Keep it Simple | Value Research You have blindly invested in IPOs & NFOs, rather than planning a clear investment path to build wealth...
The Plan

Keep it Simple

You have blindly invested in IPOs & NFOs, rather than planning a clear investment path to build wealth...

I am 45, working with the Government of India. My monthly income is Rs 40,000 and I spend half of it on essentials. I invest Rs 10,000 every month in Reliance Gold Savings, Rs 1,000 each in Reliance Growth, Reliance Vision, Reliance Banking and Tata Equity PE. I also contribute Rs 3,000 per month towards the Government provident fund. I have a term plan, Max New York Life Platinum Protect, for Rs 25 lakh cover for which I pay Rs 12,000 annual premium. I also have a Ulip, Max New York life Subh-Invest, for Rs 4.8 lakh sum assured, for which I pay Rs 24,000 annual premium. My investments in Reliance Vision and Reliance Growth are with SIP insure facility. I want to shift from my existing term plan and buy an online one for Rs 50 lakh cover. Review my portfolio as I would need Rs 20 lakh for marriages of my son and daughter in the next 3 years.
- Laxman Bhai Patel

We live in uncertain times where the impact of inflation will be one factor that can spoil the best of plans. In this scenario, you have the comfort of receiving an employer-backed pension plan. You also do not have the worries of rising healthcare costs, as it will be covered by the government in your case. However, do not bank just on this, you may actually need to supplement this in retirement. At the same time, your monthly investments of Rs 17,000 work to 42.5 per cent of your income, which is a significant and good allocation. You need to focus your investments in a portfolio which will be aligned to your financial goals than hoping for your investments to provide for your goals.

You are living within your means and do not have any liability, which is the reason you are able to contribute a significant part of your income. It is understandable for you to not have a health insurance given your employment status.

* Set aside 4-6 months of essential household expenses in a bank savings account or fixed deposit to meet any emergency
* Take a life insurance policy for your spouse

Investment portfolio
You started investing only from 2004 in both stocks and mutual funds, with investments in 40 stocks and 15 mutual funds. One look at your portfolio, and it is evident that these investments have been impulsive and mostly in IPOs and NFOs.

* You made lump sum investments in Reliance Growth and Reliance Vision in September 2008, which were good performing funds then. However, as you did not track the performance of these funds, you are left with underperforming funds in your portfolio
* Likewise, it is not wrong to invest in IPOs as long as you have an exit strategy; holding on to stocks forever has resulted in opportunity loss
* Compared to your stock portfolio, your mutual fund portfolio has done better. Unlike the loss in your stock portfolio, the fund portfolio is in the black

To demonstrate the power of simplicity and disciplined investing, we simulated investments in HDFC Balanced, a 5-star rated fund and Goldman Sachs Nifty ETS for the same sums and on the same dates as you invested. The results are quiet stark.

* The cumulative Rs 9 lakh invested by you between 2004-12 is worth Rs 11 lakh as on January 2013
* The same sum would be worth Rs 18 lakh in HDFC Balanced, an annualised 16 per cent return or Rs 14 lakh in Goldman Sachs Nifty ETS with 11 per cent return

The power of simplicity with investments in a balanced fund is immense. This fund takes into account growth opportunities and at the same time is disciplined to balance the equity-debt ratio. This way, the fund does well in both bull and bear phases. Similarly, the Nifty ETF ensures that the returns are somewhat reflective of the performance of the broad market. We have suggested a portfolio of four funds that are a mix of a mid- and small-cap and multi-cap funds, which adds flavour to this large- and mid-cap portfolio. You should consider moving your investments to this portfolio and continue investing in it with periodic review.

Financial goals
Your investments at the moment are just under Rs 11 lakh and you need another Rs 9 lakh in the next three years, which is near to impossible with investments. You have earmarked this for weddings of your son and daughter three years later. We suggest you scale down the goal or postpone the same by a couple of years or get one married three years later and the other after that.

By going in for a higher sum assured term plan you are making the right move to meet your higher life insurance needs. We looked for the best priced online term plan given your age for Rs 50 lakh sum assured; you can consider going in for HDFC Click2Protect, where you will need to pay Rs 16,000 annual premium.

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