Give primacy to stocks

For individuals aged 35 and 45 years, who wish to invest a lump sum corpus of ~10 million for retirement, I have the following suggestions. Since the holding period is long, they should invest primarily in equities through professional managers. The overall portfolio should consist of equity mutual funds, debt mutual funds or bonds, gold and global equities.

A 35-year old can allocate 50-70 per cent while a 45-year old can allocate 40-60 per cent to equities ( see table). The band can move up in steps of 10 percentage points for conservative, moderate and aggressive investors in the respective age groups. Invest in equities through mutual funds having proven long-term track records. Invest around 60 per cent in large-cap funds, 30 per cent in flexi-cap funds, and up to 10 per cent in mid- and small-cap funds. Direct stock investing should be avoided as it requires constant monitoring and changes. About 2540 per cent of desired equity allocation may be made upfront and the balance should be invested over 12 months via SIPs.

Investment in debt can be made using a combination of tax-free bonds, high credit quality debt mutual funds and a select few corporate fixed deposits or bonds (REITs, when launched, can also be a worthwhile option).

Gold and global investment should be capped at 15 per cent of the corpus for both 35- and 45-year old individuals. Investment in gold should be made through sovereign gold bonds. Global diversification can be achieved by either investing in feeder funds of reputed fund houses or through global funds investing in stocks of developed markets (through the Liberalised Remittance Scheme route).