I am 28 years old and thus in the wealth accumulation phase of life. I am looking at moving out of the country for the next 5 to 6 years and would like to invest some portion of my savings. I am planning to invest close to Rs 6 lakh and I have a fairly long time horizon of at least six years. My proposed portfolio can be seen from the table. Is this portfolio well-suited to my investment goals?
Anand Ahire
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Abraham Lincoln once said, "If I have six hours to chop down a tree, I will spend the first five hours in sharpening the axe". In general, the message he was giving was plan well before undertaking any task. We feel encouraged when investors try to plan their investments in a systematic manner.
We ran your investments through the Value Research Portfolio Manager. It shows that your equity allocation will work out to 37 per cent. This is much too low for someone who is in the 'wealth accumulation phase' of his life. As time is on your side, you can afford to allocate a much higher portion to equities. We would suggest anywhere between 65-80 per cent of your investment should be in equity.
As you have a reasonably long time horizon, this should enable you to withstand intermittent volatility and obtain the inflation beating returns, which only equities are capable of delivering.
In order to boost your equity allocation you should do away with the MIPs and reduce your investment in Kisan Vikas Patra. If you are out of the country and not able to monitor and rebalance the portfolio, we would suggest that you invest in balanced funds or fund of funds. These will rebalance your portfolio in the most tax efficient manner possible. In order to operationalise this plan, enter into a Systematic Investment Plan for your equity or balanced fund investments. This will enable you to spread your investments at different levels of the market and average out the cost of investing.
This article was originally published on March 15, 2004.
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