AskBQ: Retirement Fund Makeover? Investing Overseas? Future Of Real Estate?

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Portfolio Review

Name: Rohit Panth

Query: The 34-year-old saves about 30 percent of his income. Having already set aside Rs 2 lakh as a contingency fund, he’s now working towards building a retirement corpus. He is currently investing in five mutual fund schemes.

• Aditya Birla Sun Life Tax Relief Fund 96
• Axis Focused 25 Fund
• DSP BlackRock Small Cap Fund
• HDFC Midcap Opportunities Fund
• Nippon India Small Cap Fund

Expert View: BloombergQuint asked Arvind Rao, certified financial planner and founder of Arvind Rao & Associates, to review Panth’s portfolio.

“It’s heartening to note that he has prioritised building up his contingency fund and has already accumulated Rs 2 lakh for the same,” Rao said. In the current scenario, with uncertainty of future earnings, a contingency fund gains paramount importance.

“From a 15-year perspective, the funds that have been selected by him, a mix of focused and mid- and small-cap funds, are good from the perspective of building a retirement corpus,” Rao said, adding there is no need for Panth to consolidate his investments at the moment.

But Rao also cautioned that if investments in the schemes are Panth’s only savings, apart from the contingency fund, a pitfall he may face is that in the near term and over the next three-four years, his retirement portfolio may not give him significant returns.

So, if there is a requirement for funds in the short term, either foreseen or unforeseen, which may require Panth to dip into his portfolio, he may be disappointed.

This could be mitigated by investing about a fifth of his overall monthly contribution into either a debt or a hybrind fund, Rao said.

Investing In Assets Abroad

Name: Mukund Shevkar

Query: Shevkar is already making investments on the basis of his financial goals. As a strategic investment, he’s wondering whether he can deploy his excess funds into the Parag Parikh Long Term Equity Fund, given that it also focuses on companies listed abroad.

Expert View: BloombergQuint spoke to Arvind Rao, certified financial planner and founder of Arvind Rao & Associates, about this query.

“The Parag Parikh Long Term Equity Fund is one of those in the multi-cap category of funds that invests 30-35 percent in international equities,” Rao said.

Given the ongoing pandemic, markets across the globe have seen erosion in value and from a strategic point of view, it would be a good time to take some exposure to global markets, he said.

This falls under the principle of diversifying risk. In this case, one would be diversifying market risk — the risk that the Indian equity market will underperform the rest of the world. “But having said that, keeping a five-seven year time frame for these funds would be important,” Rao said.

Impact Of Work From Home On Real Estate

Name: Gobind Vijay

Query: There is a speculation that the changes enforced by the lockdown, especially in the information technology services industry could be the new normal even once the pandemic is under control. That is, there will be more employees who will work from home.

Expert View: BloombergQuint spoke to Sameer Kalra, founder of Target Investing, about this query.

“I would totally avoid investing in companies in the real estate space for the next six to 12 months,” said Kalra.

A good benchmark of the performance of commercial real estate, Kalra said, is Real Estate Investment Trusts or REITs. A look at the performance of Embassy Office Parks REIT will give a better sense of the fundamentals in the commercial real estate market in India, he said.

Over the past four years, before the pandemic, real estate companies were enjoying a period of success with commercial projects. In fact, the rentals they were receiving on these projects, particularly from IT and allied services in cities like Bengaluru, Hyderabad, and Pune were helping them withstand the slowdown in the residential real estate space, he said.

After the lockdown it is anyone’s guess how companies will renegotiate terms with real estate companies. It could either be a lowering of rentals or a reduction in space leased, Kalra said.

“In this scenario, someone who has a long-term view of 10 years should ideally wait till there is some clarity on the fundamentals in the sector,” said Karla. “I would rather be late than jump in too early.”