I am a 50-year old defence officer with two dependents. My monthly take home salary is Rs 58,000. Post-retirement, after four years, I am likely to receive about Rs 30 lakh as a lump sum and a monthly pension of Rs 25,000. Examine the financial health of my portfolio, review my mutual fund selection and suggest the necessary changes and additional investments.
-Pradeep Sharma
PROFILE
Age: 50 years
Dependents: Two (wife & son)
Salary: Rs 58,000 pm
Financial goals An amount of Rs 20 lakh towards son's education (MBA/post graduation) after three years and a post-retirement kitty for wife and self.
Your investments are spread across five broad categories — provident fund, fixed deposits, gold, mutual funds and real estate.
Your mutual fund portfolio sports six funds, including two based on the infrastructure theme, one sector fund and a balanced fund. When one looks at your entire portfolio, your equity allocation is not high, but a large component of it (45 per cent) is in mid-and small-cap stocks.
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We are not happy with your selection of funds. We feel the sector and thematic investments are high. You also need to increase your large-cap exposure.
Following are three steps to get your portfolio on track to help you achieve your goals.
PRUDENT FUND SELECTION: You have been allocated Rs 31,000 every month for SIP. Investing systematically is a smart idea. It averages the purchase cost over a period of time.
We have created a model portfolio for you based on the logic that you need to decrease your mid-and small-cap exposure. This category of funds should be a small part of the over all portfolio. The core should always have large-cap oriented equity diversified funds.
With that is mind, we have narrowed down on four equity diversified schemes with a monthly SIP of Rs 26,000. This include HDFC Equity, DSPBR Top 100, Kotak 30 and Birla Sunlife Frontline Equity. In three years’ time your investments will be well over Rs 11 lakh.
We also kept in mind that the thematic and sector exposure needs to be toned down. This is why DSPBR T.I.G.E.R and Reliance Diversified Power Sector is not included in the suggested portfolio. You can, however, keep a minimal exposure to Tata Infrastructure.
PLANNING FOR SON'S EDUCATION: The requirement of Rs 20 lakh for your son's education seems difficult in a short span of three years. Since your goal is not too far; large investment in equity may get risky. If you keep the money in debt instruments, they won't deliver a return you need to accumulate.
The other alternative is to take a loan. You may consider a a loan against property. But we would advise against it since it makes no sense to take on a liability when you are so close to retirement. Alternatively, your son could opt for an education loan from a bank. He can then repay the loan once he starts working.
Another option; he should postpones higher education plan by a year. If he does, your lump sum entitlement of Rs 30 lakh would come in handy. Then again, using this money will eat into your retirement kitty.
Whatever you decided, avoid liabilities post retirement.
PLANNING FOR RETIREMENT: You will get a huge amount on retirement (Rs 30 lakh) along with your provident fund. When you finally retire, you can decide whether you want to invest it in a monthly income plan (MIP) of a mutual fund or a fixed deposit. You will also get pension and we have not even taken it into account while making this plan. So, you may have nothing to worry about.