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I am a 34-year old employed in an IT firm in Gurgaon. I am a regular visitor of your website and also read this magazine. In the past, it has helped me make some smart investment decisions with respect to funds. I began investing in June 2007, with a sum of Rs 2,500 per month. Gradually I increased the SIP amount to Rs 16,500/ month. Can you help me with my financial plan? I have provided all the details below.
- Deewakar Kumar
Inflows & Outflows
Your monthly income from salary is Rs 1 lakh per month and expenses are Rs 40,000 to 50, 000 per month, also a home loan EMI from January 2010 of Rs 37,000 per month
(Since this is the information you have provided us with, we are assuming that your premiums are included under your monthly expenses and you do not have any other source of income.)
OUR VIEW
Once you move into your own house, not only will you get a tax benefit on your income but you will no longer have to pay any rent. Having said that, would it be possible to lower your monthly expenditure to some extent? You not only have to save for your goals but you also have an EMI to deal with.
Fixed Income
- Rs 20,000 in NSC that will mature in 2010.
- Public Provident Fund (PPF) account opened in 2005 has accumulated Rs 1,96,220.
- Rs 5,000/month in recurring deposits. This amount is used to eventually pay the insurance premiums and make a final deposit in the PPF account.
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OUR VIEW
- Choose proven funds with good track record, avoid new fund offerings. You invested in the NFO of Reliance Natural Resources.
- Invest regularly via systematic investment plan (SIPs,). By and large you have done so barring two instances of lump sum investments.
- Keep a limited number of funds in your portfolio. Your current number of 13 funds is way too much. Spread your investment evenly over a maximum six funds.
- Introduce a debt fund in your portfolio and maintain an equity:debt ratio of 70:30 and continue rebalance your portfolio. As you reach your goal, increase your debt allocation.
Suggested Portfolio
- Core holding
Currently consists of Baroda Pioneer Growth, Birla Sun Life Frontline Equity, DSPBR Top 100, DWS Investment Opportunity, HDFC Top 200, Magnum Contra and Principal Child Benefit Our suggestion would be to keep 3-4 funds in core holding. If you want a balanced fund, exit Principal Child Benefit and opt for DSPBR Balanced. - Aggressive funds
You can choose to keep any two of these funds from your portfolio - Reliance Growth, Reliance Regular Savings Equity and Sundaram BNP Paribas Select Mid-cap - Thematic Funds
Stick with one thematic fund, our suggestion would be ICICI Prudential Infrastructure, while you can exit from Reliance Natural Resource and JM Basic.
Life Insurance
- A unit linked insurance plan (ULIP) from ICICI Prudential Life Insurance. The monthly premium is Rs 2,500 while the sum assured is Rs 5 lakh.
- Under the Birla Sunlife Dream Plan, the annual premium is Rs 13,000 and the sum assured is Rs 45 lakh.
- An LIC policy, over the past five years, has an annual premium of Rs 20,000 and an insured amount of Rs 5 lakh.
OUR VIEW
Since you have two dependents, a wife and child, we suggest you increase your term plan. We are not in favour of ULIPs. Investment and Insurance should never be combined since they are different products serving different needs. ULIPs are high cost instruments where a significant portion of your initial premium is deducted as various charges.
In totality, you pay Rs 63,000 by way of annual premiums and have an insurance cover of Rs 55 lakh. But considering your current expenses and goals, it should be upped to Rs 1 crore.
You can surrender your ULIPs when the surrender charges become zero and stick to term plans. They are pure life insurance policies which are relatively much cheaper when compared to other insurance products.
Home Loan Insurance
You have not mentioned this at all so we are assuming you have none.
OUR VIEW
A number of home loan companies offer an insurance benefit along with the loan. Should the individual servicing the loan pass away, his dependents will not have to be concerned with it. The insurance will pay the balance principal amount. It would be more convenient to take it from the home loan company itself. If they do not provide an insurance policy, then opt for another term insurance policy. You can consider a decreasing term plan where the sum assured, and hence the cost, keeps falling as the outstanding loan gets reduced.
Medical Insurance
I have a Mediclaim floater policy and pay a premium is of Rs 8,500 for a sum insured of Rs 5 lakh.
OUR VIEW
Ensure that your wife and child also have a medical insurance cover.
How to achieve your goals
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OUR VIEW
- You plan to retire early and have planned the marriage of your child after retirement. You must try and rationalise your goals since it virtually impossible to meet the required amount with your investible surplus. Can you reduce expenses and increase your investible surplus? Can you delay your retirement from the age of 54 to 60?
- To achieve your goals you are required to invest Rs 89,673/month (Rs 10.76 lakh annually) which invested at the rate of 10 per cent will help you achieve your retirement and other intermittent goals. With an inflation of 6.5 per cent p.a. your requirement of Rs 60,000 per month at current prices will be equivalent to Rs 2.11 lakh after 20 years when you plan to retire. You will require a corpus of Rs 4.64 crore to meet your expense requirement for next 26 years after retirement.
- Since it is difficult to increase your investments to the desired level at present, it can be increased progressively over the years as your salary increases.
This article was originally published on February 18, 2010.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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