones.

As your portfolio evolves, regular review and rebalancing are key to staying aligned with your financial goals. It’s advisable to reassess your portfolio annually or semi-annually and adjust your asset allocation based on market conditions, life changes, and your risk tolerance.

Nehal Mota, co-founder & CEO, Finnovate