I am 52 and plan to invest Rs 20 lakh via Systematic Investment Plans (SIPs). My goal is to create a Rs 2 crore corpus before I retire in 2018. I do not have any outstanding loan on the flat I reside in, but pay and EMI of Rs 15,000 on a second home which has been rented out. The rental income from it is also Rs 15,000. The loan on it will end in 2013.
I have two children who are settled independently and do not reside in India. I have two Ulips for my wife and me, for which I pay a total premium of Rs 50,000. We also have a few endowments plans that insure us for Rs 12 lakh and will mature in 2014. I am the sole earner now, and our monthly expenses are Rs 30,000. Does my allocation support my goal? What changes do I need to make?
— B S Hari
Your portfolio comprises a good mix of mutual funds (MFs) and stocks and have been investing with a great deal of regularity and discipline. By adopting a few changes to your portfolio and investments, you will be able to reach your desired investment goal.
Insurance
Your selection of Ulips is baffling. Perhaps you are among the many who were sold these products without realising what they were getting into. Ascertain the paid-up value of the two policies and assess if you need to continue with these any further. You can discontinue these policies instead of investing Rs 50,000 each year in them for the next 10 years. You do not have huge financial liabilities that pose risks. You also do not have many financial dependants. It will not be a bad idea to consider a term insurance plan to cover you for the next seven years of your working life. Your wife can do without a policy.
Both of you need to buy adequate health insurance. You are at a stage in life when your health needs attention.
Investments
Having 17 funds does not lead to diversification. You need to consolidate your MF portfolio and reduce your fund holdings, as suggested below, over a period of time. The idea is to invest in a few good funds, rather than in too many.
| Funds | Returns* (%) More From This Section | |
| Category | 3-year | |
| Franklin I Bluechip-G | Large cap | 10.13 |
| DSPBR Top 100-G | Large cap | 9.57 |
| Fidelity Tax Adv-G | Tax Planning | 11.04 |
| Fidelity Equity-G | Large & Mid cap | 9.95 |
| HDFC Top 200-G | Large & Mid cap | 13.46 |
| Gold Benchmark ETF | Gold ETF | 19.62 |
| ICICI Pru Infra-G | Infrastructure | 1.36 |
| IDFC Premier Eq A | Mid & Small cap | 10.58 |
| HDFC Mid-Cap Opp. | Mid & Small cap | 10.73 |
| *Returns as on February 7, 2011 | ||
You have four tax planning funds. Consolidate these into one if their lock-in period is over.
Also, there is no need for monthly income plans in your portfolio at this stage. Your fund portfolio has made an annualised 18.58 per cent gain, which is commendable.
The portfolio follows a large-cap growth style, with over 90 per cent equity exposure. You have good allocation to quality large-cap funds, which together hold 300 stocks in them. But your exposure to small-cap funds could be increased a little. Not only will this give a fillip to returns, it will also diversify your portfolio across market caps. We have suggested additional mid- and small-cap funds to meet this need.
Your stock selection is very good. All the scrips you hold are quality investments. Yet, the annualised return from this component of your portfolio is less than 10 per cent. There is a lesson in this for you. Unlike MF investing, where a fund manager manages your investments, stock investing calls for regular involvement on your behalf. You need to enter and exit stocks if you hope to gain from them. Continue holding the shares you have. Add more quality shares to your portfolio only if you believe you are knowledgeable about them and have the time to monitor a bigger stock portfolio.
Invest your current savings worth Rs 20 lakh gradually into existing MFs through SIPs. There could be an opportunity cost this way, which is the price of the volatility in the stock markets. You can consider adding additional lump sums to these over the next 12 months. By staggering your investments, you will protect yourself against the risk that a lump sum investment in the stock markets entails.
The future
The way your investments are progressing, you will be able to reach your financial goal of creating a corpus of Rs 2 crore. However, you need to consider a few suggestions. Rising inflation will increase your current household expenses of Rs 30,000 a month. You should anticipate the need for a higher monthly income stream after your retirement.
You also mentioned that your children are settled abroad. So you should also account for foreign trips once a year or more. Also, make sure you have adequate health insurance from now onwards. Minor health-related expenditures will add to your monthly cost of living post retirement. Account for them.
Finally, stay invested, monitor the progress of your portfolio, and go in for course corrections as and when needed to achieve your wealth-creation goal.