I am 34, married, with an 18-month old son. I have four traditional life insurance policies from LIC (sum assured Rs 6 lakh). I plan to buy another term cover of Rs 1 crore, the estimated premium will be Rs 12,500.I also plan to invest the surplus in mutual funds via systematic investment plan (SIP). I hold HDFC Top 200, DSPBR Top 100, IDFC Premier Equity, Fortis Flexi Debt, JM Money Manager Super and Canara Robeco Equity Taxsaver. My company provides medical insurance for me, my wife and parents (Rs 2 lakh each). Recently, I took a Rs 38 lakh home loan. Now that I plan to take a term insurance, should I stop my present policies?
I am expecting additional monthly income of Rs 10,000 from house rent in future. Should I use this amount (Rs 1.2 lakh a year) for home loan pre-payment or should I invest somewhere? Assuming a 10 per cent hike in annual pay, can I achieve my goals with these investments?
Your portfolio is highly exposed to debt (53 per cent) mostly by National Saving Certificate (NSC) and employee provident fund (EPF). These instruments have a longer lock-in periods. Any emergency withdrawals would be difficult.
Since you are young, equity must be the preferred option. Over long-term, equity will generate superior returns. Ideally, you should have 80 per cent in equity mutual funds and rest in debt. Reduce debt allocation by transferring the money in NSC, to equity funds.
Currently, you hold 87 per cent in stocks and the rest in mutual funds. Invest in stocks only if you have sufficient knowledge of the stock market.
Investment in Tata Infrastructure Fund seems to be a risky proposition as it is a thematic fund and should not form the core of a portfolio. For long-term, have maximum exposure to equity diversified funds and minimal to sector- or theme-based funds. Also, invest in gold as an additional diversification. But, limit it to five per cent.
Goals
Assuming inflation of 6.5 per cent, Rs 30,000 will grow to Rs 1.36 lakh by your retirement. A corpus of Rs 2.94 crore will give you with the required monthly income to counter rising cost of living.
To achieve all your goals comfortably, you will have to invest around Rs 6,300 a month, increasing it at a rate of 10 per cent a year. Assuming compounded annual rate of return at10 per cent.
Future Investment
Mutual fund selection is impressive.
Invest in only 4-5 funds. You should, however, first decide your debt-equity ratio. Invest in tax saving funds for that purpose.
As you have a long-term horizon, review your portfolio at least once a year.
Life Insurance
Your existing LIC coverage of Rs 6 lakh seems insufficient. You may go ahead to buy a term plan with a cover of Rs 1 crore. This would cover your future goals, including home loan insurance.
The policies you already have from LIC can be retained as debt investments. Gains from these policies will be additional income.
Alternately, you may surrender these if that does not attract high penalties.
| Goals | |||
| Retirement | Child’s Education | Travel | |
| Year of usage | 2034 | 2027 | 2012 |
| Current estimate | Rs 30,000 (monthly expenses) | Rs 10 lakh | Rs 3 lakh |
| Required corpus* | Rs. 2.94 Crore | Rs 29 lakh | Rs 3.62 lakh |
Home Loan Prepayment
Early payment of loans would definitely lower your burden, both mentally and financially (as the interest outgo would be low). You may use the expected income in the form of house rent to prepay your home loan if the bank does not charge any major penalty cost.
Medical Insurance
Your health insurance is taken care of by your employer, but do get your own medical policy, too, as any switch between jobs would leave you uninsured for that period.
