Retirement Portfolio of a 24 Year old

(Arnab) #1


So I am 24 Year old lad, who has been in this forum for a little more than a year now. Recently I have concentrated on building his retirement corpus

For a bit of information, I am a standard IT sector employee, who has joined the workforce 6 months ago. I have earmarked Rs. 2500 per month to be invested in my retirement corpus (I have made separate portfolios for higher education, marriage, child’s education, house etc and after adjusting everything I found 2500 to be the ideal amount for now, since the goal is very long term and I will increase allocation to this corpus in future as my income increases).

Now I am not an avid market researcher. Yes, I love the market, but not an active participant whatsoever, and I don’t think I ever will be, so it will not be possible for me to do regular analysis of each of the stocks in my portfolio, maximum twice a year.

I am aiming for a 20-30% CAGR on this corpus.

Can you please help me with some stock recommendations that should be part of this long term portfolio of mine ?

(Alphin) #2

If you have not done till now, please invest whatever possible in SIP ( subject to maximum deduction of 1,50,000 under section 80C ) in ELSS mutual funds that will give you tax savings as well as meet the requirement of having good return without much active management.

Advantage is as follows suppose u are in 30% tax bracket investing 1.5 L will give a direct return on 30% on tax saved and other due to capital appreciation.

(Shan) #3

I too went through a long phase of being inactive in the market but ended up profiting tremendously. Read on …

So for a 24yr old, assuming the following apply:

  1. Investment horizon is up to 50yrs
  2. Don’t want to be active (as you said).
  3. Long career ahead (I.e assumption is that you’re going to be employed for a long continuous period of times and don’t intentionally want to stop working anytime soon)

So personally I’d suggest - based on personal experience - an SIP in Nifty Junior.

  1. I have handily beaten nifty over the last few years with zero effort but anecdotal evidence is not the only thing…
  2. Even Jack Bogle the father of indexing says that mid caps outperform large caps over long periods of time
  3. For a very long duration you simply can’t select any mutual fund because the fund manager is bound to change (and I also believe that they won’t be able to beat the index because of their exorbitant expense ratios as more money flows into Indian equities)
  4. Caveat: midcaps have large ups and downs so be prepared to really invest for 30+ yrs (I.e actually for your retirement as you said)

See also from the venerable Prof Pattu

(rvetri) #4

I agree with the response of Alphin. As a beginner, you should never get into equity directly. Invest two SIPs ( Rs 1000 and Rs 1500 ) in two good ELSS schemes. You begin with the 10 - 20% return as tax savings at the point of investment itself, depending on the marginal tax bracket you fall into. The two SIPs i would recommend are 1) DSP blackrock tax saver ( aggressive ) and reliance tax saver ( very agressive ). Do this every year and over a 10 year period you will do very well.

(cigarshop) #5

Asian Paints
Eicher Motors
India bull housing finance
Apl Apollo
Aurobindo pharma

(turbo) #6

Agree with the others on starting SIPs in mutual fund with a consistent record. This is important as you have mentioned that you will not be able to actively track the market. Buying into stocks directly requires you to be aware of the stock movements, even if once a while. The SIP route would be the best. Look into funds investing in large cap or a combination of large-caps and mid-caps. Following are some funds I would look at.

HDFC Top 200
Axis Long Term Equity Fund
FT India Prima Plus

You would also want to relook at the 20-30% CAGR target that you’re looking at. IMHO, it is somewhat on the higher side (especially on the duration you’re looking for)

(shikhar mundra) #7

since you are young and can afford to take risks it better to invest in equities directly. Also investing directly will be a good learning experience which will help you become a better investor in the future. Even if you spend your time reading about companies and market on weekends you can generate good returns in the market. Dont take the safe option of going for mutual funds at such a young age! you wont gain much experience in investing doing that. Compounding of knowledge is as important as compounding of wealth! I assume since you are 24 you don’t even have much of family responsibilities , so use this to your advantage and try investing yourself.
I would suggest investing more in small cap and mid cap stocks for you.
Remember life itself is so risky that no one gets out alive!
PS - I am myself 24 and follow the same philosophy.

