Equity Investment Options For Your Retirement Corpus 

The next article in our Asset Allocation series looks at equity investment options.

The purpose of a retirement corpus is to generate income for a period of at least fifteen to twenty years. A long-term approach must be followed. So, any withdrawals from the corpus must be sustainable. The investment strategy should be oriented to the long term.

Inflation: 

Food and fuel costs are increasing, post the pandemic and war. Medical inflation is increasing at 10 per cent p.a. and general inflation is ascending at a rocketing speed too. Your investments must be in asset classes that beat inflation. This is where equity as an asset class comes into the picture to beat inflation in the long run. Investing in financial assets that can beat inflation increases the overall return of the retirement portfolio. 

Investment Options available

1. Mutual funds 
2. Equity shares 
3. Portfolio management services- PMS 

Mutual funds 

Investing through mutual funds makes a fantastic post-retirement option. If you don’t have the expertise to invest directly through stocks, mutual funds offer a way to buy a fraction of the stocks through mutual fund units.  

Mutual funds give the flexibility of withdrawal when needed and also allow focus on sector/theme. Anyone can invest in a mutual fund through a Demat account and can start with a sum as low as Rs. 500/1000. It allows customization according to your risk appetite and time horizon. Another advantage of mutual funds is the tax efficiency it offers. 

Unlike the traditional instruments where the interest received is taxed, only the redeemed gains are taxed in a mutual fund. For long-term capital gains (units held more than 1 year – indexation benefit can be applied). Long-term capital gains on equity funds are taxable only above Rs. 1 Lakh. 

Equity Shares

Equity shares are held in the retirement portfolio for two reasons. 

1. Growth and capital appreciation 
2. Dividends 

Investing in quality stocks over a long period can essentially result in capital appreciation and growth of the wealth. If wealth preservation and passing on inheritance is your goal, then high-quality equity shares have to be a part of your portfolio 

If you have been a long-term investor in high dividend-yielding stocks, you know the game! Dividends are distributed to shareholders consistently by corporates and such dividend yields can form a part of your retirement income generation plan. 

Portfolio Management Services

A portfolio management service is one where a professional fund manager charges a fee to manage portfolios. Per SEBI guidelines, the minimum investment towards a portfolio management service is Rs. 50 Lakhs. 

PMS would work well for High-Net-worth individuals seeking high returns from their wealth creation journey. There are multiple PMS products available in the market and choosing the right one could bring in your portfolio’s alpha. 

Whichever option you choose to invest in, your risk appetite and time horizon should be determined before signing up for equity investments. Since they are linked to the markets, equity as an asset class is risky. It is recommended to have professional guidance from an investment advisor or financial planner before making any decision. 

Disclaimer: Consulting a professional can always help you to identify the right avenues for investments during the golden years.

For Part 1 and 2 of this series see here: How To Allocate Your Retirement Corpus  and Debt Investment Options  

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