Quantify all your goals

I am 42 and working with the Indian Army. My annual income is Rs 12 lakh. My goals are:
Pay Rs 8 lakh (in three years) towards house registration and other costs.
Build a corpus of Rs 3-4 crore for retirement (15 years from now).
Provide for the higher education expenses of my sons.
I desire an asset allocation of 55:45 (debt:equity). I have four insurance policies (pension plans and endowment plans); total sum assured is Rs 61.12 lakh. I have invested Rs 17 lakh in Public Provident Fund (PPF). Kindly suggest improvements to my portfolio.

-Srinivas Ganapathi

PLUSES AND MINUSES

• Your portfolio consists of around 68 per cent in mutual fund holdings and the rest in shares. Overall, your portfolio has around 77 per cent equity allocation and approximately 19 per cent debt exposure. However, if we take into account PPF, your overall debt allocation increases substantially, to around 42 per cent.

  You have desired a 55:45 debt: equity ratio. Right now, as you have time (15 years) to build your retirement corpus, it would be wise if you keep at least 70 per cent in equities and the rest in debt. As you get closer to your goals, gradually transfer money from equities to debt. At that time, safety of capital should be your prime concern. 

Your overall portfolio has a healthy mid-cap and small-cap exposure (around 25 per cent). Large-cap exposure constitutes 74 per cent. Continue to maintain this exposure. 
 

Your MF portfolio has a total of 21 funds. Besides the problem associated with handling and tracking so many funds, you have added more complexity to your portfolio by investing on different dates in a month. This unnecessarily increases your workload. It would be better to keep fewer funds. They will give the same diversification and also make your portfolio simpler and easier to handle.

As a result of having too many funds, no fund or stock has any significant allocation in your portfolio (barring one stock, Oil India). As many as 16 funds and six stocks have less than 5 per cent allocation in the entire portfolio. 

Further, we have noticed that you have made a few lump sum investments in some funds, which should have been avoided. Follow the SIP route, as it is the ideal mode of investment in mutual funds, particularly in equity funds, as it averages out your cost of investment due to stock market volatility. 
 

Moreover, in addition to funds, you have seven stocks, that would require even more attention than funds. Investing in shares requires good knowledge about industry trends and the company's past performance. We assume you have the time and the expertise to research and keep track of your stocks. The stocks in your portfolio are good. However, your total portfolio has a major tilt towards the energy sector, mainly because you have huge exposure (24 per cent) to Oil India's stock. 
 

You have four insurance policies; none of them is a term plan. Buy a term plan. Your life cover should be an amount that can sufficiently take care of your future goals and pay off your liabilities in case of your sudden demise.

GOALS You have not provided information about the amount you will require for your sons' education.

You wish to accumulate a retirement corpus of Rs 3-4 crore. You can comfortably accumulate this amount in 15 years, while fulfilling your need of Rs 8 lakh for the registration of your house at the end of 2012.

We are making the above statement based on these assumptions:

• Once your STPs end in 2012, you continue to invest Rs 23,500 through SIP and increase this amount at the rate of 10 per cent every year till the time you retire. 
   
• We have assumed your equity investments earn an annual return of 10 per cent.

So, your monthly investment and accumulated investments (MFs, stocks and PPF) will enable you to fulfill your retirement and house goals. For your children, we suggest you first quantify the amount you will require and then start investing additionally for them, too.

(In our calculations, we have not included insurance policies.)

PORTFOLIO RESTRUCTURING
We have picked 10 quality funds you should keep in your portfolio. Offload the rest of the funds and invest the proceeds systematically in the suggested funds. Continue with your SIP of Rs 23,500 but spread it among six funds as suggested below. Take your pick but while choosing funds, keep in mind that you diversify your portfolio across fund houses. From the suggested core funds, choose the tax saving fund if you need to exhaust your Section 80C limit of Rs 1 lakh.
 

Suggested portfolio
Core funds (70%)
Multi-cap	DSPBR Equity, HDFC Equity
Large-cap/Large-cap & mid-cap	Franklin India Bluechip, DSPBR Top 100 Equity, HDFC Top 200
Tax planning	HDFC Tax Saver
Supporting fund (10%-15%)	Sundaram BNP Paribas Select Midcap
Debt fund (10%-15%)	Kotak Flexi Debt