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The Late Start Retirement Plan

Increase your investments or postpone your retirement by a few years

I am 40 and started investing in mutual funds in December 2007 with the intent to save tax. I now realise the importance of investing for wealth creation and need your help in suggesting a portfolio for the same. I currently have life insurance cover worth Rs 15 lakh through four Ulips for which I pay Rs 70,000 a year as premium. I also save Rs 25,000 a month after meeting household expenses which rests in my savings bank. Will I be able to achieve my financial goals?
- Jatin Gandhi

In your hurry to make up on lost ground, you have tried to do several things at the same time without clear planning or purpose. However, it is not too late for you to make a few changes with your portfolio and existing investments to achieve your financial goals.

Adequate life insurance cover
You have not mentioned the number of dependents you have. But you have stated that your monthly expenses add up to Rs 20,000. While there are many thumb rules floating on how much life insurance cover one must have, 7-10 times your annual expenses is a good number to start with so that your financial dependents with have a cushion of that many years income flows to manage household expenses.
Currently, your total sum assured is Rs 15 lakh that too mostly made up of Ulips. These are financial products that are a combination of insurance and investments and do not do justice to either of them. You should consider closing some of your Ulips and reduce your premium commitments towards these and divert the same into mutual fund investments. Check the paid-up value of your Ulips or ask for the fund value if you foreclose the policy; if you are not losing out much, it will be a good idea to terminate these plans.
Next, scout the market for a term insurance plan from an insurer who offers it at the least cost. These are pure life insurance covers, where the policy benefits are paid out only on death during the tenure of the policy. A cover for Rs 25 lakh will be a good starting point.

Tax-savings
Under Section 80C of the Income Tax Act, the exemption limit is Rs 1 lakh. Your contribution towards tax-saving instruments is more than this sum. Ideally you should restrict your investments in these products to add up to the limit and no more. Savings or investments in provident fund, insurance premiums, investment in tax planning funds, PPF and NSC are some of the instruments that qualify for exemption under this section.

Fund selection
Your portfolio comprises of six funds wherein some are good funds and some were good when you invested in them. For a well diversified portfolio, you need to have a mix of funds across categories. Having too many funds within the same investment theme only duplicates the idea. For instance, you have four tax planning funds, they offer you diversification in number and not style. Also, you need to regularly invest in mutual funds through the systematic investment plan (SIP) options available. These help you invest with discipline over various market cycles and help in wealth creation over the long term.



Current Portfolio
Schemes  Category  Star Rating  3-year return (%)  5-year return (%)
Magnum Taxgain Tax Planning *** -1.56 11.28
HDFC Taxsaver Tax Planning ***** 8.95 13.29
Sundaram Taxsaver Tax Planning *** 2.4 12.48
HDFC LT Advantage Tax Planning *** 5.45 10.25
HDFC Top 200 Large & Mid Cap ***** 10.53 18.21
Magnum Contra Multi Cap *** 0 13.06
Figures indicate returns on February 9, 2011 Ratings as on January 31, 2011

Suggested Portfolio
You started investing in December 2007 when the stock market was at its all-time high. We have seen a rise since then, which is currently again in a state of decline. We suggest that you follow the SIP route and do not invest in lump sum. This way you invest at market highs and lows. To achieve your goals, we suggest a growth-oriented portfolio with 80 per cent equity exposure. Have equal allocation to all the five funds and invest regularly in these and do track the performance of these funds at least a year to make any alterations if need be.



Schemes  Category  Star Rating  3-year return (%)  
BNP Paribas Bond Income ***** NA 
Fidelity Equity Large & Mid Cap **** 6.64 
HDFC Top 200 Large & Mid Cap ***** 10.53 
ICICI Pru Dynamic Multi Cap **** 8.8 
Reliance Equity Opportunities Multi Cap **** 8.19 
Figures indicate returns on February 9, 2011 Ratings as on January 31, 2011

Proposition
Though it seems easy, you need to be disciplined and regular with investing to achieve your financial goals. Your current savings are not enough to meet your future financial goals. The way out is to invest more, which you can as you do have the investible surplus. Alternately, you can postpone a few of your financial goals such as retirement or buying the flat by a few years. As you still have some years to reach your goal; you should focus on investing in equity and taper your portfolio towards debt when you start reaching the goals.



Financial Goals based on current costs  Amount needed (Rs)  Years to go  Monthly saving earning 12% return  Monthly saving earning 15% return
Buying a flat 20 lakh 5 24,300 22,400
Child's education 20 Lakh 15 4,000 3,000
Retirement 1 crore  25 5,300 3,100