Investing for retirement

I am 34 and employed in an IT company in Gurgaon. I began investing in June 2007, with a sum of Rs 2,500 a month. Gradually, I increased the SIP amount to Rs 16,500 a month. Can you help me with my financial plan? I have provided all the details below. 
- Deewakar Kumar

Inflows and Outflows
Salary: Rs 1 lakh a month
Expenses: Rs 40,000-50,000 a month
Home loan EMI from January 2010: Rs 37,000 a month

Since this is the information you have provided us with, we are assuming your premiums are included under your monthly expenses and you do not have any other source of income.

Once you move into your own house, not only will you get a tax benefit on your income but you will no longer have to pay any rent.

FIXED INCOME
* Rs 20,000 in NSC that will mature in 2010.

* Public Provident Fund (PPF) account opened in 2005 has accumulated Rs 1,96,220.

* Rs 5,000 a month in recurring deposits. This amount is used to eventually pay the insurance premiums and make a final deposit in the PPF account.

You invest Rs 70,000 a year in PPF as the the principal repayment of your home loan will qualify for a deduction under this section.

MUTUAL FUNDS
Fund* %
Reliance Growth 24.60
Magnum Contra 11.22
Sun BNP P Sel Mid-Cap 10.18
HDFC Top 200 8.88
DWS Inv Opp 8.60
* Top 5 MF holdings

Choose proven funds with a good track record, avoid new fund offerings (NFO). You invested in the NFO of Reliance Natural Resources.

Invest regularly via systematic investment plan (SIPs,). By and large, you have done so, barring two instances of lumpsum investments.

Keep a limited number of funds in your portfolio. Your current number of 13 funds is way too much. Spread your investment evenly over a maximum of six funds.

Introduce a debt fund in your portfolio and maintain an equity:debt ratio of 70:30 and annually rebalance your portfolio. As you reach your goal, increase your debt allocation.

Some equity funds you can keep for your core holding are HDFC Top 200; BSL Frontline Equity, Baroda Pioneer Growth and DSPBR Top 100.

LIFE INSURANCE
Ulip Premium (Rs)
ICICI Pru Life Ins 2500 (monthly)
BSL Dream Plan 13000 (a year)
LIC 20000 (a year)

Since you have two dependents, awife and child, we suggest you increase your term plan. We are not in favour of Ulips. These are high-cost instruments, where a significant portion of your initial premium is deducted as various charges.

In totality, you pay Rs 63,000 by way of annual premiums and have an insurance cover of Rs 55 lakh. But considering your current expenses and goals, it should be upped to Rs 1 crore.

You can surrender your Ulips when the surrender charges become zero and stick to term plans.

HOME LOAN INSURANCE
A number of home loan companies offer an insurance benefit along with the loan. Should the individual servicing the loan pass away, his dependents will not have to be concerned with it. The insurance will pay the balance principal amount. It would be more convenient to take it from the home loan company itself. If they do not provide an insurance policy, then opt for another term insurance policy. You can consider a decreasing term plan where the sum assured, and hence the cost, keeps falling as the outstanding loan gets reduced.

MEDICAL INSURANCE
Buy a mediclaim floater policy of Rs 5 lakh of annual premium around Rs 8,500. This will help to meet medical emergencies of the entire family.