According to experts Vikas Puri, Senior Partner at Complete Circle Capital, and Mrin Agarwal, CEO at Finsafe, speaking on Zee Business, retirement portfolio allocation should follow a systematic approach based on age and risk capacity. For a 25-year-old with 30-35 years before retirement, the recommended allocation is approximately 80% equity and 20% debt. As reported by the experts, this aggressive approach allows young investors with long working periods and risk capacity to benefit from compounding over the long term.
The experts highlighted significant performance differences between asset classes. According to Puri's analysis, fixed-income investments currently offer around 7% average returns, while equity has the potential to deliver 11-14% returns over the long term, depending on category and market conditions. As reported by the experts, investing ₹20,000 monthly for 30 years at 7% returns could create a corpus of approximately ₹2.4 crore, while the same investment at 12% returns could grow to nearly ₹6 crore. This illustrates why long-term retirement planning may require exposure to growth-oriented assets rather than relying entirely on fixed income.
The recommended allocation changes systematically as retirement approaches. According to Puri's explanation, after around 10 years, the equity component could gradually reduce from 80% towards 70%, with debt allocation increasing accordingly. At around 45 years of age, the allocation could move towards 60% equity and 40% debt. For investors around 55, the experts suggest moving towards approximately 40% equity and 60% debt, as protecting a larger accumulated corpus becomes increasingly important. At 60 years, even with retirement, the experts recommend retaining 20-30% equity to help beat inflation, as a retirement corpus generating only 6-7% returns may be eroded by inflation.
The experts illustrated how different risk levels can significantly affect retirement outcomes. For an investor contributing ₹25,000 per month for 25 years, three hypothetical portfolios were considered. A conservative investor investing through EPF and VPF could accumulate around ₹2.5 crore, while a medium-risk investor using EPF plus NPS with 10% average returns could build approximately ₹3.25 crore. A high-risk investor using NPS with 75% equity allocation and 12% return assumption could potentially accumulate around ₹4.75 crore. These figures demonstrate the effect of asset allocation and compounding over the long period.
According to Agarwal's emphasis, retirement corpus has to last many years after an individual stops working, making inflation protection crucial. The experts cautioned against excessively conservative portfolios, noting that if a portfolio is 90% in EPF and only 10% in equity, the overall return could be around 6-6.5%, which may not beat inflation by a meaningful margin. As reported by the experts, investors should ideally target returns that are at least 2-3 percentage points above inflation over the long term, requiring a balanced approach between growth, safety, liquidity and inflation protection throughout the retirement journey.
