Goals should be quantified

I am 36, married and have a 7-year old son. I earn Rs 60,000 from my business. Post my monthly expenses, EMIs, mutual fund SIPs (Rs 1,500), post-office deposits (Rs 1,000 pm) and insurance premium, I have Rs 5,000 per month. I want to buy a house (Rs 25-30 lakh), in some years. I want to plan my son's higher education when he is 15 and my retirement at 55. I have a life cover of Rs 10.50 lakh with a term and an endowment plan. My stock investment currently is Rs 80,000. Ongoing SIPs are equally split among Reliance Growth, Reliance Equity Advantage and Fidelity Equity. Please help me revamp my portfolio. You do know how much money you need and when - a house, son's education and retirement. But, you are yet decided on the amount you will need for these. Quantifying goals is extremely important.

BUYING A HOUSE
You will need a home loan, whenever you buy a house. We suggest you defer your plan for five years. If you withdraw money for your house within 2-3 years, you will not be able to accumulate sizeable investment. Assuming a return of 10 per cent on investments, your regular investments of Rs 6,500 (increase the SIP amount by 10 per cent a year), with present investments of Rs 4.6 lakh in stocks and mutual funds, will raise Rs 12 lakh in five years. Partly use this, but, do not redeem everything at this stage, you will need it for your son's education and your retirement.

THE MALADY
Your mutual fund portfolio has an equity exposure of 67 per cent. While large-cap stocks form 48.29 per cent, mid- and small-cap stocks occupy a significant 43.31 per cent. Since you have time, increase your exposure to equities.

You bought most funds (11) during a new fund offer (NFO) or immediately after that. New funds lack long-term track records and so, holding such funds is risky.

You have invested lumpsum in mutual funds. SIP is a safe, easy and convenient way of investing that allows to buy more units when prices are low, fewer units when prices are high, resulting in lower average per unit cost.

Plus, many funds have similar investment objectives. For example, Reliance Natural Resources Retail and DSPBR Natural Resources and New Energy have the same theme.Having more than one fund with the same objective doesn't make sense.

Six funds are not rated, including two close-ended funds. Investment in Escorts Opportunities, forms 40 per cent of your investment. This is a hybrid fund that may invest 49 per cent in debt. All other funds have very small holding and a good performance there will have negligible impact on the portfolio.

ROADMAP
Avoid bulk investing and stick to SIPs for mutual funds for lesser susceptibility to extreme market movements.

Avoid NFOs, go for funds with proven credentials. Also, theme funds can give high returns, but can be volatile, too. Equity diversified funds are better.

Since you have time in hand, up equity exposure to 80 per cent. Rejig your portfolio annually to maintain the debt-equity ratio. Closer to goals, gradually move the money in equities to debt. For direct stock investment, research well and understand the sectors that you hold.

Your term insurance should be sufficient to provide for the expenses of your dependents in your absence. Create a contingency kitty to meet emergency cash needs.
 

Current Portfolio
Funds	Allocation (%)
Escorts Opportunities	39.22
Fidelity Equity	11.93
DSPBR Tax Saver	7.94
Fidelity India Spl Situations	7.29
Reliance Equity Advantage	5.84
Reliance Long Term Equity	3.58
SBI One India	2.77
DSPBR T.I.G.E.R.	2.71
DWS Investment Opportunity	2.61
HDFC Top 200	2.50
L&T Opportunities	2.46
Principal Personal Tax Saver	1.83
DSPBR Nat. Reso. & New Energy	1.63
HDFC Infrastructure	1.44
SBI Cap. Prot. Oriented FS I	1.37
Kotak Opportunities	1.32
Reliance Natural Resou.	1.29
Reliance Growth	1.14
DSPBR World Gold	1.12

THE PRESCRIPTION
Your portfolio needs major restructuring. n Consolidate your holdings into fewer funds - six or seven.

# Do away with funds that have similar investment theme or style.

# Core portfolio should be made up of 3-5 star rated large-cap equity funds that are consistent performers.

# Though your total exposure to thematic funds is not large (7 per cent), reduce the number of such funds to one or two. Invest only if you understand them.

# Stop any more SIPs in Reliance Equity Advantage Retail Fund. Being a new fund, it is risky. Continue investing in Fidelity Equity and Reliance Growth.

Above is our suggested portfolio. Choose from these funds for investing your surplus. DSPBR Tax Saver and DWS Investment Opp Reg are aggressive funds. Limit your exposure to 20-25 per cent.

# Add debt funds to your portfolio to help rebalance your portfolio.