I am 46 years old and live with my family and two kids in my own house. I earn ₹2,00,000 lakh per month and spend ₹1,50,000 every month on household expenses. I have savings in EPF, savings account and fixed deposits. I hold term insurance from LIC and annuity plan as well endowment plan of LIC. I also have two ULIPs from ICICI Prudential and HDFC. My long term goals are kids education and marriage and I also want to build a corpus for my retirement. Kindly suggest a portfolio and investment plan to achieve my goals on time.
- Sundar Jyothula
Overview
You have accumulated quite a good sum and will be able to achieve your goals in time with your existing savings. As you have no liabilities, just following a disciplined investment approach will be the perfect strategy. To formulate this plan, we have assumed an inflation rate of 7 per cent to calculate the future value of your goals. A sum of ₹2 crore for your retirement kitty is too low to match your current standard of living. We have therefore recomputed your retirement corpus assuming your retirement expenses to be 100 per cent of your current household expense. We also assumed that the post retirement corpus will grow at 8 per cent as you will not be withdrawing it one go. Your life expectancy was taken to be 80 years. The corpus will be sufficient to see you through for 20 years after retiring at 60. All your money is either in cash or in pure debt investments. You must start investing in equities via mutual funds to earn inflation-beating returns and reach your goals. You have too many unnecessary insurance-cum-investment policies. You should surrender some of them. You will incur losses upon surrender but that is not a good reason to continue with sub-optimal investments.
Dos
- You have already set aside a sum for any emergency needs. Usually it is recommended that you keep a 3 to 6 months' expense as emergency fund. Increase your emergency fund size to ₹7 or 8 lakh.
- Your kids' higher education is just 5 years away. We do not recommend core equity investments for this. Five years is too short a period to take the risk of equity investment, yet you should not remain in cash and lose out on returns. Therefore, invest in income funds. Both your other goals are far away, for which you may invest in Equity Large and Mid Cap and Equity Mid and Small Cap funds. Start switching to debt as you get within 2-3 years of your goals, to lock into returns generated so far.
- Park your lump sum cash in a liquid fund and start investing in equity funds via systematic transfer plans.
- Moving to your insurance policies, you have sufficient health and term insurance coverage. LIC Anmol Jeevan is a term plan which may be continued. All other policies are not worth continuing. As you have completed 10 years with ULIPs, surrendering them would fetch you current fund value without deduction of any penalty. Surrender those. For endowment plans, you need to check with insurers regarding the surrender value of each policy. Do not surrender if you are 3 to 4 years away from policy maturity. If more years are remaining, it would be better to surrender and invest the amount saved in mutual funds to earn better returns.
- Continue with the provident fund for your retirement.
Don'ts
- Do not invest lump-sums. Always make systematic investments.
- Do not go for any insurance cum investment plan in future. Keep your plans simple.
- You own a very long list of funds, which is not required. Diversification can be achieved by investing in just 4 to 5 funds. Funds must be selected based on your goals and investment tenures. Review your investments once a year.
This article was originally published on December 26, 2014.
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