A stitch in time | Value Research Most investors do not need eight funds to diversify. Four to five well-performing funds are sufficient
The Plan

A stitch in time

Most investors do not need eight funds to diversify. Four to five well-performing funds are sufficient

I am a central government employee earning a monthly salary of ₹.60,500 after deducting NPS of around 5,500 rupees. I believe my retirement will be taken care by my NPS corpus. My monthly expenditure is 25,000 rupees.
I am 37 years old. I live with my wife and a 4-yr old daughter. I am sole bread earner of the family and have purchased a term insurance cover worth ₹.50 lakh and a family floater health Insurance worth five lakh rupees.
I have a house in my hometown which is used by my parents at present.
I have three goals namely, purchasing a house, daughter's education and marriage and my own retirement. I invest into Sukanya Account, PPF and 8 mutual funds via SIP. Funds are Birla Frontline Equity, UTI Equity, Franklin India Prima Plus, Reliance Equity Opportunities, Franklin India High Growth Companies, ICICI Prudential Value Discovery, Franklin India Smaller Companies and HDFC Children's Gift Fund. I have chosen growth option for all funds.
Kindly guide me whether my Portfolio is in the right direction.

- Chandra Sekhar

Chandra Sekhar is a central-government employee. He is the sole breadwinner of his family. He has recently started to save and invest in mutual funds and government-sponsored schemes like the Sukanya Samriddhi Yojana to reach his goals. He wants us to review his investment strategy to achieve his goals timely.

What he has (cash flow)

  • Monthly disposable income of ₹35,500

What he wants (goals)

  • A house
  • Daughter's education and marriage
  • Retirement

What he should do

Emergency fund: Chandra Sekhar has a kid. He must keep at least six-month expense as the emergency fund. He may distribute his emergency fund across cash at home, savings account and liquid fund.

Health insurance: He can continue with his family floater cover.

Life insurance: His life cover is adequate as he has no liabilities.

Investments: Chandra Sekhar does not need eight funds to diversify. Four to five funds are sufficient. He must stop investing in three-star-rated Reliance Equity Opportunities. For his down payment for house purchase in four-seven years, he may invest in balanced funds gradually for three to four years and then start switching to debt to lock in the returns. This strategy of switching to debt when one is nearing goal must be followed. He may also need to utilise his existing mutual fund corpus for purchasing the house.

For his daughter's higher education and marriage, he has time in hand. He must invest in equity mid-and-small-cap and large-and-mid-cap funds via an SIP. It is better to invest in direct plans as they will generate better returns than regular plans due to lower expense ratio. Chandra Sekhar also invests in Sukanya Samriddhi Yojana, a government scheme for welfare of the girl child. Assuming the scheme fetches an interest rate of 9.2 per cent per annum throughout, he would accumulate ₹19 lakh after 21 years. This sum can be used to partially fund his daughter's higher studies or marriage. However, since his goals are still distant in time, he can earn better returns than government-sponsored schemes by investing in mutual funds.

His NPS investment is sufficient to take care of his retirement with the same standard of living till 80 years of age. If he survives longer, he would be out of cash. He must continue with the PPF to save more for rainy days.

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