I am 35 years old. I have articulated my goals below. Can you help me fine tune my mutual fund portfolio to achieve them?
My balance sheet
Monthly post-tax income: Rs 1 lakh
NSC - Rs 6.50 lakh
Bank fixed deposits - Rs 1 lakh
PPF - Not disclosed
A plot of land costing Rs 22 lakh, for which I took 2 loans worth Rs12 lakh and which will be paid within 5 years
Mutual Funds - current value Rs 15 lakh
What you have done: Taken a term insurance policy of Rs 50 lakh
Our view: That is excellent. We always recommend the basic and simplest form of life insurance. However, should something happen to you, your spouse would have to give up on a few dreams such as a luxury apartment. Neither would she have the Rs 1 crore investment kitty.
What you have done: Invest in numerous tax saving instruments
Our view: If you were looking at a tax break under Section 80C, you have certainly overdone your tax saving. You have invested in Equity Linked Savings Schemes (ELSS), National Savings Certificate (NSC) and Public Provident Fund (PPF). Do you not realise that your premium towards your life insurance policy gets a benefit under this section? Does your employer offer you a provident fund facility? Then contributions towards the Employee Provident Fund (EPF) also can be availed of as deductions under this section.
What you have done: Invested in 7 tax saving funds
Our view: As mentioned above, not only do we feel you have been investing more than the Rs1 lakh limit, you do not also seem have done any appropriate tax planning. Your investment pattern reveals that you invest close to the end of the financial year and that too in lump sum. From now on, be more diligent with your tax planning and if you consider an ELSS, make sure you invest in it systematically. Start at the beginning of the financial year and spread your investment via a monthly Systematic Investment Plan (SIP) all through.
What you have done: Invested in 17 funds (7 being ELSS)
Our view: That is way too many funds. No doubt, you have managed to zero in on some good quality picks, but such a diverse portfolio is quite unnecessary. Moreover, 12 funds have an allocation of less than 5 per cent. Even if they perform well, they won't have much impact on your overall portfolio. At the other end is Reliance Growth with a much higher allocation. Also, your portfolio has a low large-cap allocation (61%). The high exposure to mid- and small-cap funds gives it a volatile and risky slant.
What you have done: Recently you began to invest Rs 30,000/month towards your goals in six mutual funds
Our view: Your accumulated investments in mutual funds (Rs15 lakh) along with your monthly SIPs of Rs30,000 will help you achieve your goals. However, we are making two assumptions. One is that your investments will earn a return of 10 per cent per annum and you increase your SIPs by 5 per cent per annum till you retire at the age of 56.
- Why have you chosen to invest in a balanced fund? It serves no purpose in such a portfolio.
- To help rebalance your portfolio, we suggest you instead opt for a pure debt fund. But since you also have a debt exposure to fixed deposits, NSC and PPF, keep this exposure small. Consider Fortis Flexi Debt or Canara Robeco Income. As you near your goal, book profits in equity and transfer to the debt fund.
- Discontinue your SIP in Reliance Pharma. Replace this fund with a large-cap offering such as DSPBR Top 100 or IDFC Imperial Equity Plan A.
- Should you need to invest in an ELSS, we suggest Sundaram BNP Paribas Taxsaver or HDFC Taxsaver.
- Things to work on
- If you don't have a medical insurance, do buy a floater policy that covers the entire family.
- Bank fixed deposits, ELSS, NSC and PPF all have lock-in periods. For emergencies, ensure that you have some money distributed between a savings bank account and a liquid fund. Three months salary should suffice.
- In future, avoid lump-sum investments and new fund offerings (NFOs). Stick to SIPs and be consistent.
- Plan your tax saving at the start of the financial year.
- Currently, debt accounts for 33 per cent of your portfolio. This is not taking into account your PPF. Reduce your debt component to just 20 per cent, increase your equity exposure by continuing with SIPs in equity funds.
- As for your other funds, sell if you have made a profit and have held for at least a year. In this way, you save on short-term capital gains tax. In the case of ELSS, you will have to complete your 3-year lock-in period.