I am 43. We are a family of four with two dependents, my son and my mother.
EARNINGS & EXPENDITURE
Rs 44,000 goes towards your loan payments and investments. If we add your expenses, it comes up to Rs 49,000. Where does the balance amount go? Moreover, are you sure your monthly household expenses amount to just Rs 5,000?
OTHER INVESTMENTS
I have an accumulation of Rs 2.5 lakh in my provident fund account and a fixed deposit of Rs 2.5 lakh.
You have not mentioned how much money you have in the savings account. Is this a flexi deposit which you can be broken easily in an emergency? Keep a few months’ salary for this and distribute it between a savings account and maybe a liquid fund. In the case of the latter, you will only get the money after one working day.
INSURANCE
My employer has provided me with a health insurance of Rs 6 lakh, which also covers the family members.
What about life insurance covers for your wife and you since you are both earning members? You have no personal medical cover of your own. What if you resign from this job or take a sabbatical. What cover does your family have? Even if you take up a new job, there will be an interim period between jobs when you are not covered.Take a life insurance cover, preferably term insurance, for both of you as well as your personal mediclaim policy.
MUTUAL FUND INVESTMENTS
I began investing via systematic investment plans (SIPs) only last year in the funds mentioned. The current value of my mutual fund portfolio is Rs 1.60 lakh.
You have not gone overboard with your fund selection and have narrowed down on good picks. You also refrained from investing at one go and have done so via SIPs. This is good.
You have way too much exposure to mid-cap funds. You must have been lured by the performance of such funds last year. We are not saying you should avoid such funds, but limit the overall exposure. These funds do yield a higher return than large-caps but they also have a high degree of downside risk associated with them.
The large number of mid-cap funds in your portfolio has resulted in numerous stocks, with most having an insignificant allocation; 278 stocks out of which 253 have an allocation of less than 1 per cent. Why have you picked up a monthly income plan (MIP)? It’s not like you need the regular income. Why have you duplicated fund houses, pick different schemes from different asset management companies.
GOALS
With my current SIPs, will I be able to achieve my financial goals? I can increase the SIPs by Rs 5,000. Please suggest.
You started off with your investments very late. Considering that you will be retiring in 15 years, it won't be possible to do so.
You are currently investing Rs 11,000 per month in mutual funds and you can increase it by another Rs 5,000. To achieve your current goals you need to make an investment of around Rs 1.40 lakh per month. We have arrived at this figure by taking an annual inflation rate of 6.5 per cent and a return on your investments of 15 per cent per annum. We have also assumed that you won’t be investing after your retirement. One goal which you can knock off is buying a second house, since you already have one. Instead, we think you should focus on your retirement kitty.
ACTION POINTS ON SIPs
Make your portfolio predominantly large-cap tilted. Currently you have around half of your portfolio allocated to large- caps, bring it up to 70 per cent.
The two mid-cap funds in which you can continue with your SIP are ICICI Prudential Discovery and DSP BR Mid- and Small-Cap. Continue with HDFC TOP 200 (Large- and Mid-Cap) and HDFC Equity (Multi-Cap).Discontinue your SIP in DSPBR Micro-Cap and Principal Emerging Bluechip. Start SIPs in large-cap funds -IDFC Imperial Equity and Franklin India Bluechip.
| Suggested Portfolio | ||
| Scheme | Monthly SIPs (Rs) | Category |
| HDFC Equity | 3,000 | Multi-Cap |
| IDFC Imperial Equity | 3,000 | Large-Cap |
| Franklin India Bluechip | 3,000 | Large-Cap |
| HDFC TOP 200 | 2,000 | Large-& Mid-Cap |
| ICICI Prudential Discovery | 1,000 | Mid-& Small-Cap |
| DSP BR Small-& Mid-Cap | 1,000 | Mid-& Small-Cap |
| Birla Sun Life Dynamic Bond | 3,000 | Debt Income |
Currently you have around 17 per cent in debt, which is good. The equity exposure of Reliance MIP can vary between 0 and 20 per cent, depending on the fund manager’s view. So, your equity and debt allocation will fluctuate accordingly. Instead, discontinue your SIP in Reliance MIP and start one in a pure debt long-term debt fund like Birla Sun Life Dynamic bond or Canara Robeco Income. Increase your SIPs to Rs 16,000 per month.
