I am a businessman, 29, married. I have invested lumpsums in 23 funds. I own some stocks worth Rs 1.10 lakh. My Public Provident Fund (PPF) account balance is Rs 5 lakh. Earlier, I redeemed Rs 2 lakh from mutual funds.
My wife and I are both have health covers of Rs 3 lakh. We have no other insurance cover. Do we need one? I invest Rs 12,000 a month via systematic investment plans (SIPs). But, I can spare an extra Rs 20,000 a month. Presently, I invest Rs 2,000 each in - BSL Frontline Equity A, HDFC Top 200, Religare Business Leaders, Reliance Banking Retail, Reliance Pharma and Reliance Regular Savings Equity.
Goals
House 3 years due Rs 75,00,000
Children's education 20 years due Rs 50,00,000
Retirement corpus 27 years due Rs 2,00,00,000
Flaws in the portfolio
With 29 funds and 12 stocks, your portfolio is over diversified. It serves no purpose and can work against you. Twenty-four funds and eight stocks have an allocation of less than two per cent. An outperformance within them will not help due to the small allocation.
Lumpsum investments should be avoided. If markets tank after you invest, loss recovery will take a long time.
Closed-end funds (ICICI Pru Fusion S-III Retail and Sundaram BNP Paribas Energy Opportunities) are not liquid and you can't even make fresh investments. Open-ended funds have the SIP option and help with rupee-cost averaging.
You also own many sectoral/thematic funds - Reliance Banking Retail, Reliance Pharma and 3 infrastructure funds. Though you have limited exposure, these funds depends on the market response to that theme. And are volatile and should be avoided.
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Direct equity investment needs a lot of fundamental research. We hope you have the expertise and time for it. If not, consult an expert. Further, one stock - Jai Prakash Associates - accounts for 44.25 per cent of the portfolio. It too much for a single stock, cut it.
Debt funds are missing from your portfolio. You have PPF, but it is not a liquid option . Hence, invest in one debt fund. It will counter balance the volatility of equities and offer liquidity.
Portfolio revamp
Stick to a total of six funds. Spread your investment, Rs 32,000 (Rs 12,000 from ongoing SIPs, Rs 20,000 extra) among these funds. You may continue with three funds and pick three from the remaining funds we have suggested.
Core funds: Choose any three, preferably one each from large-, multi-cap and tax-saving. Core funds should constitute 60-70 per cent of your equity portfolio.
Supporting funds: Pick one fund each from mid-, small-cap and thematic funds. Together, these should not form over 30 per cent of your equity portfolio.
Debt fund: Invest around 10 per cent in the recommended debt fund.
Equity funds and stocks together should make around 80 per cent of your portfolio.
Once you decide your core and supporting funds, start off-loading the rest of your holdings. To avoid paying short-term capital gains tax, begin with funds you have held for a year.
Core Funds Menu
Large- and mid-cap: BSL Frontline Equity Plan A, DSPBR Top 100 Equity Reg, HDFC Top 200
Multi-cap: DSPBR Equity, Reliance Regular Savings Equity, Magnum Contra
Tax saving: HDFC Taxsaver, Magnum Taxgain, Sundaram BNP Paribas Taxsaver
Supporting Funds Menu
Mid- and small-cap: Sundaram BNP Paribas Select Midcap Reg, Reliance Growth
Thematic/Infrastructure funds: ICICI Pru Infrastructure, UTI Infrastructure
Debt Fund: Fortis Flexi Debt Reg
Are your goals achievable?
Assuming a return of 10 per cent per annum on monthly investment of Rs 32,000, along with your other accumulated investments of Rs 35 lakh (mutual funds and stocks), you will save around Rs 55 lakh by 2012-end. You may use this amount to buy a house, provided you do not want to burden yourself with a home loan. However, go for one in case you wish to avail tax benefit of up to Rs 1 lakh under Section 80C on principle repayment and Rs 1.5 lakh on interest repayment under Section 24 (b), a year.
If you follow the above strategy till retirement, you will meet your goals - corpus for your children (in 2029) and retirement (in 2036)- comfortably. Your retirement corpus will be in excess of Rs 2 crore, without considering PPF. But, find out if a corpus of Rs 2 crore will suffice to meet your needs when adjusted for inflation. If it doesn't, you should consider increasing your monthly investments gradually as your income rises.
Get life insurance
As your family grows, the number of dependants could increase. To protect their future, we suggest you buy a term plan (life cover). It is the cheapest and the purest form of insurance and provides much-needed financial support to dependants in case of the breadwinner's sudden demise.