I have received stocks worth Rs 1 crore from my father. He was an avid equity trader and investor. However, I am not as good at equity investing and I don't know what to do with these. But I do have a long-term investment horizon. Over 70 per cent of these stocks were bought over a year before. What should I do?
- D Kumar
You are lucky that your father has handed over a healthy portfolio of about Rs 1 crore. You have listed your financial goals and have a mutual fund (MF) portfolio that rides on systematic investment plans (SIPs). You also have a house of your own and do not service any loan, indicating your prudent handling of finances.
Insurance: The term plan with a Rs 27 lakh cover is about 10 times your current annual household expenses and is a good start. If you take on additional liabilities, consider increasing this cover. You have Rs 4 lakh worth of medical insurance that covers your family and you. However, an employer-provided insurance lasts only as long as you are employed. Urgently consider supplementing this with one purchased by you.
Pension plan: You don't need a pension plan. Check its fund value and exit costs and terminate the plan if this does not cause losses.
Financial goals: It is good that you have quantified your goals and are aware of the time frame within which you have to achieve these. With your Rs 13,000 investible surplus, it will not be easy to achieve your financial goals within the time frame you have stated, unless you start dipping into the stock portfolio your father has given you. Therefore, consider postponing your retirement and purchase of bigger house. Instead, focus on goals such as your child's education.
At 32, you have time on your hand, and your income will increase. Continue investing aggressively in equities, as it is one asset class that has the potential to help you achieve your financial goals over the long-term.
| Financial Goals | ||||
| Monthly investments | ||||
| Cost (Rs) | Yrs to go | @12% | @15% | |
| First child’s education | 20 lakh | 9 | 10,300 | 8,750 |
| Second child’s education | 20 lakh | 11 | 7,300 | 6,000 |
| Retirement and other future expenses | 5 crore | 19 | 57,200 | 38,700 |
Investments: You have a diversified stock portfolio of 71 scrips, spanning market capitalisation and sectors. Managing such a large portfolio will require you to review and watch their performance closely. On the other hand, MFs require less frequent review, once a few good funds have been selected and a portfolio built around them.
However, do not exit all the stocks you own; hold on to some of them, especially the ones that are part of a large representative index, such as BSE 100. These are mostly companies with good financials and fundamentals. By staying invested in these stocks, you can expect the value of your holdings to grow further, as well as earn dividends and bonuses from them.You may exit the remaining stocks in a phased manner, by booking profits and without attracting capital gains.
Mutual funds: Your current selection of six MFs is not bad, but no thought seems to have gone into making a portfolio out of these. You need a diversified portfolio, easy to manage and with potential to help you achieve your long-term financial goals. We have suggested an aggressive portfolio that has 90 per cent equity exposure and have retained two of your existing SIP investments in it.
| Suggested portfolio | ||
| Fund | Returns* (%) | |
| 3-year | 5-year | |
| Fidelity Equity - G | 14.10 | 14.86 |
| HDFC Equity - G | 18.78 | 16.38 |
| DSPBR Micro Cap - G | 13.62 | - |
| AIG World Gold - G | - | - |
| BSL Dynamic Bond Ret - G | 8.79 | 8.66 |
| IDFC Premier Equity Fund | 15.81 | 20.02 |
| *Returns as on March 21, 2011 | ||
You can also adopt a core and satellite portfolio strategy. The core comprises large- and mid-cap funds. The satellite allocation comprises multi-cap funds, mid- and small-cap funds, sector funds and even thematic funds. The former comprises of funds which will cushion your portfolio against market swings and provide steady returns. The satellite portfolio, comprising of high alpha-generating funds, will give a fillip to returns.
Lastly, transfer your savings in fixed deposits to a liquid fund. It will give better returns and be more tax-efficient.
