We all have heard of an Equity Glide in retirement have we not? If you have say 50% in equities while at retirement …you keep reducing the equity portion in such a way that by the time you are 65 years of age you have only 35% in equities. This is the normal logic and what people do.

However I have tried different things for different portfolios. Hence I am amused when somebody comes and asks “Annuity or tax free bonds” – I KNOW THAT these products are not at all fungible. It is like saying “Kishore” or “Rafi”. I listen to both, and I think both are geniuses. Some days I listen to Rafi and some days Kishore. I realised early on in life that very few things are really fungible.

Let us say when you are retiring at age 55 the market is at a PE of 30 and you are a little jittery of putting a lump sum in equity. However you have the money NOW and it has to be invested. What do you do?

Put a big portion in a liquid / short bond fund combination and do a STP into an equity fund. Let the money go into a large cap fund, a multi-cap fund and a small cap fund.

CONTRARY TO NORMAL thinking…this investment strategy has to come with a “this is being done by experts and do not attempt it unless you understand Value investing, dividend yield, delivery based trading, and have the discipline to do it.

In such a type of investing we do what is called the inverse glide – going from a low equity to a high equity – again targeted with strict understanding and planning. For one such person I shifted out of Rs.50L of equity to buy an annuity at his age of 72. Sure there is still equity left, but this one annuity is likely to take care of all his expenses. For one such senior citizen I have bought an annuity, kept money in a short term bond fund but am doing a STP from the short bond fund. This is a 5 year STP – and at the end of a targeted accumulation in the equity fund I am planning to redeem it and put it back in the bond fund.

So I do tell people that many things are available in the product – you need to know what suits you when. While it is easy to dismiss fixed return products when you are young and arrogant, annuities are very useful when you are 80 and do not wish to tax your brain.

So Mira D there are no easy answers, only easy questions.

Exactly why this bog is about questions – you need to find the answers YOURSELVES – that I think is the essence of learning. There are other websites who are hoping to give you answers, use them. Come here just to be poked.

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. Subra, I read here and few times earlier that you did something for this guy and did something for that guy. Are these services offered at personal level or are you open to offer services to person like me on chargeable basis? I just want to know your mind on this matter.

  2. Dear Sir

    Just want to know what kind of annuity options are available for us to invest in. I am more aware about the annuities offered by life insurance companies, or as a product it is being offered by any other manufacturer.

  3. Redeeming the equity again at the end of 5 years? An average holding period of 2-3 years? How would this strategy benefit the person at the end of 5 years ?

  4. thank you very much for reply. it is strange , but true that I saw VPBY advt. many times, but never knew it’s a very good annuity scheme till you replied! as such, it will work nicely at least for whom i am considering.

  5. Subra,

    I have a doubt – what’s the difference between a pension plan & an annuity? (No, no, it’s not for me, I still have 43 years to be 72. 😀 This is just for knowledge & learning.)

    Will the document contain the word “annuity”? Is that even significant?

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>