I am 32 years old and my family includes my parents, my 29-year old wife and a 3-year old child. My monthly take home salary is around Rs 1 lakh. My monthly expenses are Rs 30,000. Apart from this, I pay equated monthly instalments (EMIs) towards my home loan (Rs 32,786), car loan (Rs 7,198) and education loan (Rs 5,000). While my home loan will get cleared in nine years, my car loan will wind up by December and the education loan by March.
Suggest schemes for an additional monthly SIP of Rs 10,000. I currently contribute Rs 24,000 each month via SIP in 15 schemes. Please consolidate my entire fund portfolio to around 10 funds.
ACTION POINTS
# Your portfolio doesn’t get any additional diversification with 31 funds. It’s a wise call that you want to consolidate it. However, we do find 10 funds a bit excessive, too. We suggest you go with five good, quality picks.
# Your fund portfolio has a high exposure to mid- and small-cap stocks, 40 per cent. You can limit it to around 30 per cent and increase your large-cap exposure to around 70 per cent.
# Your portfolio lacks a pure debt fund that is necessary for rebalancing. Investments in funds such as DSPBR T.I.G.E.R. and Reliance Diversified Power Sector can be avoided due to their sector or thematic bias.
# You have invested in two closed-end funds, HDFC Long-term Equity and Sundaram BNP Paribas Select Small Cap. Don’t block your money in investments which require a lock-in period.
# Avoid investing in shares in the future. Also, avoid closed-end funds and new fund offerings (NFOs). Think wisely before you opt for a sector or thematic offering.
# We have suggested two portfolios from your existing holdings. Exit all other funds in your portfolio and channelise the proceeds to the suggested investments. Keep in mind the one-year time frame to avoid paying short-term capital gains tax. Exit tax-saving funds once the three-year lock-in period is over. For closed-end funds, exit after their redemption date to avoid paying load charges.
# Once a year, rebalance your portfolio to ensure the equity-debt allocation is maintained. As your goals come near, money allocated to equity should gradually shift to debt.
SUGGESTED PORTFOLIO
We have suggested two portfolios. You may pick either. If you go with Portfolio A, let your core funds constitute at least 70 per cent of the portfolio.
PORTFOLIO A
CORE FUNDS
# One large-cap fund: DSPBR Top 100 Equity
# Any two large-and mid-cap: Fidelity Equity, HDFC Top 200, BSL Frontline Equity A
SUPPORTING FUNDS
# One mid- and small-cap: Sundaram BNP Paribas Select Midcap Reg, Reliance Growth, IDFC Premier Equity Plan A, Sundaram BNP Paribas S.M.I.L.E. Reg
# One debt fund: Fortis Flexi Debt
PORTFOLIO B
CORE FUNDS
# Any four multi-cap: Reliance Regular Saving, ICICI Pru Dynamic, HDFC Equity, DSPBR Equity, Magnum Contra
# One debt fund: Fortis Flexi Debt
The above calculations have been made based upon these assumptions: Annual inflation rate of 6.5 per cent; life expectancy of 85 years and return on equity investments, including mutual funds at10 per cent each year. Another assumption is that you will continue monthly investment till retirement, at 50.
GOALS
This far, you have accumulated Rs 19.45 lakh by way of investments in mutual funds and shares. Adding this up with your planned monthly investment of Rs 34,000, you will be able to accumulate a corpus of around Rs 1.98 crore in 18 years, after meeting your children’s education goal. The shortfall for the retirement kitty can be easily funded through your debt investments (EPF and PPF). We have not taken into account insurance for our calculations.
INSURANCE
You should increase the medical cover from the existing Rs 5 lakh.
It is good to note that you have taken a term insurance policy. As for your endowment policy, you might as well stick with it for the balance six years. However, it would make sense to talk to your agent and figure out if the surrender charges are nil and what you would lose if you exit now.
