We are a working couple, with a combined monthly takehome of Rs 1,13,000 after all deductions. We have two daughters: the elder one is five years and the younger five months old. My parents have retired and live in a house of their own in our native place. They are not financially dependent on us, except for critical healthcare needs, if required in the future. Is my portfolio good enough to create sufficient corpus for our retirement and to pay for our daughters’ education?
Life Insurance
# A home loan protection policy for both (equivalent to the loan amount)
# 13 policies including endowment and ULIPs for around Rs 12.5 lakh each
# Accident insurance provided for husband (Rs 5 lakh) and wife (Rs 18 lakh) by respective employers
# Husband has a separate insurance cover of Rs 5 lakh
Health Insurance
# Family floater policy by Apollo DKV for Rs 3 lakh
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# Super top-up policy by United India for Rs 7 lakh
# Wife has a health insurance policy covering the entire family, including the parents, for Rs 5.45 lakh
# Husband has a policy covering wife and two children for Rs 2 lakh
Liabilities
# A home loan (for a 3-bedroom apartment in Mumbai) of Rs 33,75,504 in 2006. The current outstanding amount is Rs 26 lakh.
# The equated monthly instalment (EMI) amounts to Rs 29,000. However, we are prepaying Rs 40,000/month on the loan.
# The monthly household expenses amount to Rs 30,000.
Investments
# Public Provident Fund (PPF): Rs 500 per annum
# Mutual funds: Rs 15,000/month
# Company fixed deposits
# Gold exchange-traded funds (Gold ETFs)
# Non-convertible debentures (NCDs)
# Total portfolio = Rs 18 lakh
Contingency Fund
# An amount equivalent to the home loan EMIs, investments and home budget as a separate FD
# There is a separate fund for an annual holiday.
-Lokesh Bhargava
You have done a lot of things right and have sufficient income and time on your side. You have stated two goals: your retirement and your daughters’ education. However, you have not quantified these. You need to say, for instance, that you will need Rs 20 lakh for your children’s education in 12 years and Rs 1 crore for retirement in 30 years. This way you have a tangible goal that can be worked towards. Next, follow an asset allocation wherein you have 80 per cent exposure to equity and 20 per cent to debt. We have suggested a model portfolio for you. Reduce your equity exposure as you reach closer to your goals.
Life insurance will not help you achieve your financial goals. Having 13 insurance policies, each for around Rs 12.5 lakh, indicates you pay heavily in premiums.This has reduced the amount available for investing in mutual funds. The only form of life insurance you need is a term insurance plan, which is quite inexpensive. Purchasing a home loan protection policy is a smart move. Take a fresh look at Ulips.
Buying your own health insurance policy, in addition to the one provided by your employer is a good move. A family floater that covers all of you for around Rs 7-10 lakh would suffice. It’s good you are prepaying your home loan. Interest rates are slated to rise, so your EMI would also go up.
On investments, though you have chosen good funds, you have way too many and have been investing irregularly. Too many funds does not indicate diversification; having few funds, which achieve your financial goal within the risk you can stomach, is what is desired. Once you narrow your fund selection, invest regularly in these via systematic investment plans (SIPs). When selling the units of the other schemes, ensure you do so after at least a year, so that you pay zero capital gains tax. It is a good idea to create a contingency fund, especially when there are dependants. Park money worth three months of expenses in a liquid fund as it is more tax-efficient.
If one takes all the life insurance premiums into account, daughters’ education fees, servicing of the home loan and contribution to the employee provident fund (EPF), you both could well be touching the Section 80C limit. Is that why there is no equity-linked savings scheme (ELSS) in your fund portfolio?