I invest Rs 8,000 per month through the Systematic Investment Plan (SIP) route in a total of nine schemes. I am looking at these investments from a medium- to long-term perspective. I was previously working with Fidelity and hence, the preference for their funds. I intend to increase the size of my investments by 15 per cent every year and reach a corpus of around Rs 1 crore by 2020 (when I will be 40 years) and Rs 4 crore by 2030.
-Kunal
PROFILE
Age: 27 years
Salary: Rs 50,000 per month
Life Insurance: Rs 10 lakh
Accidental Insurance: Rs 30 lakh
Bank Balance: Rs 80,000
Stocks: Rs 180,000
Mutual Funds: Rs 180,000
Monthly SIPs: Rs 8,000
You’ve started out on the right track. The first two steps that you’ve taken – investing via SIPs and investing in some quality funds – will ensure that on the whole, your journey towards your financial goal will be smooth.It is evident from your portfolio that:
* You intend to buy new funds when starting a new SIP.
* You don’t have a debt element.
* Bias towards one fund house.
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These factors could hinder the fulfilment of your goals. Here’s how you should take care of them. First, keep in mind that investing through SIPs is fruitful only when you keep investing in a few funds for a long time. Once your SIP period expires, you shouldn’t start it again in a new fund unless your existing fund has been an inappropriate choice or is not performing well enough. An ideal portfolio is one with a few quality funds.
Coming to the second point, your current asset allocation break up shows a meagre 1.03 per cent exposure in debt. Your entire investment is associated with the performance of the stock market because of the heavy exposure to equity through the equity funds. This makes your portfolio risky. Adding debt component to your portfolio helps curtail the fall when the equity market heads down. Hence, we advise you to add one medium-term debt fund like Kotak Flexi-Debt or Birla Sun Life Dynamic Bond Fund.
Diversification is an important aspect of investment. Different schemes from the same fund houses can have similar exposure to equity. For instance, of the three mutual funds you have from Fidelity, if you look at the top holdings of Fidelity Equity and Fidelity Tax Advantage Fund, four out of the top five holdings are in the same stocks – Reliance Industries, HDFC, SBI and ITC. Furthermore, both the funds are managed by the same fund manager, Sandeep Kothari. Thus, the objective of diversification is not achieved.
Now, you need to look at the quality of the funds that are the kernel of your portfolio. Around 52.66 per cent of your portfolio is allocated to tax-saving schemes. While there is no harm, you need to be aware of the quality and performance of funds which are the core of your investments. A case in point is Fidelity Tax Advantage, which has the maximum allocation in your portfolio (37.16 per cent).
This fund was launched in January 2006 and within this limited time frame, the performance of the fund cannot be judged and hence, we wouldn’t recommend it. We would suggest funds with a better long-term track record like Kotak 30, HDFC Top 200 or Magnum Contra as core holdings.
Now, coming to achieving your goal, you want to accumulate Rs 1 crore by 2020. You have 11 more years in hand. Since, you are currently investing Rs 8,000 per month and we assume that you keep on increasing the SIP amount by 15 per cent every year, after 11 years you would be able to accumulate only Rs 44.4 lakh and by 2030 it will generate Rs 2.73 crore, considering the rate of return to be 10 per cent per annum.
| EXISTING PORTFOLIO | ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| Top 10 Equity Holdings | |
| Stocks | Allocation (%) |
| Reliance Industries | 6.15 |
| State Bank | 4.69 |
| HDFC | 4.12 |
| Bharti Airtel | 3.72 |
| Infosys Technologies | 3.61 |
| ICICI Bank | 3.20 |
| ITC | 3.06 |
| BHEL | 2.97 |
| HDFC Bank | 2.87 |
| Satyam Computer Services | 2.50 |
| Portfolio Style BreakUp | |
| Category | Allocation (%) |
| Large-Cap | 61.81 |
| Mid-Cap | 24.65 |
| Small-Cap | 9.50 |
| Not Classified | 4.04 |
But with increase in responsibilities, your intention of hiking the SIP amount by 15 per cent every year may face obstructions. To achieve the goal of Rs 4 crore by 2030, you may invest Rs 12,000 per month and increase the SIP by 15 per cent every year till 2030. At the end, you would be sitting on a corpus of Rs 4.09 crore. There is one more option. If you keep on investing Rs 15,000 per month for the next 32 years, you can accumulate Rs 4.2 crore at the time of your retirement. The choice is yours.
Whichever alternative you choose, always keep treading on the systematic route.