I am 35 and have articulated my goals below. Can you help me fine-tune my mutual fund portfolio to achieve these?
Child’s education
Rs 30 lakh, in 3 years
Luxury apartment
Rs 50 lakh,in 9 years
Retirement
Rs 1 crore, in 21 years
My monthly post-tax income is around Rs 1 lakh. Following are my expenses:
Monthly expenses Rs 60,000 Household expenses Rs 36,500 Car EMI Rs 8,500 Land loan EMI Rs 15,000
CURRENT ASSETS
I have NSC investments of Rs 6.5 lakh and bank fixed deposits of Rs 1 lakh. I bought a plot of land costing Rs 22 lakh, for which I took two loans worth Rs 12 lakh. I will repay them within five years. The current value of my mutual fund investment is Rs 15 lakh.
What you have done: taken a term insurance policy of Rs 50 lakh.
Our view: A good move. However, should something happen to you, your spouse would have to give up on a few dreams such as a luxury apartment. Neither would she have the Rs 1 crore investment kitty.
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What you have done: invest in numerous tax saving instruments
Our view: If you were looking at a tax break under Section 80C, you have certainly overdone your tax saving. You have invested in Equity Linked Savings Schemes (ELSS), National Savings Certificate (NSC) and Public Provident Fund (PPF). Are you aware that premium towards your life insurance policy gets a tax benefit? Does your employer offer you a provident fund facility? If yes, contributions towards the Employee Provident Fund (EPF) also can be availed of as deductions under this section.
What you have done: invested in seven equity-linked savings scheme (ELSS)
Our view: This shows that you have not done any appropriate tax planning. Your investment pattern reveals you invest close to the end of the financial year and in lump sum. From now on, be more diligent with your tax planning and if you consider an ELSS, make sure you invest in it systematically. Start at the beginning of the financial year and spread your investment via a monthly systematic investment plan (SIP) all through.
What you have done: Invested in 17 funds (seven being ELSS)
Our view: That is way too many funds. No doubt, you have managed to zero in on some good quality picks, but such a diverse portfolio is unnecessary. More, 12 funds have an allocation of less than five per cent. Even if they perform well, they won't have much impact on your overall portfolio. At the other end is Reliance Growth, with a much higher allocation. Also, your portfolio has a low large-cap allocation. The high exposure to mid- and small-cap funds gives it a volatile and risky slant.
What you have done: Recently, you began to invest Rs 30,000 a month towards your goals in six mutual funds.
Our view: Your accumulated investments in mutual funds (Rs 15 lakh), along with your monthly SIPs of Rs 30,000 will help you achieve your goals. However, we are making two assumptions. One is that your investments will earn a return of 10 per cent per annum and you increase your SIPs by five per cent per annum till you retire at the age of 56.
Your balance fund investments serve no purpose in your portfolio. Instead, we suggest you go for a pure debt fund. Since you also have a debt exposure to fixed deposits, NSC and PPF, keep this exposure small. Consider Fortis Flexi Debt or Canara Robeco Income. As you near your goal, book profits in equity and transfer to the debt fund.
Discontinue your SIP in Reliance Pharma. Replace this fund with a large-cap offering such as DSPBR Top 100 or IDFC Imperial Equity Plan A.
Should you need to invest in an ELSS, we suggest Sundaram BNP Paribas Taxsaver or HDFC Taxsaver.
THINGS TO WORK ON
If you don't have a medical insurance, buy a floater policy that covers the entire family. Bank fixed deposits, ELSS, NSC and PPF all have lock-in periods. For emergencies, ensure you have some money distributed between a savings bank account and a liquid fund. Three months' salary should suffice.
In future, avoid lump sum investments and new fund offerings (NFOs). Stick to SIPs and be consistent.
Currently, debt accounts for 33 per cent of your portfolio. This is not taking into account your PPF. Reduce your debt component to just 20 per cent and increase your equity exposure.
Sell your other funds if you have made a profit and have held for at least a year. In this way, you save on short-term capital gains tax. ELSS investments need to complete 3-year lock-in period.