I am a 33-year old, married man. I save Rs 30,000 every month. My savings goals are three: children's education, their marriage and my retirement. I have attached my portfolio with the current SIP amount. I want my investment to earn 20-30 percent annually so that my investment over 15-17 years is worth Rs 4-5 crore. Please review my portfolio. Awaiting your advice on whether my fund selection is right.
You are certainly a thoughtful and methodical investor. You save regularly, have your savings goals in place and you have opted for a systematic investment plan (SIP) revealing a disciplined approach. Even your fund selection impresses. You have picked up 19 top-rated equity funds!
Frankly, you really do not need that many funds to achieve your goal. Moreover, a portfolio of 19 funds will be difficult to monitor and review. And imagine keeping track of 19 account statements every month! Another mistake is your investment in six tax-saving funds which is totally unnecessary. As a result of so many funds, your underlying portfolio comprises of 330 stocks spread across large caps (58 per cent), mid caps (28 per cent) and small caps (24 per cent).
Our suggested portfolio takes into account these issues. We believe a fund portfolio of much fewer funds can achieve the same level of diversification across stocks, sectors and fund managers and it will be much easier to monitor and manage. Keeping your aggressive risk appetite in mind, we created a portfolio of 7 funds: 1 large-cap diversified equity fund, 2 aggressive equity funds, 1 sector fund, 2 equity linked tax saving funds and 1 debt fund.
That's right, we actually picked up a debt fund. The reason being we noticed a total absence of a fixed income allocation in your portfolio. Fixed income plays an important role in every portfolio. It provides stability and helps in rebalancing the portfolio. A fixed income allocation of 10 or 15 per cent with an intent of annual rebalancing will ensure partial profit booking in an overheated market and higher investment in equities in a depressed market.
One can never really predict the returns on equity, especially when you have a very long investment horizon. But at least you are not overly optimistic. For a more realistic perspective based on hindsight, we assumed a monthly investment of Rs 5,000 over 20 years in UTI Mastershare, India's oldest equity fund, and in the Sensex.
The investment in UTI Mastershare would be worth Rs 78,98,749, as on June 1, 2008, which translates into an annual return of 16.50 per cent. Mastershare was a great fund in the first 10 years of its existence, a very poor performer in next five years and a below average performer in the past five years. A similar investment in the Sensex yielded almost identical results. Here your investment would be worth Rs 78,99,787.
Now over to your investment: Rs 30,000 invested every month and growing at a compounded rate of 15 per cent per annum would become Rs 1.8 crore after 15 years.