Do not create a corpus with Ulips

PORTFOLIO MAKEOVER

I am 35 years old and have two dependents (wife and daughter). Kindly review my overall portfolio and suggest changes. I wish to create a huge retirement corpus and also plan for my daughter’s, education and marriage.

- Deepak Sharma

Your investment objectives are: 

 

Invest for the long term (15- 20 years)

Huge corpus for daughter’s education and marriage

Huge retirement corpus

Your existing portfolio does have some good funds like ICICI Prudential Infrastructure Fund and Reliance Banking Fund. But by being heavyweight on them, it gives your portfolio a thematic tilt. Theme based fund’s performance largely depends on the performance of the sector in which the fund invests and sector performances fluctuate wildly. For long-term investors, it is advisable to invest in star-rated, equity diversified funds with a past track record.

A long-term portfolio should always be balanced, which means, it must have a considerable debt component. That is the reason we have suggested a debt fund. It will act as a balancing instrument in a volatile market and hence minimise the fall in the portfolio when the stock market tumbles.

It is obvious that you want to be insured; looking at the fact that you opted for a unit-linked insurance plan (ULIP). Towards this, we have chosen funds from Birla Sun Life and Reliance Mutual Fund. These funds houses provide a life insurance cover on any investment made via systematic investment plan (SIP). ULIPs are expensive investments and should be avoided. Moreover insurance and investment are different and should not overlap with each other, which happens in the case of a ULIP.

Birla Sun Life Frontline Equity Fund is a large-cap oriented, equity diversified fund. Investing Rs 6,000 every month via SIP in this fund has a number of benefits. It increases the large-cap exposure in your portfolio and provides for an insurance cover with a maximum limit of 100 times the monthly SIP amount.

The life insurance premium charges are also borne by the fund house. This means that you are investing in a good fund with a good track record and getting an insurance cover of Rs 600,000 for free.

If you find this life insurance cover to be inadequate, we suggest that you take a simple term insurance policy. These policies have low premium charges.

In the future, avoid lump sum investments and do not purchase NFOs. Investors with a long-term horizon really do stand to benefit when they invest via an SIP. You have invested Rs 2,35,000 at one go in a rising market. The idea of a SIP is to get the benefit of cost-averaging and to avoid trying to time the market. The other mistake which investors make is investing in NFOs. Stick to funds with a proven track record.

Once you have restructured your portfolio, you will need to rebalance it once every year. Keep in mind your changing requirements and risk appetite.

Value Research