Consider the following aspects while reviewing my portfolio:
* We (my wife and I) are non-resident Indians (NRIs)and own an apartment in Mumbai.
* Apart from debt, all my investments are done through systematic investment plans (SIPs)
* We have medical insurance through our employer
* We have insurance from LIC for which we approximately pay Rs 88,000 a year. Total sum assured is Rs 23 lakh. We do not have any ULIPs
-Anonymous
Age: 39 years
Monthly Salary: Rs 6 lakh
Monthly Savings: Rs 4 lakh
Dependent: 10-year old son
“We want to buy a flat or commercial property (as an investment), but we are not sure if this is a good option. However, if we decide to buy, then we'll have to sell most of our fund investments.”
You have shown positive investing intent to safeguard your future. The biggest intent, of buying another property is not justified though. By investing in realty you can gain through two ways - capital appreciation and by rental income. Keeping the current scenario in perspective, although prices may have fallen a bit, they are still quite high and one may not gain as high a return in future as was seen in the past. And also, the yield that you will get from the rental income could be low, given the amount of capital invested. It would have made sense for a person buying a house for the first time, to leverage his position as the rent, which he otherwise would be paying on accommodation.
Portfolio Quality
Instead of eyeing realty, continue investing in mutual funds as the scope for growth in equities is always better. Stay invested in equity for the long term. Here are some points that we noticed about your portfolio:
* Too many funds: Currently, you have 16 funds in your portfolio. While it's good to diversify, but that can be achieved through five-six funds.
* Aggressive investments: Around half of your equity portfolio is in aggressive or thematic funds. Majority of a person's portfolio should be in diversified equity portfolio. Allocation to aggressive funds should be be over 15 per cent.
* Duplication: You have two infrastructure funds and two opportunities funds. If you want to invest in a thematic fund just one will do.
* Bias: Your portfolio is biased towards a single fund house and you have five schemes from the same company that accounts for half the portfolio. This is not wise as the fund house's views influence fund managers.
* High on cash: You are holding around 15.84 per cent of your portfolio, that is, Rs 25.75 lakh in a savings bank account as cash, which is too high.
“Can we raise equity funds exposure to 60 per cent?”
You have around 58 per cent of your mutual fund portfolio in equity and the rest is in debt. But if we include investments in fixed deposits, your debt allocation increases. You also have Rs 25.75 lakh in your bank account. One should have debt exposure as it provides stability to the portfolio. The ratio of debt and equity depends on the risk appetite of the investor. Ideally, one should start the investing journey with a debt-equity ratio of 30:70.
“Should we take on additional medical insurance?”
It is advisable to have a medical insurance of your own as you will be uninsured if you leave your job, or even if you are between jobs, for that particular short period of time.
Also, your current insurance cover of Rs 23 lakh is inadequate. Calculating insurance should be based on how much money your dependents will need every year, account for inflation, and then estimate the number of years they will need to be supported.
“Is there a need to increase our investments in gold?”
Currently, around five per cent of your portfolio is allocated to gold. The surge in gold prices in recent months is due to various reasons, ranging from depreciating dollar to shrinking gold supply. No one can predict with surety where the prices of the yellow metal is headed. Allocation to gold should not be over 5-10 per cent of an investor's portfolio.
“Are Post Office investment options like monthly income scheme (MIS), or recurring deposits valid for us?”
Certain very good investments options are closed to NRIs.
Emergency Fund
The amount that you have kept in your savings bank should be considered your emergency fund and therefore, you don't need to create a new one. But the current amount of Rs 25.75 lakh is too high. Emergency fund should be able to meet your sudden expense requirements, or last four-to-five months' expenditure at a stretch.
Things to do
* Reduce the count of funds in your portfolio to 5, or 6, funds
* Bring the equity:debt ratio of your portfolio to a level which suits your risk appetite
* Re-balance your portfolio every year to maintain the ratio
* Take mediclaim of your own
* Raise your term insurance cover
* Create an emergency fund
* Invest surplus cash in funds
