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Rebalance every year


BS Reporter  |  Mumbai 

I am 27 years old, working in a knowledge process outsourcing (KPO) unit. Currently, I am the only earning member in my family. My aim is to create a retirement corpus that will give me a monthly income of Rs 25,000. I have attached my current investment details. I have deliberately not balanced or diversified my portfolio yet. I felt the need to first get it reviewed and obtain some guidance on that front. This should help me choose my future investments properly. Please suggest me some funds that I should choose to fulfil my goals. I would also appreciate some guidance concerning my investment strategies.

-Sandeep Das


Existing Portfolio

Yearly Amt (Rs)

DSPBR Top 100 Equity Reg-G 12,000
HDFC Taxsaver-G 10,000
Kotak Opportunities-G 12,000
Magnum Taxgain-G 10,000
Reliance Diversified
Power Sector Retail-G
Sundaram BNP Paribas Taxsaver-G 12,000


Yearly Premium(Rs)

LIC Market Plus 20,000
LIC Profit Plus(Two) 20,000
LIC Jeewan Tarang(Two) 50,000
HDFC Unit Linked Endowment Plan 20,000
Amount (Rs)
PPF 50,134 8/1/2023
Kisan Vikas Patra 100,000


National Saving Certificate 16,010 1/25/2013
National Saving Certificate 24,015 2/23/2012
Post Office MIS 33,000 1/29/2009
Post Office MIS 13,200 2/28/2009

Your approach of investing 30 per cent of your income in various short- and long-term assets and keeping 10 per cent in cash for emergencies reflects a sensible and disciplined approach towards investing.

Let's look at each of them.

Even though you are young, it is always important to have some amount of exposure to this asset class. Your investment in debt is in Kisan Vikas Patra (KVP), National Savings Certificate (NSC), Post Office Monthly Income Scheme and Public Provident Fund (PPF). All these are very safe since they are backed by the government.

Due to their fixed return and safety, they will provide the stability to your portfolio. Also, your investments in PPF and NSC will fall under Section 80C of the Income Tax Act, enabling you to use the tax benefit. But please keep in mind the tenure of the instruments and try and ensure that you will not need this money for the entire time-frame. For example, the NSC has a lock-in period of 6 years, while it is 15 years for PPF.

We are not against insurance. And since you are the only earning member in your family, it is mandatory in your case. But we do not advocate mixing insurance with investments.

Currently, you have four Ulips in your portfolio and this is eating away a lot of money in the form of expenses. We did a simple comparison between a Ulip (LIC Market Plus) and a mutual fund scheme on the basis of chargeable expenses. We allocated Rs 20,000 annually for 20 years in both the instruments.

In the case of the Ulip, the deductible charges amounted to Rs 6,356, including the premium allocation, policy administration, fund management charges, addition to fund charges and other charges.

After deducting the chargeable expenses, we found that in case of the Ulip, the investable amount stands at Rs 13,644 and in Rs 19,600. Looking at this as the annual investment for the next 20 years, the corpus in hand will eventually stand at Rs 11.41 lakh (Ulip) and Rs 13.80 lakh (mutual fund). This difference of almost 20 per cent is directly the result of expense charges. The commission paid to agents, which goes as high as 50-70 per cent of the premium, was not taken into account.

Currently, with four Ulips and two 'with-profit whole-life' plans, you are paying a heavy premium to get insured. For instance, your annual premium for the two LIC policies is Rs 50,000. But had you opted for a basic-term policy, you would be able to obtain a huge cover at a cheap rate. And you would be in a position to invest the balance amount elsewhere.

Your current portfolio is high on quality in spite of tax-saving funds, accounting for 57 per cent of the total investment.

In your mutual fund portfolio, you have eight schemes. You can make DSPBR Top 100 Equity and Magnum Tax Gain your core holdings. Both these funds are large-cap schemes with a strong track record.

From the remaining two -- HDFC Tax Saver and Sundaram BNP Paribas Tax Saver -- you can stay invested in any one of them. But do remember to sell only after the lock-in period. HDFC Tax Saver is a mid-cap-oriented fund, while the other is a multi-cap fund.

It would be wise to stay away from theme-based funds like DSPBR World Gold Fund and Reliance Diversified Power Sector Fund. You can take a minimum exposure to Kotak Opportunities Fund. For the debt allocation, do consider a debt fund like Kotak Flexi Debt and not just fixed-return instruments.

Our entire analysis is based on your need to create a corpus that will offer you Rs 25,000 a month. Let's make a few assumptions:

* You retire at the age of 57.

* Since you are 27 years of age, that will leave you with 30 years to invest.

* You live for 43 years after you retire.

To survive on a monthly income of Rs 25,000 for 43 years, you will require a corpus of Rs 1.30 crore when you retire.

To generate Rs 25,000 a month, you need to systematically invest Rs 9,000 every month for the next 30 years. This will allow you to sit on a corpus of Rs 2 crore, if we assume a compounded annual return of 10 per cent, quite moderate if the asset in question is equity.

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First Published: Sun, December 14 2008. 00:00 IST