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Achieving Targets

We review Amit Dey's portfolio & tell him why it's important to have different approaches for each goal

I am a regular reader of Mutual Fund Insight and would like to ask for some valuable advice that would help me get on track.

I am 33 years old with an annual income of Rs 6.5 lakh. My monthly expenses amount is Rs 20,000 while my annual premium costs are Rs 74,246. I started buying mutual funds only two years ago and so far invested a total of Rs 80,000. I have three dependents, a wife and two daughters.
- Amit Dey

Let's being with where you have gone wrong so you will be able to rectify those mistakes and start afresh.

Too much insurance
You are well covered for medical insurance (Mediclaim, Critical Illness Insurance). But with five Unit Linked Insurance Plans (ULIPs) from LIC as well as a pension plan, you have gone overboard with your life insurance policies.


Existing Portfolio
Insurance  Premium (Annual)
LIC Policies(5) 29917
LIC Pension Plan 10001
Mediclaim 20405
Critical Illness Insurance 13923
Mutual Funds  % Allocation
Fidelity Tax Advantage-G 17.82
HDFC Infrastructure-G 20.18
Magnum Taxgain-D 46.36
Tata Tax Advantage 1 15.64

Keep your insurance and investment needs separate. To cater to your life insurance needs, stick with the pension plan. Get rid of the ULIPs as they are expensive. Instead, take a term insurance plan which is a very low cost cover. Poor investment selection

You have a very small allocation to mutual funds. Moreover, one tends to wonder on what basis you made your fund selection. Barring Magnum Taxgain, the other three funds are either poorly rated or not rated at all. Three of these funds are equity linked savings schemes (ELSS). To top it all, you have displayed a very irregular investment approach.

Invest in a few good funds but do so systematically.

Keep your goals in mind
If we deduct the expenses and insurance premium charges from your current income, you are left with around Rs 28,000 every month. Towards the goals of higher education, you will need to invest Rs 4,500 (elder daughter) and Rs 2,500 (younger daughter) every month. You can also allocate Rs 15,000 towards your retirement. The balance amount can be maintained as cash to meet contingencies.


How much you need to achieve your goals
Goal 1
Elder daughter’s education
Amount
Time frame
SIP Amount
Approx Future Value
Suggested Portfolio
Kotak 30
HDFC Top 200
Goal 2
Younger daughter’s education
Amount
Time frame
SIP Amount
Approx Future Value
Suggested Portfolio
Franklin India Prima Plus
Goal 3
Retirement
Amount
Time frame
SIP Amount
Approx Future Value
Suggested Portfolio
DSPBR Top100
Magnum Taxgain
Sundaram Tax Saver
Kotak Flexidebt
The above calculations are based on an return of 10 per cent compounded every year with regular monthly investment during the period mentioned.

However, there is a discrepancy here which we must bring to your notice. The amount you are saving for your younger daughter's education should not be the same as the elder. Remember, there is a gap of five years between those two goals. While our calculations are based on what you have suggested as the target amount, we would like to inform that you need to invest a total of Rs 22,500 every month to successfully achieve all the goals.

As you approach your goal, gradually sell off your equity holdings and put them in a fixed return instrument; since safety of capital should take prominence on nearing your retirement age.