I am a government servant aged 36. Following are my mutual fund investments which I began from August 2007. SBI Magnum Global (SIP of Rs 4,000), SBI Magnum Contra (SIP of Rs 4,000), Reliance Growth (SIP of Rs 1,000), ICICI Prudential Smart Kid Plan - Flexi (Rs 20,000 annually). I can even opt for another SIP of Rs 2,000. I plan to continue with the SIPs up to December 2015.
I would also like to deposit around Rs 1 lakh in a mutual fund.
I have quite a few goals. Please review my portfolio and advise me on what to exit and enter so that my targets are achieved.
- Jaspal Singh Chaudhary
No matter which asset allocation tool you use, you need to know how many years you have to reach your goal and how much money you will need for it. Only then can one begin working backwards. You have been focused on both those parameters but your goals seem to be too ambitious.
You would like to buy a car within the next 24 months. If you take your SIPs, current and proposed, at Rs 11,000 per month, it amounts to Rs 1,32,000 per annum. Along with the Smart Kid policy, it will amount to Rs 1,52,000 per annum. So your total investment corpus will just be more than Rs 3 lakh at the end of the two years. And at the end of five years, it would amount to Rs 7.60 lakh, assuming that the money is not touched. Of course this is just the principal amount, but even if your investments do well, the money will not be sufficient to cater to your goals.
Just for your car, you would need to invest Rs 17,500 every month earning a compounded annual return of 20 per cent. At the same return, you would have to invest Rs 15,500 every month, to give you sufficient funds for your house. A better option for would be to take a car/home loan or increase your time horizon. With the home loan, you can also avail of tax deductions.
For your children's education, you do have time on your side. Let's assume that you would require Rs 15 lakh after 20 years. If that be the case, you need to invest Rs 600 every month in a diversified equity mutual fund. This is a classic example of how the power of compounding works in accumulating huge wealth by investing a small amount regularly over a longer period.
It is good to note that you are investing via a SIP and not attempting to time the market. Having said that, you need to take a good look at your portfolio.
Your funds are too aggressive and your portfolio is skewed towards a high mid- and small-cap orientation. In fact, small- and mid-cap stocks account for around 64 per cent of your portfolio. It is advisable to include some large-cap oriented funds like Franklin India Prima Plus or Reliance Vision to provide stability and reduce the downside risk.
You have Rs 11,000 at your disposal every month to invest in SIPs. Equally distribute this amount over the three funds we have suggested. This will give you sufficient exposure to various funds houses, fund managers and investing styles. It will also balance your market cap exposure.
We recommend that you do not invest the Rs 1 lakh at one go but spread it out over time. You could start an SIP and deploy this corpus over a period of 12 months in a balanced fund like HDFC Prudence.
These changes should make your portfolio look healthier.
The ICICI Prudential Smart Kid Plan chosen by you is a unit linked insurance plan (ULIP) plan. ULIPs are not smart investments and have huge costs associated with them. Since you have already opted for the plan, you have an obligation to pay the premium for three years. Once you complete three years, we suggest that you exit from this plan. If you have just taken the policy and have the option of surrendering it right now without incurring huge costs, go ahead.
We do not recommend mixing insurance and investments. Life insurance should never be an investment.
Since you have dependents, it would be wise for you to opt for insurance. You can go for a term cover which is the purest and simplest form of life insurance. It also costs less than a ULIP.
As you have a long-term horizon, it is essential to review your portfolio at least once a year.
For this you can use the Value Research Online Portfolio available. Over there, you will even find other tools to help you track and analyse your investments in a more efficient way.