I am 32 years old and earn ₹90,000 a month and my wife earns ₹55,000 a month. We got married two years ago and our monthly household expenses are ₹40,000. I have been investing in mutual fund SIPs of ₹15,000 since 2011 in ICICI Pru Bluechip, UTI Opportunities, IDFC Premier Equity and Mirae Emerging Bluechip. I also have direct equity investments in TCS, HDFC, SBI, ITC, Lupin, Asian Paints and Godrej Consumer in which I invest ₹20,000 every month. I have ₹4.5 lakh in my PPF, ₹20 lakh insurance in Jeevan Anand and ₹2 lakh in Jeevan Mitra for myself and ₹10 lakh insurance for my wife in Jeevan Anand. I also have ₹60 lakh in fixed deposits. I need your help to build a retirement corpus, buy an apartment and also save towards my children's marriage and education at a later time.
- Puneet Pareek
Overview
You have split your investments in an interesting manner by investing in equity mutual funds as well as investing regularly in seven high quality bluechip stocks. We analysed your portfolio by keeping out the stock investments and also by including it in your overall portfolio. Your stock and mutual fund picks are impeccable and the portfolio is well diversified. However, the portfolio is skewed to very large cap stocks because of the large- and mid-cap funds you have invested in and the large-cap bluechip stocks.
The complexion of your portfolio changes immensely the moment your fixed deposit and PPF comes in. Your overall asset allocation tilts towards debt, with equity accounting for a mere 9 per cent allocation.
Given the fact that almost all your financial goals are many years ahead and buying a house is your only immediate need, you can actually use the situation to your advantage. Use a significant sum from your FDs to make a down payment to own the house and go for a home loan to fund the rest. The rationale for such an approach is that unlike many others, you have experienced equity investing and realise the long-term benefits of doing so.
While you will incur a cost to service your home loan, the monthly rent that you currently pay will be saved. Moreover, in the long run, given the dual benefit of compounding and systematic investing; your portfolio is likely to build wealth and earn more than what you would be paying towards servicing your home loan. Continue to invest in equities and consider increasing your allocation in them.
Do's
- You are inadequately insured and should consider to move out of Jeevan Anand and Jeeva Mitra which are not pure insurance policies. This will save you from paying ₹1.3 lakh annually towards servicing these policies.
- Instead go in for a ₹1 crore term plan, to take care of your immediate insurance needs. Revaluate when you go for the home loan.
- Keep an emergency fund that adds to 3-6 months of your household expenses.
- Use the proceeds from the FD that matures in 2016 to systematically invest in equities.
- Exit ICICI Pru BlueChip Equity and UTI Opportunities, both are good but focus on large-caps. Instead, add Franklin Smaller Companies fund and DSPBR Micro Cap fund. Both these funds are small-cap focused funds, which would complement your existing bluechip stocks and the two mid and small-cap funds: IDFC Premier and Mirae Asset Emerging Bluechip.
- Continue with your PPF and add a health insurance plan that covers your entire family for at least ₹4 lakh.
Don'ts
- Avoid endowment type insurance plans which are try to mix savings and protection and are not cost effective in the long run.
- Avoid high debt allocation at your age and move your investments to debt only when you start approaching some of your financial goals.
This article was originally published on May 29, 2014.
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