Defining an Appropriate Asset Allocation
May 13, 2014

Author: PersonalFN Content & Research Team

A couple of weeks back we had written an article highlighting the importance of asset allocation for your financial goals. And in this article we will show you a live case study, which will help you to understand asset allocation in a better way.

Let’s take the case of Mr. Ram to find a suitable asset allocation for his financial goal:

Personal Details
Age 35 years
Retirement Age 60 years
Dependents Only Spouse
Income Rs 1,30,000 per month
Expenses Rs 50,000 per month
Financial Goal Retirement

Personal Details

Mr. Ram a 35 year old married individual wanted to plan for his Retirement at the age of 60 years. He had a decent monthly income of Rs 1,30,000 and his expenses were just Rs 50,000 per month. So he could easily have a monthly surplus of Rs 80,000. Moreover, he had a long term time horizon of 25 years for his retirement goal. Now let us have a look at his assets.

Type of Assets Amount (Rs.)
Equity Mutual Funds 275,000
Fixed Deposits 5,000,000
PPF 600,000
Gold Mutual Funds 100,000
Residential Flat 10,000,000
Cash in Bank 300,000
Total 16,275,000


Mr. Ram’s biggest asset was his Residential Flat worth Rs 1 crore which he had inherited from his father. Because of his conservative nature, Mr. Ram was holding his 2nd big investment of Rs 50 lakh in Fixed Deposits. His other small investments were into Equity Mutual Funds, PPF and Gold Mutual Funds. Moreover he also maintained Rs 3 lakh as cash in bank for any unforeseen contingencies; while he had no current liabilities.

Now let us take a close look at his Current Asset Allocation

Current Asset Allocation
Asset Class Amount (Rs.) Weightage
Equity 275,000 4.60%
Debt 5,600,000 93.72%
Gold 100,000 1.67%
Total 5,975,000 100.00%

Current Asset Allocation

Since he is staying in the Residential Flat, this will not be available for any investment purpose. Also as the cash in bank is kept aside for contingency, we have not included it as a part of his current asset allocation. So considering his other assets worth around Rs 60 Lakhs meant for investment purpose, his current asset allocation in Equity is approx. 4.6%, Debt is 93.7% and Gold is 1.7%.

And here was Mr. Ram's Concern!

Even though Mr. Ram had 25 years left to his retirement, he was concerned if he has sufficient savings to fund for his post-retirement expenses. Moreover can his investments help him achieve a hassle free retirement?

To answer his concern, we first calculated the corpus Mr. Ram needed for his retirement.

Retirement Corpus Required by Mr. Ram

Mr. Ram had current total expenses of Rs 50,000 per month and wanted to maintain the same lifestyle during post retirement as well. Assuming life expectancy of 85 years, inflation of 10% p.a. and post retirement return of 8% p.a., he required a retirement corpus of Rs 20.8 crores. (PersonalFN’s Retirement Calculator can help you calculate your retirement corpus)

PersonalFN’s findings and recommendations to Mr. Ram:

  1. Inappropriate Current Allocation

    Considering Mr. Ram’s long term time horizon of 25 years to retirement and adequate monthly surplus of Rs 80,000, he had high risk taking capability on his investments. His current allocation of 94% into debt was inappropriate to accumulate funds required for his retirement. He should instead invest a higher allocation into equity that has potential to deliver higher return over a longer time period.
  2. Deficit in Retirement Corpus

    If Mr. Ram continues with his current asset allocation and invests his monthly surplus heavily in debt rather than equity because of his conservative nature, he will be able to accumulate just Rs 6.96 crores. (Assuming 15% return on Equity, 6.50% return on debt and 7% return on gold). He will fall short of his retirement corpus by 13.85 crores.
  3. Adequate Asset Allocation

    After taking into consideration his time horizon, risk appetite and importance of his retirement goal, PersonalFN recommended him an asset allocation of 75% into equity, 20% into debt and 5% into gold. This allocation would help him comfortably achieve his retirement goal. Let us see how.
  4. Surplus in Retirement Corpus

    If Mr. Ram follows the recommended asset allocation and invests his monthly surplus accordingly, he will be able to accumulate Rs 21.20 crores and can easily achieve his retirement goal. (Assuming equity delivers returns @ 15% p.a., debt investments offer returns of 6.50% p.a. and the value of gold grows @ 7% p.a. ). He will in fact have a surplus of Rs 42 lakhs.

The Learning

Increasing the investment amount would not have been possible for Mr. Ram as his income was limited. So without increasing his investment amount, he could achieve his retirement corpus by just changing his asset allocation.

In your own case, many of you might be wondering that you can achieve your financial goals only by increasing your investment. But it might not necessarily be the case. Just changing your asset allocation might also help solve the purpose. Hopefully Mr. Ram’s case might have helped you to understand the importance of asset allocation and how it can help you to achieve your financial goals by investing the same amount which you might be currently investing. Moreover Mr. Ram had a long term time horizon which helped him increase his exposure towards risky assets. This also indicates that starting early and planning prudently and timely may help one achieve his goals.

If you want to invest as per adequate asset allocation suitable for your financial goal but don't know how to start, then do not hesitate to call us on 022-61361200. You can also Schedule a Call with our investment consultants or even drop a mail at and we will get in touch with you. We would be happy to plan your finances prudently to help you achieve your life goals.

Add Comments

Sep 19, 2014

I'm extremely impressed with your writing skills and also with the layout on your weblog. Is this a paid theme or did you modify it yourself? Either way keep up the excellent quality writing, it is rare to see a great blog like this one nowadays..
Sep 19, 2014

Very energetic blog, I enjoyed that a lot. Perhaps there is a part 2?

Daily Wealth Letter

Fund of The Week

Knowledge Center

Money Simplified Guides (FREE)

Mutual Fund Fact Sheets

Tools & Calculators