I am 40 years old and recently received a ₹50 lakh windfall. My current 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 this windfall in real estate with a 15-year horizon, as I may plan to retire around that time? Would real estate offer better diversification than more equity or fixed-income investments?
Also, how should I balance risk and returns, considering my goals of retiring and funding my children’s education in 8-10 years? Should I allocate some of the windfall to safer options such as debt funds or keep liquid assets for emergencies? What tax-efficient investments should I consider, and should I adjust my current portfolio in light of this windfall? How often should I review and rebalance my portfolio to stay aligned with my goals?
– Name withheld on request
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. Since are you are 40 years old and plan to retire around 55, you have 15-year investment horizon and are well-positioned to optimise risk-adjusted returns by thoughtfully diversifying your portfolio.
Given that 60% of your current portfolio is allocated to equity mutual funds, 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, along with the potential for rental income. However, you must weigh the pros and cons carefully. Real estate is illiquid, requires a substantial upfront investment, has high transaction costs, and typically needs ongoing maintenance. This could tie up a significant portion of your funds in a less flexible, illiquid asset.
Considering your dual objectives of retiring in 15 years and funding your children’s education in 8–10 years, maintaining a balanced asset allocation is crucial. A strategic approach would be to reinvest the ₹50 lakh windfall in a 60:40 split, in line with your existing portfolio structure. Here’s a potential allocation:
- ₹30 lakh into a diversified equity mutual fund portfolio, ensuring exposure across large-cap, mid-cap and small-cap funds. This will allow you to continue capitalising on market growth while spreading the risk across different segments.
- ₹20 lakh into safe, fixed-income instruments such as long-duration secured bonds (10-15 years), which could help you 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 approach your financial goals.
As your portfolio evolves, reviewing and rebalancing it regularly is key to staying aligned with your financial goals. I would advise you to reassess your portfolio once or twice a year and adjust your asset allocation based on market conditions, life changes, and your risk tolerance.
Nehal Mota is co-founder and CEO of Finnovate.