A year ago, I began investing in mutual funds for three main objectives:
The worth of my investment in stocks is Rs 65 lakh. I have a ULIP cover for Rs 60 lakh. How is the quality of my portfolio?
--Shekhawat
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secondly, more than 50 per cent of your mutual fund investments have the dividend option. These payouts amount to profit booking. Are these dividends re-invested or do they go towards consumption? We would strongly advise you to switch to the growth option.
In spite of your long term investment horizon, please steer clear of close-ended funds. These funds have a high exit load, so if the performance of the fund slackens, redeeming units becomes costly.
Wedding Fund
Gold forms an important part the total wedding expenses. So why don't you give this asset class a closer look? We are not recommending that you start hoarding your bank locker with gold bars. The advent of Gold ETFs will bail you out of this problem. The units of these funds are backed by physical gold maintained with a registered custodian. But an even greater convenience is that the units can be traded on the NSE. To finance the first wedding, look at routing your direct equity holdings towards a debt-oriented equity fund. With the markets at an all time high it would be wise to book profits. As a first step you could target investments in the mid- and small-cap space. Just like investing all your money in one lump sum is not wise, selling your stock holdings in one go is also not advisable. You could pick a certain number of stocks and begin selling 10-15 per cent of your holdings in these companies every month.
For your younger daughter, maintain investments in two large-cap equity schemes. After which you can institute a systematic withdrawal plan and route this money to a capital guarantee instrument. Of course, you will have to allocate more funds for elder daughter's wedding because it will be a shorter term investment.
Pension Pangs
You mentioned that you would need the pension 10 years down the road. Did you take into account the inflationary aspect when you arrived at a monthly figure of Rs 25,000?
A small portion of this chunk of this will come from your ULIP. We normally advise readers not to combine investments with insurance and to be vary of ULIPs because of their high expenses. But since you are quite far gone into them we would urge you to hold on. But be sure to check the current equity exposure of your ULIP. Switch asset allocation to the maximum equity limit for the next eight years. Usually three odd switches in a year are free of cost. After eight years, keep the equity allocation to the minimum. This strategy will reduce the volatility in returns. For the residual requirement invest in balanced funds.
Buffer Your Returns
After playing it relatively safe, we have retained two aggressive funds. Templeton India Equity Income has been retained as it invests up to 35 per cent in foreign equity.
Construction of Home
Follow a simple rule: the longer your investment horizon, greater can be your equity exposure. For the medium-term you can afford a small equity allocation and for shorter duration stick to debt instruments like fixed deposits and medium-term debt funds.
What To Watch Out For
While re-jigging portfolio, liquidate only those holdings which have been held for more than a year to avoid a short-term capital gains tax. Secondly, you hold a few close-ended funds in rather large proportions. Since the exit loads on these funds are steep don't be in a hurry to liquidate them.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This article was originally published on September 07, 2007.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
