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The economic performance of the Yogi Adityanath government in Uttar Pradesh has been impacted by the COVID-19 pandemic. It is undeniably a headwind for the BJP. However, UP voters could be forgiving  The first phase of the all-important Uttar Pradesh polls concluded on February 10, and the second was on February 14. The seven-phase election culminates on March 7 with the keenly-awaited results on March 10. The economic crisis precipitated by the COVID-19 pandemic has been one of the hotly-debated topics on the ground, and in newsroom studios.

The claims and counterclaims by UP Chief Minister Yogi Adityanath and Samajwadi Party chief and former UP Chief Minister Akhilesh Yadav on this topic with a lot of data thrown by both sides muddles the picture. Does economic performance impact electoral results? Or it is just one of the factors people take into account while voting together with leadership, ideology, caste and religion, law and order, development, etc.

Price rise, unemployment, and farm distress were top issues even in 2019 when the Bharatiya Janata Party (BJP) won a big mandate. In 2004, when the BJP under AB Vajpayee lost, the Indian economy was doing well — at least that was the perception, remember ‘India Shining’? Prior to that, Congress leader and then Prime Minister Narasimha Rao, who ushered in the liberalisation era, lost the general elections in 1996.

Generally, per capita income is considered to be a good barometer of economic performance. In 2017, among the five states now going to the polls, four (UP, Manipur, Punjab, and Goa) recorded lower growth in per capita income versus national average (2013-17). Uttarakhand, the fifth state, did better than all of India — and yet the incumbent government was not re-elected.

Let’s look at these three tenures: of Bahujan Samaj Party (BSP) leader and former Chief Minister Mayawati (FY07-12), of Yadav (FY12-17), and of Adityanath (FY17-22) in UP.

Adityanath claims that UP is now number two in GDP in India. UP was at this position for most of Mayawati’s tenure. Per capita income grew handsomely, more than doubling during her rule from Rs 14,212 in FY06-07 to Rs 32,002 in FY11-12. The poverty rate declined from 40.9 percent to 29.4 percent — still the BSP lost the 2012 assembly elections.

During Yadav’s tenure, per capita income grew to Rs 52,774 in FY16-17, though at a slower pace than under Mayawati’s tenure. He also focussed a lot on infrastructure projects. Unemployment was high, ranked third in India. The government’s performance was impacted by droughts in FY14 and FY15, demonetisation in FY17. Yadav suffered a major setback in the 2017 polls.

The Adityanath dispensation claims per capita income has doubled, however, it is still lower than the national average. As per CMIE data, UP’s unemployment rate of 3 percent (January) is lower than the national average of 6.57 percent. The GDP growth rates have also been affected by the pandemic.

Two exceptional years of the pandemic make data not strictly comparable. While economic issues such as farm distress, unemployment, and price rise dominate the discourse, voting is an emotive issue based on apeksha (expectation) and aakrosh (anger).

Most voters do not understand data and jargon. What they do understand and feel the pinch is inflation, unemployment, and income levels. It is no secret that income levels have fallen, and the poor have been hurt. However, the government has also taken sincere efforts to provide relief to the poor.

One of the most impactful, and not much-publicised schemes is free ration distribution. This has provided some relief/cushion to the poor. Higher NREGA allocations, and Rs 500 transfers for three months to Jan Dhan accounts are also being talked about on the ground.

In the same breath, people also talk about high cooking oil and LPG prices. There is a job crisis in UP, whose young demography is bigger than the population of many countries. The government has not been able to deliver the jobs promised in the BJP’s 2017 manifesto.

The pandemic has increased the dependence of the poor on the government. Here the last-mile delivery of schemes is very important, and direct benefit transfer (DBT) has ensured that intermediaries are eliminated. The economic performance of the state impacts the lives of millions. However, voters may not punish, or be forgiving if they see the sincerity of the government in solving economic issues.

Does Adityanath provide this comfort level to the voters of UP who have faced the brunt of the pandemic? Or will they usher in change?

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It’s always a good idea to have goal-specific portfolios There is no shortage of good mutual fund schemes in India, many being part of MoneyControl’s own curated MC30 list.

But how should you carefully pick a few of these to build a healthy mutual fund portfolio?

There can be many ways to do this. But I suggest you start with the lens of goal. It might sound boring, but that is the most effective approach in my view. Unless, you have too many goals, it’s always a good idea to have goal-specific portfolios to help you properly keep track of the goal-based investments. And if nothing else, it is still advisable to keep retirement savings separate from the rest of your financial goals. That way, you will give retirement planning the importance that it deserves.

Let’s take a simple example.

Suppose you want to save for three major goals: i) Down payment for the house purchase in four years’ time; ii) Daughter’s higher education in 7 years, and finally iii) Own retirement in 20 years.

Saving for different goals

You did some number crunching to find out what is the right amount to invest for different goals based on proper asset allocations rules. So it might seem something like this:

-For House down payment in 4 years - Rs 25,000 per month at 100 percent Debt: 0 percent Equity

-For Daughter’s Higher Education in 7 years - Rs 20,000 per month at 50 percent Debt: 50 percent Equity

-For Retirement in about 20 years - Rs 30,000 per month at 70 percent Equity: 30 percent Debt

I am sure you know what the above allocations are suggested. For long-term goals, a larger equity component is advised as it helps generate inflation-beating returns. But in the short-term, equity can be quite volatile and hence, short-term goals are best handled by debt in the portfolio. And what about medium-term goals? A simple combination of equity and debt can be used for such goals.

So now you know the precise amounts and how much of that is to be distributed between equity and debt. Now comes the question, as to how to build a solid mutual fund portfolio around this.

Let’s pick one goal at a time.

House Down payment goal (4 years)

This is a short-term goal and hence managed purely (or preliminary) via debt instruments. So choosing 1 one fund from the below category options should serve this goal’s requirements:

- Low / Short Duration / Conservative Hybrid fund (1 fund) - 100 percent

Daughter’s Higher Education Goal (7 years)

This is a medium-term goal. So a combination of debt and equity can be used. I have suggested 50:50 but one can even have 60-65 percent in equity initially if one’s risk appetite is suitable.

For such a requirement, the MF selection can be as follows:

- Large Cap Fund / Flexicap fund (pick 1 fund) - 50 to 60 percent

- Low / Short Duration fund (1 fund) - 40 to 50 percent

Or if you want, you can simply take the below one fund option:

- Aggressive Hybrid Fund / Dynamic Allocation Fund (1 fund) - 100 percent

After a few years, when this medium-term goal starts becoming a short-term goal, you will then have to consider gradually reducing the equity component to reduce the risk of getting poor (negative) returns near the goal day.

Retirement Goal (15-20 years)

This is a critical long-term goal. First, for the debt side of the portfolio, best to maximize your EPF and PPF. If that is not sufficient, consider increasing EPF via the VPF route. Or you can also look at using NPS as a debt tool with proper allocation in schemes G and C.

With respect to equity, for which about 70 percent allocation is suggested, you can opt for the following:

- Large Cap Index funds (1-2 funds) - 30 percent to 50 percent

- Flexicap fund (1 fund) - 20 to 30 percent

- Large & Midcap fund / Midcap fund (1 fund) - 20 percent to 30 percent

- International fund (1 fund) - 10 percent to 20 percent

So that is how you build your mutual fund portfolio that takes care of different goals and provides proper diversification across assets, fund categories, and investment styles.

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