(Changu Mangu) #8

Dear Sir. Since you are just starting out here’s my opinion.
a. You will be charged a very high brokerage which might be close to 3% when including taxes as the brokerage is quite high for amounts invested below 2727. You can check with the brokerage you use as to the minimum trade value to get cash brokerage and not minimum brokerage on your purchases.
So it might be advisable for you to invest 7500 every quarter.
b. You have a wonderful long horizon. It is a given that you are going to increase your monthly investment as you go along. You will end up doing very well if you do not change course for 10 years and by then you will have a very good idea on what to do.
c. No one can invest with a track on the upside as it’s not as simple as saying “I want 25% CAGR” or any other random number. What you can do is limit your downside. The upside takes care of itself. What I mean is you need a margin of safety for your investments so you can see the fair value of your investment even if temporarily the stock prices are lower. you do not decide the upside (which is the CAGR).
d. Read about any stock you are going to invest in on valuepickr and only then invest in something you build conviction. Don’t invest based on SP Tulsian or the TV pundits to make a quick buck. That is a proven way to lose money. In fact the lesser you watch business news channels, the better you will do :wink:
You only dont want to lose money. The gains whether 25% or 100% will come in time.
e. I would advise since the sums are currently small, keep them in a bank account, the market will drop 10-20% a few times every year. Have a list of stocks ready to invest in, and when markets are atleast 10-20% down on that day see which stock from your list is dramatically lower and if the fundamentals have not changed (you will be able to see it in valuepickr and might start doing some research on your own as well) then buy that one or two.
F. you don’t need more than 2-4 stocks.
Have a wonderful investing experience!


Just to suggest a way around high brokerage you can look to have an account with one of the many discount brokers present in the market. As far as I know Zerodha offers both equity trading as well as MF buying through it’s platform.
Just take a plunge whether it’s equities or MF SIP route, you will emerge financially more knowledgeable if not wealthier :stuck_out_tongue:
I still rue the fact that I waited too long to start investing in MF/equities.

(saikathalder) #10

respected members, I am in a very similar position, I am 27 years old, and working from last 1 year. Looking to build a long term portfolio, with high value stocks, I have identified couple of stocks as well, but not getting any entry point, as the stocks are trading at very higher book value.

I am also invested in DSP BR micro cap, Reliance banking & finance MF for last 1 year for long term growth.
Also, Axis and reliance ELSS for tax saving.

Stocks like Eicher motor, canfin home, gruh finance, HDFC, SUn pharma are not giving me any entry point, these are currently on my watch list. Along with Wonderla holidays.

Disc: I am not a broker, and newbie here, I try to analyse the company on my own, reading from internet and books, I want to be a value investor. Thanks for reading.

(Arnab) #11

Thanks a lot for the advice, it is indeed very informative!

You mentioned in the first point that brokerage is quite high for amounts invested below 2727 and added with tax the total deductions can add up to almost 3%.

To be honest I did not know it. I have an account in Zerodha and from what I know (correct me if I am wrong) I can purchase mutual funds units in the SIP models for whatever amount I want to without any brokerage involved and as far as tax is concerned, from what I know if you are selling your purchased MF unit after 1 year then there is no tax that is charged in Equity linked MFs and after 3 years for Debt linked MFs. (Though Zerodha have recently introduced a maintenance charge of Rs. 50 per month for anyone who has more than Rs. 25000 invested in their MF Portfolio)

So how is the brokerage and tax adding up, am I missing something here ?

Coming to your third point, I absolutely agree about limiting the downside and the upside will take care of itself. But nevertheless I did some calculations on what I want to have on retirement and 20-25% turned out to be the return that will help me to achieve it, so I mentioned it, but I know it’s not always possible.

