I retired early at 53. My wife is a homemaker and our monthly expenses are around ₹1.5 lakh.
My investment portfolio includes ₹3.75 crore in equity mutual funds (14-16% returns over 15 years), ₹75 lakh in bond market funds and ₹25 lakh in company deposits, besides gold worth ₹35 lakh.
In addition to a a house property worth ₹2.5 crore, I own real estate assets worth ₹5 crore, yielding rental income of ₹1.25 lakh per month. To balance the bias towards real estate, how should I reallocate my assets?
—Name withheld on request
Given your current financial situation and objectives, it’s important to ensure that your portfolio is well-diversified and aligned with your retirement needs. Your total net worth stands at ₹10 crore, with significant investments in real estate.
While your rental income of ₹1.25 lakh covers a good portion of your monthly requirements, the yield of 3% from residential property is relatively low. To optimize your asset allocation and enhance rental yields, consider the following strategy:
Proposed asset reallocation: In the proposed asset reallocation plan, divest a portion of your real estate holdings; sell the property worth ₹5 crore. The proceeds from this sale should be reinvested. You may allocate ₹2 crore to commercial property, which typically yields at least 5%. The remaining ₹3 crore should be allocated as follows: ₹1 crore to equity mutual funds to increase your exposure to high-growth assets; ₹1 crore to debt mutual funds to ensure stability and regular income; and ₹1 crore to government-security (G-sec) bonds for secure and steady returns.
Revised asset allocation: The portfolio consists of real estate 20% ( ₹2 crore invested in commercial property, which generates 5% yield). Equity mutual funds 47% ( ₹4.75 crore, including the addition of ₹1 crore) Debt instruments 33% (includes ₹1.75 crore in debt mutual funds with the addition of ₹1 crore, and ₹1 crore in G-sec, ₹25 lakh in company deposits, and ₹35 lakh in gold).
Income generation: From commercial property, an investment of ₹2 crore at 5% yield results in an annual income of approximately ₹10 lakh, which translates to about ₹83,333 per month. From government bonds, an investment of ₹1 crore at a 7% interest rate generates an annual income of ₹7 lakh, which is roughly ₹58,333 per month. Additionally, you can utilise a systematic withdrawal plan (SWP) from debt mutual funds for extra monthly income.
This reallocation strategy will not only diversify your portfolio but also increase your monthly inflow to approximately ₹1.41 lakh, derived primarily from the commercial property and government bonds. The balance required to meet your monthly expenses can be managed through withdrawals from debt mutual funds. By reducing the bias towards real estate, and increasing investments in high-yield and secure instruments, you can ensure a stable and comfortable post-retirement life.
—Nehal Mota, co-founder, Finnovate