I am 42, with two dependents - wife and 6-year old daughter. My monthly pay is Rs 68,000. I have invested Rs 17,500 in four small-cap stocks (currently valued at Rs 16,900). I have Rs 55,000 in my savings account.
I deposit Rs 10,000 every month in recurring deposit. I have three Ulips (total premium Rs 1.04 lakh yearly) and three endowment plans, total sum assured Rs 1.5 lakh (annual premium Rs 7,000). I have a term plan with sum assured of Rs 15 lakh, annual premium Rs 8,500. Kindly suggest a suitable portfolio to help me achieve my goals.
| CURRENT INVESTMENTS | Rs |
| Shares | 16,900 |
| Mutual Funds | 3,07,000 |
| FDs (maturing in 2012) | 54,000 |
| Recurring Deposit | 1,15,000 |
| PPF (maturing in 2011) | 65,000 |
| EPF | 75,000 |
Your debt exposure is 49 per cent of your investments via FD, recurring deposit, employee provident fund (EPF) and public provident fund (PPF). Since your goals are far off, put up to 80 per cent in equities. Closer to your goals, gradually move the money into debt, as safety of capital will be prime.
To increase your equity exposure, shift the money from FDs to mutual funds, once the FD matures. Close your PPF account, as you already have a similar purpose EPF account. Once your PPF matures, invest the proceeds in mutual funds for higher returns.
| MUTUAL FUND PORTFOLIO | |
| Funds | Allocation (%) |
| Quantum Long Term Equity | 26 |
| ICICI Pru Infrastructure | 16 |
| ICICI Pru Discovery | 15 |
| Reliance Reg Savings Eq | 11 |
| HDFC Top 200 | 7 |
| HDFC Prudence | 7 |
| Reliance MIP | 6 |
| Sundaram BNP Paribas SMILE | 6 |
| ICICI Pru Index Retail | 4 |
| Sundaram BNP Paribas Sel Focus | 2 |
MUTUAL FUND PORTFOLIO
You own high quality funds. But, too many funds do not give higher diversification. Re-allocate your current investments. Make Quantum Long Term Equity, Reliance Regular Savings Equity, HDFC Top 200 and HDFC Prudence as your core holding. These are large-cap, five-star funds, with strong track record.
You have very small exposure (2 per cent) to Sundaram BNP Paribas Select Focus (three-star rated). Stop the systematic investment plan (SIP) and exit this fund. Both ICICI Pru Discovery and Sundaram BNP Paribas SMILE are mainly mid- and small-cap funds, aggressive and make the portfolio volatile. You may hold any one of these funds. You also have one thematic fund, ICICI Pru Infrastructure. The performance of such funds is dependent on the underlying theme, so invest only if you understand the theme and can bear the risk. You have 4 per cent in ICICI Prudential Index Retail (index fund) that tracks the Nifty. Exit it as you small exposure.
| MF INVESTMENT (MONTHLY) | |
| Funds | (Rs) |
| Quantum Long Term Equity | 2,000 |
| Reliance Regular Savings Equity | 2,000 |
| Reliance MIP | 1,000 |
| Sundaram BNP Paribas SMILE | 1,000 |
| Sundaram Select Focus | 1,000 |
| Total | 7,000 |
Invest the proceeds from exited funds in the core funds suggested. Have a small component (up to 10 per cent) in debt funds to help rebalance the portfolio. Continue investing in Reliance MIP.
INSURANCE
Ulips are a combination of insurance and investment, levy high initial charges. They are not the best even in terms of returns. Discontinue them once the surrender charges are zero or negligible. For insurance needs, take a term plan. It is cheap and caters to insurance better than Ulips. Your term plan of Rs 15 lakh, is insufficient. Take an additional cover of Rs 1 crore. This should be sufficient to provide for the future needs of your dependents, in an unfortunate event. You may redirect Ulip premiums to the term plan and invest the surplus in equity funds.
EQUITIES
You hold four small-cap stocks, currently trading at a loss. The good part is that the quantum of investment is small. Small-cap stocks are riskier than blue-chip ones. Monitor their performance and exit the minute you break even. If you understand industry trends, invest in blue-chip stocks.
| SUGGESTED PORTFOLIO | |
| Funds | SIP Amount (Rs) |
| Quantum Long Term Eq | 2,000 |
| Reliance Reg Savings Equity | 2,000 |
| HDFC Top 200 | 1,000 |
| HDFC Prudence | 1,000 |
| Reliance MIP | 1,000 |
CONTIGENCY FUNDS
You must plan for any future emergency. Your saving bank balance is quite low. Keep around three-four months' expenses in your account to meet emergencies.
| GOALS | |||
| Daughter’s Education | Daughter’s Wedding | Retirement income (annual) | |
| Today’s cost (Rs) | 15,00,000 | 6,00,000 | 2,40,000 |
| Years due | 12 | 16 | 18 |
| Estimated value* (Rs) | 31,93,644 | 16,43,406 | 7,45,597 |