As for the fourth point, this is exactly what I have learnt in the last one year from the various books I read, from the threads here and my personal experience and I also absolutely agree with the fifth point.

(Arnab) #12

I have recently opened an account in Zerodha.

Incidentally, I have also been circling the financial market pond thinking about taking the plunge for sometime now (last year November) but yet to take it, a bit too afraid, unsure about my research though I must also admit that the market is looking very overpriced now (I might be wrong though).

(TT) #13

If you are with Zerodha, then brokerage should not be a concern for you as it is unlikely you will find anything cheaper. I think others who spoke of brokerage may have spoken with the assumption that you are with a regular borkerage like HDFC or ICICI.

(Arnab) #14

Thanks for the advice @Shikhar.

Indeed I agree that getting first hand experience will make me a better investor in the future. However I would have to admit that I don’t have enough confidence on my research to put my money into it, hence I believe it is better to start of with 2-3 mutual funds that will contain the lion share of my investment and only a small portion (10%) in stocks, at least that’s what the plan is for now (I might be wrong in my approach, so I would like to receive criticism if any).

I have did some research on the tire sector recently and I believe the sector has good prospect based on the current dynamics of the industry and the status of the various external factors involved. However I have not gathered enough courage to put my money, though I think the sector is pretty overpriced at the moment (like the market in large).

So that’s how it is for the time being.

(Arnab) #15

Yes I do agree that 20-30% is probably a bit on the higher side on a long term.

I have shortlisted some funds both in the large cap and mid-small cap section, however one thing I have noticed is that all the top performing funds of the last five years have huge aum (in fact DSP Black Rock, which has the best performing MF in the mid-small cap segment has stopped new subscription for now precisely due to this reason recently, as their fund manager Vinit Sambre has told in an interview as well).

Do you also think that massive aum is a detrimental factor when one is selecting funds, or am I being just too choosy ?

(Arnab) #16

I have Asian Paints and Aurobindo Pharma in my radar, though I don’t really know anything about either paints or the pharma sector other than the fact that since people are getting old and lifespan is lengthning, medicines will be in high demand and that’s where my knowledge ends.

Looking forward to doing more research to understand the dynamic of the respective sectors.

I really like Eicher Motors, but it’s too pricey for me at the moment, just like MRF is.

(Arnab) #17

I fall in the 5% tax bracket at the moment and that will be the case for at least the next 3 years from what I can see, so to be honest I am not really that much concerned about tax deduction at the moment.

Correct me if I am wrong, but we also get tax deduction under section 80C for investments in mutual funds as well, right ?

(Arnab) #18

Thanks a lot @theashworld for the wonderful advice. I seriously did not know that one can have an SIP on Nifty Junior.

Personally I also prefer mid caps over large caps because of the profit potential, as you rightly said mentioned the quote from Jack Bogle and yeah I plan to retire at 60, so my investment horizon is certainly over 30 years if everything goes well.

I will do some research on Nifty Junior in the next week or so, thanks again!

(Arnab) #19

I have shortlisted some mutual funds in both the large cap and the mid-small cap segment. However all the top performing funds of the last 5 years have such high aum that I am a bit concerned (might be a bit too concerned).

If you don’t mind, can you please share what are the different factors you share when selecting a mutual fund ?

(saikathalder) #20

if you are in 5% tax bracket, then u can easily save tax from your EPF and HRA or may be sodexo food coupons…you dont have to start ELSS, ELSS is a type of Equity MF, that saves tax under section 80C. Instead of ELSS you can start in other equity funds or index funds mentioned by other seniors above. Even I did not know about Nifty junior or juniorbee…

googled it, but still have many doubts. Would appreciate if others can throw some light, on the risk profile and expense ratios associated with it. Also, How to choose a junior bee, as IDBI, reliance and other AMC has their junior bee funds listed. I checked in valueresearchonline.