I am 32 years old and my family includes my parents, my 29-year old wife and a 3-year old child. My monthly take home salary is around Rs 1 lakh. My monthly expenses are Rs 30,000. Apart from this, I pay Equated Monthly Instalments (EMIs) towards my home loan (Rs 32,786), car loan (Rs 7,198) and education loan (Rs 5,000). While my home loan will get cleared in 9 years, my car loan will wind up by December and the education loan by March.
Suggest schemes for an additional monthly Systematic Investment Plan (SIP) of Rs 10,000. I currently contribute Rs 24,000/month via SIPs in 15 schemes. Please consolidate my entire fund portfolio to around 10 funds.
-Tribhuwan
Action Points
- Your portfolio doesn't get any additional diversification with 31 funds. It's a wise call that you want to consolidate it. However, we do find 10 funds a bit excessive too. We suggest you go with 5 good, quality picks.
- Your fund portfolio has a high exposure to mid- and small-cap stocks - 40 per cent. You can limit it to around 30 per cent and increase your large-cap exposure to around 70 per cent from its current 56 per cent.
- Your portfolio lacks a pure debt fund that is necessary for rebalancing.
- Investments in funds such as DSPBR T.I.G.E.R. and Reliance Diversified Power Sector Retail can be avoided due to their sector or thematic bias.
- You have invested in two closed-end funds - HDFC Long-term Equity and Sundaram BNP Paribas Select Small Cap. Don't block your money in equity investments which require a lock-in period.
- Avoid investing in shares in the future. Also avoid closed-end funds and New Fund Offerings (NFOs). Think wisely before you opt for a sector or thematic offering.
- We have suggested two portfolios from your existing holdings. Exit all other funds in your portfolio and channelise the proceeds to the suggested investments. Keep in mind the 1-year time frame to avoid paying short-term capital gains tax. Exit tax-saving funds once the 3-year lock-in period is over. For closed-end funds, exit after their redemption date to avoid paying load charges.
- Once a year, rebalance your portfolio to ensure that the equity:debt allocation is maintained. As your goals come near, money allocated to equity should gradually shift to debt.
| |||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Suggested portfolio
We have suggested two portfolios; pick any one. Deploy 10% of your investment in a debt fund, irrespective of the portfolio you choose. If you go with Portfolio A, let your core funds constitute at least 70% of the portfolio.
Portfolio A
Core Funds
Large-cap: (1)
DSPBR Top 100 Equity
Large- and mid-cap: (any 2)
Fidelity Equity, HDFC Top 200, BSL Frontline Equity A
Supporting funds
Mid- and small-cap: (any 1)
Sundaram BNP Paribas Select Midcap Reg, Reliance Growth, IDFC Premier Equity Plan A, Sundaram BNP Paribas S.M.I.L.E. Reg
Debt fund: (1)
Fortis Flexi Debt
Portfolio B
Core Funds
Multi-cap: (any 4)
Reliance Regular Savings Equity, ICICI Pru Dynamic, HDFC Equity, DSPBR Equity, Magnum Contra
Debt fund: (1)
Fortis Flexi Debt
Is Rs 5 lakh sufficient medical policy for the entire family? I think I should increase the cover. Should I exit the endowment policy? I still have to pay premium for 6 years.
It is good to note that you have taken a term insurance policy. As for your endowment policy, you might as well stick with it for the balance six years. However, it would make sense to talk to your agent and figure out if the surrender charges are nil and what you would lose if you exit now. Though there is no need to increase your insurance cover, it would be wise to increase your medical insurance. Should you quit your present job, you and your entire family will be uninsured. You may not be able to obtain a policy for your parents if they are very old, but certainly take out one for yourself, your wife and child.
| |||||||||||||||||||||||||||||||||||||||||||
This far, you have accumulated Rs 19.45 lakh by way of investments in mutual funds and shares. Adding this up with your planned monthly investment of Rs 34,000, you will be able to accumulate a corpus of around Rs 1.98 crore in 18 years after meeting your children's education goal. The shortfall for the retirement kitty can be easily funded through your debt investments (EPF and PPF). We have not taken into account insurance for our calculations.
This article was originally published on October 21, 2010.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
