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Consolidate, Modify and Continue Investing

Your temperament and discipline will see you through in achieving your financial goals

I am 52 and have Rs 20 lakh to invest in the market which I plan to do via SIPs. My goal is to create a Rs 2 crore corpus over the next seven years which will be used for my retirement that begins from 2018. I have two flats: the one in which I reside has no outstanding loan; the other one is on rent, the rental income from it is Rs 15,000, and the EMI is also the same. This loan will end in 2013. I have two children who are both settled and do not reside in India. I have two Ulips that insure my wife and me for which I pay a total premium of Rs 50,000. We also have a few endowments plans that insure us for Rs 12 lakh and mature in 2014. My wife does not work any more and we have a monthly household expense of Rs 30,000. Does my allocation support my goal? What changes do I need to make to achieve my goal?
-B S Hari

It is encouraging to observe a portfolio that comprises a good mix of funds and stocks. You have the panache for investing in both mutual funds and stocks and are doing so with a great deal of regularity and discipline. By adopting a few changes to your portfolio and investments, you will be able to reach your desired investment goal.

Insurance
At the base of any successful financial plan rests adequate insurance. Your selection of Ulips is baffling. Perhaps you are among the many who were sold these products without realising what they were getting into. Ascertain the paid up value of the two policies and assess if you need to continue with them any further. You can discontinue these policies instead of investing Rs 50,000 each year in them for the next 10 years. You do not have huge financial liabilities that pose risks. You also do not have many financial dependants. Yes, it will not be a bad idea to consider a term insurance plan to cover you for the next seven years of your working life. Your wife can do without a policy.

Make sure that both of you buy adequate health insurance. You are at a stage in life when your health needs attention and having a health cover is the need of the hour.

Investments
Having 17 funds does not lead to diversification. You need to consolidate your mutual fund portfolio and reduce your fund holdings, as suggested below, over a period of time. The idea is to invest in a few good funds rather than in too many. You have four tax planning funds. Consolidate them into one if their lock-in period is over. Also, there is no need for a monthly income plans (MIP) in your portfolio at this stage.



Well Spread Portfolio
Funds  Category   Rating   Market Value (Rs)  
DSPBR Equity-G Multi Cap **** 157,426.79 
DSPBR Top 100 Eqt Reg-G Large Cap ***** 344,052.24 
Fidelity Equity-G Large & Mid Cap **** 141,079.02 
Fidelity Tax Adv-G Tax Planning ***** 62,668.21 
Franklin India Bluechip-G Large Cap **** 488,421.54 
Franklin India Taxshield-G Tax Planning **** 64,831.20 
Gold Benchmark ETF Gold ETF Not Rated 50,983.87 
HDFC Prudence-G Hybrid: Equity-oriented ***** 116,553.34 
HDFC Taxsaver-G Tax Planning ***** 59,757.54 
HDFC Top 200-G Large & Mid Cap ***** 288,646.82 
ICICI Pru Infrastructure-G Infrastructure **** 108,186.45 
Magnum Contra-G Multi Cap *** 90,583.82 
Magnum Taxgain-G Tax Planning *** 67,060.95 
Nifty BeES Large Cap **** 71,865.81 
Reliance MIP-G Hybrid: Debt-oriented Conservative ***** 114,948.73 
Sundaram S.M.I.L.E. Reg-G Mid & Small Cap **** 100,676.50 
Sundaram Select Midcap Reg-G Mid & Small Cap **** 279,228.34 
Market Value as on February 16, 2011 Ratings as on January 31, 2011

Your fund portfolio has made an annualised 18.58 per cent gain, which is commendable. The portfolio follows a large-cap growth style with over 90 per cent equity exposure. You have good allocation to quality large-cap funds which together hold 300 stocks in them. But your exposure to small-cap funds could be increased a little. Not only will this give a fillip to returns, it will also diversify your portfolio across market caps. We have suggested additional mid- and small-cap funds to meet this need.



Suggested Portfolio
Funds/Stocks  Category   Rating   3-year return (%)  
Franklin India Bluechip-G Large Cap ***** 7.71 
DSPBR Top 100 Eqt Reg-G Large Cap ***** 7.29 
Fidelity Tax Adv-G Tax Planning ***** 8.31 
Fidelity Equity-G Large & Mid Cap **** 7.47 
HDFC Top 200-G Large & Mid Cap ***** 10.74 
Gold Benchmark ETF Gold ETF Not Rated 19.26 
ICICI Pru Infrastructure-G Infrastructure **** -1.46 
IDFC Premier Equity Plan A  Mid & Small Cap **** 9.49 
HDFC Mid-Cap Opportunities  Mid & Small Cap ***** 9.21 
Returns as on February 16, 2011 Ratings as on January 31, 2011

Your stock selection is very good. All the scrips that you hold are quality investments. Yet the annualised return from this component of your portfolio is less than 10 per cent. There is a lesson in this for you. Unlike mutual fund investing where a fund manager manages your investments, stock investing calls for regular involvement on your behalf. You need to enter and exit stocks if you hope to gain from them. Continue holding the shares that you have. Add more quality shares to your portfolio only if you believe that you are knowledgeable about them and have the time to monitor a bigger stock portfolio.



Stock Portfolio
Scrips  No. of shares  Market Value (Rs)  
Bharti Airtel  1,000.00  333,850.00  
Coal India  500  155,375.00  
Reliance Industries  200  194,210.00  
Satyam Computer Services  2,000.00  130,600.00  
Tata Motors  300  356,400.00  
Tata Steel  100  64,885.00  
Wipro  300  133,305.00  
Market Value as on February 16, 2011      

Invest your current savings worth Rs 20 lakh gradually into existing mutual funds through SIPs. There could be an opportunity cost this way, which is the price of volatility that you will have to pay in the stock markets. You can intermittently consider adding additional lump sum to them over the next 12 months. By staggering your investments you will protect yourself against the risk that a lump sum investment in the stock markets entails.

Continue your habit of investing regularly and in quality funds that are aligned to your investment goals.



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