PROFILE
Name: Gopal Pujara
Age: 29 years
Annual income: Rs 4.5 lakh
Monthly expenses: Rs 20,000 (including
home loan EMI of Rs 8,700; principal outstanding: Rs 5.4 lakh)
Annual life insurance premium: Rs 79,197
(Rs 49,000 towards four Ulips)
Total sum assured: Rs 20 lakh
Dependents: Wife, son (2 years)
Total investment surplus: Rs 10,900 per
month (Rs 5,000 p.m. goes towards PPF)
GOALS
Son’s education: Rs 25 lakh
(16 years)
Retirement: Rs 2 crore (19 years)
CONCERNS
Safety of investments is paramount for me. My primary investments are in fixed income nstruments like Public Provident Fund (Rs 2.84 lakh), Post Office MIS (Rs 1.64 lakh), bank fixed deposits (Rs 3 lakh) and insurance policies (total premium of Rs 6.9 lakh paid till date). The risk factor is concentrated in my equity exposure, having bought stocks, which are currently valued at about Rs 55,000. I started buying into mutual funds two years earlier and have invested a total of Rs 50,000 so far, but its value has fallen to about Rs 45,000 now. However, there are no ongoing SIP.
You have set ambitious goals for yourself. To achieve your goals as you have planned, you need to invest Rs 20,000 per month now and keep increasing this by 5 per cent every year. Here are option you can look at:
Original Plan/Alternative Plan I/Alternative Plan II/Alternative Plan III
Present monthly investments:
(Rs) 20,000/14,500/10,000/10,000
Retirement age (Years): 48/50/48/48
Retirement corpus (Rs crore): 2.00/2.00/1.16/1.12
Son’s education corpus (Rs lakh): 25/20/20/25
Post-retirement income (Rs/month):
83,500/86,700/49,500/45,650
At today’s value (Rs): 25,250/23,100/
15,000/13,800
ASSUMPTIONS
The retirement corpus allows for increasingly higher income/withdrawals every year to keep pace with inflation.
Also, we have not considered the inflows from your insurance policies in future.
EQUITY PORTFOLIO
You have indulged in investments across a spectrum of options, but in an attempt to invest in safe instruments, your portfolio has leaned too far in favour of debt – this has more than 80 per cent allocation in your portfolio.
You need to raise exposure to equity. Fixed income investments such as FDs and PPF will generate safe returns of about 7 to 10 per cent per annum, but equities can generate even better gains in the long run, say, around five years;
Reduce investments in FDs and Post Office MIS. Shift proceeds towards mutual fund equity schemes. Limit investments in PPF to under Rs 1,000 per month. Maintain an emergency fund of about Rs 50,000.
SUGGESTIONS
We analysed your investments in both MFs and stocks and have some suggestions.
Investing in stocks: You have been investing in stocks directly. If you have the inclination, the time and the understanding to research companies yourself, then definitely build a stock portfolio for yourself, otherwise leave the job to mutual funds.
Rebuilding MF Portfolio: Opt for SIPs whereby regular investments will be made at all market levels.
Your mutual fund portfolio should be seen as supplementing your stocks portfolio, i.e., if you decide to invest further in these. Currently, none of the funds that you hold fits our recommendations.
Start with investing in up to three diversified large-cap equity funds. Include one debt fund (up to 20 per cent of the portfolio) to provide cushioning against extreme market movements and to help in regular rebalancing. You may consider investing up to 20 per cent in one aggressive equity fund as well.
You can claim tax benefits from fund investments, too You are repaying a home loan. The principal component of this repayment forms a sizable part of this repayment and is exempt under Section 80C of Income Tax Act. Utilise the unclaimed tax benefit by investing in two tax-planning funds.
Here are few funds you can look at:
Diversified large-cap equity: DSPBR Equity, Birla Sun Life Frontline Equity, Magnum Contra and HDFC Top 200
Tax Planning Funds: Sundaram BNP Paribas Tax Saver, Magnum Taxgain, HDFC Taxsaver.
Debt funds: Kotak Flexi Debt, Canara Robeco Income.
RATIONALISE INSURANCE
Your present life cover of Rs 20 lakh leaves you under-insured. An adequate insurance cover will help your family meet their regular expenses and future goals in case of a tragedy. Here’s what needs to be done: