Sivakumar K is a 33-year old IT professional with two dependents, a wife and a baby less than a year old.
His Investments
Rs 1.4 lakh in three tax-saving funds via an SIP, all of which are terminated
Rs 40,000 in Reliance Infrastructure Fund, at one go during the NFO period
Three unit linked insurance plans (Ulips)
Rs 46,000 a year to the CPF
A few investments in stocks of companies
Current monthly salary = Rs 80,000 per month
His Goals
Build a corpus for my daughter's education
Build a corpus for my daughter's marriage
Save for retirement
His Concerns
He would like to discontinue his Ulips. But if he does so, he corpus will come short by Rs 28 lakh.
When he retires, he would like to lead a lifestyle similar to the one he is leading now. He also plans to buy some blue chip funds systematically over the next 25 years. Please suggest some funds.
RECOMMENDATIONS
The Don'ts
Avoid Ulips. They don't offer the best of both worlds - insurance and investment. They score poorly as investment vehicles and have high upfront charges.
Avoid NFOs, unless it is a fund which has no precedent of any sort.
Avoid investing directly in shares, and speculative buying and selling.
The Do's
Get rid of your three Ulipss when the surrender charge turns negligible or zero.
Select funds which have a track record and a performance history by which they can be analysed.
Invest periodically via an SIP.
If you do wish to buy stocks, we suggest you limit your direct investment in the market to a small percentage of your total portfolio.
With term insurance, you may get nothing back on maturity, but it's also the cheapest form of life insurance. For a cover over 20 years of Rs 50 lakh, your annual premium would be Rs 15,663 (pure term plan) or Rs 48,090 (premium back term policy).
Outlook
With an annual return of 10 per cent on equity, after paying for your daughter's education 18 years from now, your total investments - which is your current investments of Rs 1.8 lakh, plus the new investments of Rs 21,500 a month- will accumulate to a corpus of Rs 3.64 crore. This corpus will be sufficient to pay for your daughter's marriage and provide you with a monthly income of Rs 1.56 lakh post retirement.
Your contribution of Rs 46,000 a year towards the provident fund (CPF) will also help increase your post -retirement income. Moreover, you will get money from your Ulips, as well as an increase in income every year.
Equity portfolio: Invest in any three out of these four diversified equity funds (Magnum Contra, Birla Sun Life Frontline Equity, HDFC Top 200, DSPBR Top 100 Equity), one aggressive fund (Kotak Opportunities, DWS Investment Oppor-tunities) and one tax planning fund (Magnum Taxgain, Sundaram BNP Paribas Tax Saver).
Debt allocation: Invest in Kotak Flexi Debt Fund. This will provide stability to your portfolio and it can be used for regular rebalancing. The dividend distribution tax (DDT) is 14.16 per cent and long term capital gains are taxed at 10 per cent without indexation or 20 per cent with indexation. Short term capital gains are taxed as per an individual's tax slab.
Gold: Limit a small portion of your portfolio to gold and pick any one ETF.
