I am 49 years old and plan to retire at 60. I have investments in mutual funds and stocks and am looking at a corpus of Rs 2-2.5 crore for my retirement. I will start a PPF account this year with an annual contribution of Rs 1 lakh. I have few Ulips that I have surrendered which work out to Rs 7.5 lakh that I plan to invest in direct equity. My provident fund balance is Rs 15 lakh and I have a term insurance plan for Rs 1 crore. I would like to invest Rs 35,000/month systematically into funds. Please suggest changes to my portfolio and also see if I can achieve my goal of accumulating enough for my retirement?
— N. Raja
Term insurance of Rs 1 crore
It’s excellent that you have not combined your insurance needs with investment and opted for a no-nonsense term insurance policy. And, you do seem to be well covered. However, we have no idea as to how many dependents you have nor are we aware if you have any liabilities or loans (such as a home loan). What about health insurance? Your employer probably covers you and your family. Yet we suggest you take out a policy of your own.
Bharti Airtel, HDFC Bank, Hindalco, L&T Finance, ITC, Larsen & Toubro, Suzlon Energy, Ultratech Cement. You have surrendered your Unit Linked Insurance Plans (ULIPs) which have been valued at Rs 7.5 lakh and plan to invest the entire amount in equity.
We have no problem with your stock portfolio. However, do you have the time and energy and resources to track your investments and ensure that you make sound ones going ahead? It is no easy task maintaining an equity portfolio. We are not saying that you have to sell your stocks. But do you want to invest all the proceeds from your ULIP sale into more equity when you already have such a huge mutual fund portfolio?
Rs 15 lakh (Employees Provident Fund) and plan to start investing in the Public Provident Fund from this year onwards with a contribution of Rs 1 lakh.
Frankly, we are surprised that all along you have not opened a PPF account and are thinking of doing so now. Do note that it has a lock-in period of 15 years. Also, we have noted that you are touching the upper limit of Rs 1 lakh, so all along for tax saving you did not resort to PPF or equity linked savings schemes (ELSS).
You plan to retire in 11 years and want a corpus ranging from Rs 2-2.50 crore.
Your plan is to invest Rs 35,000 every month through SIPs. Assuming you earn 12 per cent per annum on this investment, your portfolio will be worth Rs 96 lakh. At a 15 per cent per annum return, the worth will be Rs 1.17 crore. This is way below your target. However, the good news is that you already have some savings. Your current portfolio (sale of ULIPs, provident fund, current value of stocks and mutual funds) is valued at Rs 25 lakh. If you had to earn 8 per cent per annum on that (taking the rate you should get on your provident fund), it will amount to Rs 58.29 lakh. This is on the lower side since you will also be adding to the corpus with your Rs 1 lakh investment in PPF every year. Though chances are you will barely make the Rs 2 crore mark.
* You have 16 mutual funds in your portfolio making for way too much clutter. You certainly do not need to invest in so many schemes. Moreover, there is overlap of categories and schemes from the same fund house. You have four schemes from Reliance Mutual Fund and four from HDFC Mutual Fund. You have not smartly diversified.
*We suggest you reduce your portfolio by half. The funds we have suggested are the ones you already hold. *If you do not need the money immediately, do not sell your units. You can hold on to them till the market improves.
*Complete a year of holding before you sell your units so you do not have to pay long-term capital gains tax. When we suggest you no longer invest in the fund, we are talking of fresh investments and discontinuing your systematic investment plan (SIP).
*We would advice you not to go in for a sector fund and stick to equity diversified ones.
*Review your portfolio once a year and take corrective action if necessary.
*Do not invest lumpsum amounts at all; only do so systematically and regularly.