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Equity always pays in long-term

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BS Reporter Mumbai
Last Updated : Jan 20 2013 | 12:52 AM IST

I am 42, with two dependents - wife and 6-year old daughter. My monthly pay is Rs 68,000. I have invested Rs 17,500 in four small-cap stocks (currently valued at Rs 16,900). I have Rs 55,000 in my savings account.

I deposit Rs 10,000 every month in recurring deposit. I have three Ulips (total premium Rs 1.04 lakh yearly) and three endowment plans, total sum assured Rs 1.5 lakh (annual premium Rs 7,000). I have a term plan with sum assured of Rs 15 lakh, annual premium Rs 8,500. Kindly suggest a suitable portfolio to help me achieve my goals.
 

CURRENT INVESTMENTSRs
Shares 16,900
Mutual Funds3,07,000
FDs (maturing in 2012)54,000
Recurring Deposit 1,15,000
PPF (maturing in 2011)65,000
EPF 75,000

Your debt exposure is 49 per cent of your investments via FD, recurring deposit, employee provident fund (EPF) and public provident fund (PPF). Since your goals are far off, put up to 80 per cent in equities. Closer to your goals, gradually move the money into debt, as safety of capital will be prime.

To increase your equity exposure, shift the money from FDs to mutual funds, once the FD matures. Close your PPF account, as you already have a similar purpose EPF account. Once your PPF matures, invest the proceeds in mutual funds for higher returns.
 

MUTUAL FUND PORTFOLIO
Funds Allocation (%)
Quantum Long Term Equity 26
ICICI Pru Infrastructure 16
ICICI Pru Discovery 15
Reliance Reg Savings Eq 11
HDFC Top 2007
HDFC Prudence 7
Reliance MIP6
Sundaram BNP Paribas SMILE  6
ICICI Pru Index Retail4
Sundaram BNP Paribas Sel Focus2

MUTUAL FUND PORTFOLIO
You own high quality funds. But, too many funds do not give higher diversification. Re-allocate your current investments. Make Quantum Long Term Equity, Reliance Regular Savings Equity, HDFC Top 200 and HDFC Prudence as your core holding. These are large-cap, five-star funds, with strong track record.

You have very small exposure (2 per cent) to Sundaram BNP Paribas Select Focus (three-star rated). Stop the systematic investment plan (SIP) and exit this fund. Both ICICI Pru Discovery and Sundaram BNP Paribas SMILE are mainly mid- and small-cap funds, aggressive and make the portfolio volatile. You may hold any one of these funds. You also have one thematic fund, ICICI Pru Infrastructure. The performance of such funds is dependent on the underlying theme, so invest only if you understand the theme and can bear the risk. You have 4 per cent in ICICI Prudential Index Retail (index fund) that tracks the Nifty. Exit it as you small exposure.
 

MF INVESTMENT (MONTHLY)
Funds(Rs)
Quantum Long Term Equity2,000
Reliance Regular Savings Equity2,000
Reliance MIP1,000
Sundaram BNP Paribas SMILE1,000
Sundaram Select Focus1,000
Total7,000

Invest the proceeds from exited funds in the core funds suggested. Have a small component (up to 10 per cent) in debt funds to help rebalance the portfolio. Continue investing in Reliance MIP.

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INSURANCE
Ulips are a combination of insurance and investment, levy high initial charges. They are not the best even in terms of returns. Discontinue them once the surrender charges are zero or negligible. For insurance needs, take a term plan. It is cheap and caters to insurance better than Ulips. Your term plan of Rs 15 lakh, is insufficient. Take an additional cover of Rs 1 crore. This should be sufficient to provide for the future needs of your dependents, in an unfortunate event. You may redirect Ulip premiums to the term plan and invest the surplus in equity funds.

EQUITIES
You hold four small-cap stocks, currently trading at a loss. The good part is that the quantum of investment is small. Small-cap stocks are riskier than blue-chip ones. Monitor their performance and exit the minute you break even. If you understand industry trends, invest in blue-chip stocks.
 

SUGGESTED PORTFOLIO
Funds SIP Amount (Rs)
Quantum Long Term Eq 2,000
Reliance Reg Savings Equity 2,000
HDFC Top 2001,000
HDFC Prudence 1,000
Reliance MIP1,000

CONTIGENCY FUNDS
You must plan for any future emergency. Your saving bank balance is quite low. Keep around three-four months' expenses in your account to meet emergencies.
 

GOALS
 Daughter’s 
Education
Daughter’s 
Wedding
Retirement 
 
income (annual)
Today’s cost (Rs) 15,00,0006,00,0002,40,000
Years due121618
Estimated value* (Rs)31,93,64416,43,4067,45,597

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First Published: May 23 2010 | 12:18 AM IST

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