I am 57-year old, to retire in three years. My savings are in bank fixed deposits (FDs) and Employee Provident Fund (EPF). I get a monthly pension of Rs 25,000 from my earlier job as a central government employee, I voluntarily retired in 2003.
I own a house in Delhi. My wife is a government employee. My children are on their own.
I want to make the following changes to my portfolio:
* Switch from DSPBR T.I.G.E.R. to DSPBR Top 100 Equity and continue investing via systematic investment plan (SIP);
* Invest Rs 25,000 in IDFC Premier Equity and start an SIP of Rs 3,000 per month;
* Invest Rs 5,000 in HDFC Top 200 and continue an SIP of Rs 3,000.
Kindly vet my proposal of investing in six diversified equity funds of different fund houses
TOO MANY FUNDS
It is wise to diversify your portfolio, but too many funds only increase clutter. Five to six sensibly picked funds will give the required diversification.
BULK INVESTMENTS
It is never wise to invest all your money at one go in mutual funds. Unfortunately, most of your investments were made when the market was near its peak. Regular investments at all market levels is stress-free and provides the benefits of rupee cost averaging.
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ALLOCATIONS
Your portfolio is high on risk. Barring ICICI Prudential Dynamic and Religare Growth, all your investments are into thematic or aggressive funds. Do not avoid such funds, but limit allocations to not more than 10-15 per cent of your equity portfolio. Stick to equity diversified funds.
You don't have any debt component in your portfolio. Debt helps reduce volatility, which is high in an equity portfolio.
INVESTMENTS
You have invested in four New Fund Offers (NFOs). Investments in NFOs should be avoided as there is no track record. Choose funds with long, proven track record.
You invested in two close-ended funds. One should avoid that, as investment in such funds can only be done at the time of the NFO. And, why unnecessarily block investment? You have five funds investing in infrastructure theme. Not more than one thematic fund is advisable.
MEETING YOUR GOAL
To achieve a monthly income of Rs 20,000 a month on retirement, you will need to accumulate a substantial corpus. This figure is based on current prices and it will rise if we take inflation into account. Not to forget that you will not be making any more investments after retirement.
For Rs 20,000 a month at current prices, from 2013 onwards, you need Rs 40 lakh by 2012-end. Inflation is currently 6.5 per cent annually.
Your current investment in mutual funds is around Rs 14.2 lakh and you plan to invest Rs 18,000 over the next three years. Considering an annual return of 10 per cent, your total investment will be around Rs 27 lakh. It will not be possible for you to meet your goal. Around Rs 50,000 needs to be invested every month to get the required income.
We are not aware of your expenses, current salary and amounts in FDs and EPF, so we cannot comment further.
TO REBUILD PORTFOLIO
There are two ways to rebuild your portfolio. Start off only once you fix your equity:debt allocation, based on your risk appetite. Then you will have to rebalance it annually. Once you decide on which portfolio to opt for, work on offloading your investments in thematic/sector or aggressive funds. As you sell the units, invest the proceeds in a liquid fund. Then, every month channelise the money via an SIP into the funds you have selected for further investments.
PORTFOLIO A
Construct a portfolio of four equity funds and one debt fund. Granted, you do have invested in FDs and provident fund, but it will be easier to rebalance with a debt scheme. With retirement not far away, it is advisable to have a good debt allocation.
The making...
* Start an SIP with ICICI Prudential Dynamic, which you already have.
* Switch to DSPBR Top 100.
* Add HDFC Top 200.
* Add a debt fund - Fortis Flexi Debt/ JM Money Manager Super.
* To add a bit of aggression, either go with Reliance Regular Savings Equity or Kotak Opportunities, you already invested in both.
PORTFOLIO B
Construct a portfolio of four balanced funds. It will provide an exposure to equity and debt simultaneously as such funds invest 65 per cent in equities and the rest in debt. Such funds are less risky than pure equity funds. Moreover, you will not have to worry about rebalancing. If you still feel the need for a debt exposure, add a debt fund.
The making...
* FT India Balanced.
* DSPBR Balanced.
* HDFC Prudence.
* Tata Balanced.