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Increase equity allocation

As you have not much time to achieve your financial goals, you might need to have a relook at them

I am 42 years old, with three dependants: wife and two children. I invest Rs 1 lakh annually for tax saving (ULIP + other insurance + PPF). I have invested in the mutual funds mentioned below in lump sum. I want to invest Rs 20,000 every month in mutual funds to achieve my goals. Please review my portfolio and suggest improvements. Also suggest suitable funds for my planned monthly investments.
- Rajesh Kankara

Goals  Target time  Amount in Rs.
Daughter's Education 2012-2016 8 lakh
Daughter's Marriage 2015 25 lakh
Son's Education 2016-2010 12 lakh
Buying a Home 2020 75 lakh
Retirement 2025 1 crore

This is a tough one and we are going to be extremely frank with you.
An overall look at your investments suggests around 50 per cent in debt and 50 per cent in equity. While the former provides you with secure returns, the instruments you have chosen are quite illiquid and not particularly tax efficient.

Mutual funds comprise the core of your equity portfolio (98%), and the rest (2%) is in shares. The problem is that you have been investing in mutual funds only over the past few years, and that too irregularly. So time is not on your side.

You are willing to invest Rs 20,000/month to achieve your goals. We hate to break it to you, but this is insufficient. Even if we look at your current investments, it won't add up. Since age is not on your side and you are the sole breadwinner with three dependants, you would have to do some serious re-thinking.

It would be great if you could increase your planned monthly investment of Rs 20,000. However, that is not possible. Your current monthly outgoings are Rs 50,000 (EMI + Rent + Expenses), leaving you with Rs 25,000. And you do have other commitments such as your Public Provident Fund (PPF) and insurance premiums. Our suggestion is that you enhance the equity allocation to 80 per cent of your portfolio. That would give you the higher return that you need.

Take a fresh look at some of your goals. Can you go for a home that costs less? You plan to buy the home in 10 years. By then you would have completed your EMIs on the land loans. Do you plan to sell any of the land then to buy the home?

Can you retire a few years later?

A fresh look at insurance
You stated that you bought Unit Linked Insurance Plan (ULIPs) for tax saving. They are high-cost instruments where a significant portion of your initial premium is deducted as charges. Due to such high upfront charges, the policy holder needs to stay with the policy for a longer time since most of the investment growth takes place only after the first few years. Generally, one needs to stay invested for a few years to make up for the charges paid. Take a look at the policy document to figure out the surrender charges (fee levied for exiting before maturity). Talk to the agent who sold you the policy. Ask him what would happen if you stopped paying fresh premiums but don't want to surrender the policy. In certain instances, if you discontinue your premiums after a minimum of three years, your policy can continue to exist if the value of your investment is large enough to cover other fees which need to be incurred for the life of the policy.

Instead, opt for a term insurance policy. It is a pure life insurance policy which is much cheaper than other insurance products and will provide financial support to your dependants should something happen to you.

Consolidating your portfolio
We have selected 7 funds which you may hold in your portfolio. You may sell the remaining. Gradually deploy the proceeds in the existing portfolio ensuring that the core funds constitute up to 80 per cent of the overall fund portfolio.
Invest your planned monthly SIP of Rs 20,000 in four funds from those we have suggested. Invest in such a manner that you deploy up to 70 per cent in the suggested core funds.
Do not choose a tax saving fund if your contributions towards PPF, insurance premiums, etc. exhaust the exemption limit under Section 80C.
Choose funds across fund houses.
Your portfolio lacks a debt fund. You could invest around 10 per cent in a good debt fund like Fortis Flexi Debt. It will help you re-balance your portfolio, which you should do once a year, and also add stability to it.
As you begin to approach your goals, begin to sell your equity units and put them in the debt fund.
Keep track of the performance of these schemes and monitor your portfolio.