I am 31 and live with my wife and a 17-month son. My take-home monthly salary is Rs 70,000. My monthly expenses are around Rs 25,000. After meeting my other liabilities, I invest Rs 34,000 per month in mutual funds via systematic investment plans (SIPs). I have three insurance policies with a total life cover of Rs 22 lakh. The premium I pay towards these, exhausts Rs 1 lakh deductions available under Section 80C. I intend to buy a term insurance policy worth Rs 1.5 crore, a child plan to cover my child's education and a pension plan. Please help me revamp my portfolio so that I am able to achieve my goals.
We are not fully clear about your portfolio. You have mentioned three insurance policies but have not provided adequate detail on whether these are Ulips or money-back policies. You have not mentioned details of the Employees Provident Fund (EPF) or Public Provident Fund (PPF) too.
In our view, your current investments (Rs 10.4 lakh) and the monthly commitment to ongoing investments (Rs 34,000) will definitely help you achieve your goals. However, we are making that statement based on three assumptions. One, that your investment allocation would increase by 10 per cent every year till the time you retire. Two, all your investments earn a return of 10 per cent per annum. Three, inflation at 6.5 per cent per annum has been taken into account.
Buying a house
When you take a home loan, you will be required to put up around 15 per cent of the total cost as a margin payment. Your current ongoing investments and the total value of your present investments (Rs 10.4 lakh) will be worth around Rs 20 lakh in two years. This should help you take care of that amount.
Retirement
After meeting your other goals, you will be able to accumulate a corpus of Rs 3.4 crore by the age of 60, which will take care of your monthly requirement of Rs 1.65 lakh, post-retirement. Any amount from insurance policies or provident fund will be additional income.
Term insurance
A life cover of Rs 1.5 crore, with your present insurance policies, should be sufficient to meet liabilities and monthly expenses of your dependants in the case of your demise.
Child plan/pension plan
Don’t go for insurance products that offer child plans. To build up a corpus, stick to investments by way of mutual funds.
Contingency planning
Some money in a savings bank account or a flexi deposit in your bank would help.
Trim the mutual fund portfolio
Your fund portfolio has an exposure of around 75 per cent to equities; increase it to 90 per cent. Your goals are far off and a higher equity exposure will help in wealth accumulation.
Your current portfolio holds 24 funds, which add up to a total of more than 350 stocks. This is a clear case of over-diversification. It is also difficult to manage so many funds.
Our advice: Continue with an SIP but stick to around seven funds.
Core holdings (70%)
From your existing funds, stick to four or five as your core holdings.
Few funds we would suggest: DSPBR Top 100 Equity, DSPBR Equity, Franklin India Prima Plus, Templeton India Equity Income, HDFC Top 200, UTI Opportunities, Magnum Contra, Reliance Regular Savings Equity and Tata Equity PE. However, don’t pick two schemes from the same fund house.
Debt exposure (10%)
Select one, either Fortis Flexi Debt or Canara Robeco Income.
| GOALS | |||
| Time frame (yrs) | Current Value (Rs) | Estimated Value (Rs) (Inflation @ 6.50%) | |
| House | 2 | 50 lakh | 56,71,125 |
| Wife’s education and seed capital for business | 5 | 3 lakh | 411,026 |
| Son’s education | 17 | 25 lakh | 72,92,616 |
| Son’s marriage | 25 | 15 lakh | 72,41,549 |
| Retirement income (each month) | 30 | 25,000 | 165,359 |
Supporting funds (20%)
DSPBR World Gold Fund is a high risk fund as it invests in stocks of gold mining companies across the globe. Also, it carries currency risk. If you want exposure to gold, try a Gold Exchange Traded Fund.
You also invested in UTI Infrastructure Advantage and ICICI Prudential Infrastructure. If you want an exposure to this theme, stick with ICICI Prudential Infrastructure.
Offloading the rest
Once you decide on the core funds and thematic offerings, start offloading the rest. Begin by terminating all your other SIPs. To avoid short-term capital gains, sell those funds you have held for more than a year. If possible, avoid paying any exit load. Some funds do not allow pre mature redemptions. You have no option but to hold them till maturity.
