I am 41 year old with wife and a son. I have invested in several mutual funds in systematic manner. The funds are DSPBR Top 100 Equity, Franklin India Bluechip, HDFC Balanced, ICICI Pru Discovery, ICICI Pru US Bluechip Equity, IDFC Premier Equity, PPFAS Long Term Value, Reliance Equity Opportunities, Reliance Pharma and UTI Opportunities. Apart from mutual funds I have invested into other saving instruments as well. I have four life insurance policies and a health insurance policy. My objective is to accumulate sufficient amount for my son's education and retire early at an age of 55. Is my current portfolio sufficient to take care of my goals? Kindly review my portfolio and suggest any corrections or modifications required.
-V. Srinivasa rao
Overview
You have already accumulated for your son's higher education and have adequate health insurance. But when it comes to securing your life, you are grossly-underinsured. Moving to your retirement planning, if you wish to maintain the same standard of living, your annual expense at the age of 55 years will be around `8.80 lakh (8 per cent inflation). Considering your savings and investments made till date and your monthly surplus income available for investment, if you retire at age 55, assuming life expectancy of 80 years, you will fall short of around 20-25 lakh rupees. We have calculated the returns in a conservative manner. We recommend that you delay your retirement by a few years to accumulate enough for your grey years.
Do's
* You need to maintain an emergency fund equalling six months' expenses which comes out to be `1.5 lakh in a bank account to meet uncertain expenses
* Good that you have an adequate health insurance policy to meet unforeseen expenses. Continue with the policy. You need to purchase a term insurance policy for an amount that you think would suffice to take care of your family if something happens to you. A 50 lakh term cover at your age will cost around `8,500 anually for a policy term of 15 years
* Continue your investments in NPS, PPF and EPF to accumulate for your retirement
* Since there is a fairly long time to go for your retirement, we suggest a portfolio comprising 50 per cent in mid and small caps and rest in large and mid caps
Don'ts
* You have put a lot of money in bank FDs.
* It is not tax efficient as interest income will be added to your income and taxed as per the slab rate. Try to put more money into instruments that generate higher return such as an FMP
* You have saved sufficient amount for your son's higher education which is just 6 years away. Safety of principal amount is most important here. However, you will not require the whole amount at the same time. Invest half of it, i.e `4.5 lakh, into 5-year NSC and remaining (after deducting the emergency fund) into well-rated balanced funds systematically through an SIP. Start switching to debt funds when goals close in through STP
* All the four life insurance policies you have bought in cover you for `18.50 lakh which is insufficient. Also, you have insurance + investment plans and not pure insurance. Such plans are an expensive proposition as they compromise on insurance and are not good investments. Surrender is an option but you have already borne major portion of the expenses. However, surrendering will limit your losses
* You have 14 long years to retire. At present you have almost 75 per cent in debt. Do not rely heavily on debt when you have enough time to accumulate for your goal
* Avoid NFOs in future. Invest in funds that have a strong track record
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