Everyone’s Guide To OLM 50

Starting off In Your 20’s

Prepare

• Get a fix on your needs and the purpose Answer questions like “What am I investing for?” “When do I need the money?”, and “How much do I need?”
• Determine how much you need to save. You could be saving just for tax exemption, or for acquiring a house.
• Estimate the required growth of investments. This may critically influence your choice of fund categories. Get qualified help if you can’t do it yourself.
• Make a plan either with qualified help or by yourself. Figure out the role your MF investments will play in meeting your target.
• Decide how to buy. You can buy from agents or advisors, from the fund house, brokers, online brokers, MF trading platforms, fund house websites and online banking facilities.

Get Started

• First stop: tax-saving funds, if any. Traditionally, these have been totally equity-linked (Equity Linked Savings Scheme or ELSS) or with moderate equity exposure such as pension plans. These plans provide growth with tax savings and are ideal first ports of call for newbies, notwithstanding impending moves to remove many tax benefits.
• Second stop: large-cap funds. They provide stable growth in upturns and tend to have lesser declines in downturns. For a regular savings discipline, opt for systematic investment plan (SIP) from your salary account.
• Index funds: first among large-caps. You don’t have to bother about your fund manager; the fund mimics the index and is a mirror to the market movements.
• Third stop: OLM 50 ultra-short-term bond funds. Combined with savings account-cum-fixed deposits, this consists of emergency funds to take care of issues such as sudden job loss or for nearer-term goals such as a vacation.
• Link equity fund investments to your goals. This will have to be at least 10 years or more away since that’s when you get the best results from equity funds.
• Create goal-based portfolios. As your invested amounts increase, you can create separate portfolios with a requisite mix of equity and debt funds earmarked to specific goals.
• Fourth stop: actively managed large cap funds. If you are saving more than required for tax-saving, or when your savings increases with your income, you go for diversified large-cap funds actively managed by fund managers.
• Build your core portfolio. Invest in 5-7 different large-cap funds from OLM 50. Invest across fund managers and fund houses. They will form the core of your portfolio and will be the main growth engine.
• Fifth stop: get satellites in mid-cap funds and thematic funds. These give your portfolio another growth engine due to high growth prospects. Fantastic options to deploy encashed stock options, salary arrears, bonuses, tax refunds and other windfalls. Restrict to two mid-cap and one thematic or sectoral fund. Avoid fads and flavours of the season.
• Sixth stop: gold ETFs. To diversify risk, invest 5-10 per cent of the total investment corpus in one gold exchange-traded fund.
• Review portfolio performance. Do this at least once a year, ideally twice.Compare with respective benchmarks and peers.
• Purge funds on persistent fund underperformance. We will tell you when to do it.

In Your 30’s and 40’s

Keep the Momentum

Depending on when you start working and how your income increases, you can reach the six steps in your 20’s or even in the second half of the 30’s.

• Keep stepping up regular investment. You need to increase your regular investments. Invest lump-sums from windfalls through systematic transfer plans (STP).
• Regularly review progress. Keep an eye on the performance of funds.
• Book profits if possible. This will happen if you reach the target numbers before time.
• Align your portfolio to life events. These would include marriage, births of children, old-aged parents becoming dependent on you and so on. You will have to asses your fund requirements and risk-taking ability.
• De-risk portfolios as target approaches. This could be as the home acquisition date is nearing, or childrens’ higher education. You need to move the funds required away from higher risk funds such as equity funds in the portfolio into debt funds. You will need to time this with your need.

In Your 50’s

Increase Focus on Security

• Keep the de-risking process on. Many of your goals might be in your 50’s, be it kids higher education, marriage and retirement. These are big-ticket expenses. You will need to start the de-risking process for your respective portfolios 2-3 years away from the goal.
• Bolster liquidity. Depending on requirements, you might have to do this to meet uninsurable emergencies, especially related to health. Ultra short-term and short-term debt funds will need to combine with savings-cum-fixed deposit accounts to play an important role in your emergency funds.
• Gradually reinvest to create regular retirement income. As you derisk your portfolio, you need to reinvest money towards lower-risk debt funds that will provide regular income. You may or may not choose mutual funds options for regular income, but some, such as monthly income plans, can supplement your retirement income.
• Continue with some exposure to large-cap funds to beat inflation towards the later part of your retirement years. Retaining equity exposure becomes easy if you can spare funds after providing for regular retirement income.