I am 30 years old. I want to start investing Rs 10,000 per month in mutual funds via SIP. To start with, my time horizon is 3 years. I have chosen the following for an SIP of Rs 2,000 each: HDFC Equity, Sundaram Capex, SBI Magnum Contra, Reliance Equity and BSL Top 100.
- Rohan
From your suggested list, we would go with HDFC Equity and Magnum Contra. The objective of Magnum Contra is to primarily invest in undervalued scrips which could be out of favour at the time of investing but are likely to show attractive growth over the long term. Please look at the answer given to Amit Mehra in this section, concerning this very fund.
Instead of BSL Top 100, a better option would be DSPBR Top 100 Equity.
Instead of Reliance Equity, consider Canara Robeco Equity Diversified or Quantum Long Term Equity. Sundaram Capex is a thematic fund. We suggest you avoid it.
We have assumed that you have debt investments elsewhere and you are seeking advice solely on your equity portfolio. If not, do have some exposure to debt. In that case, drop a fund from the 'Large & Mid-Cap' category and pick a debt fund (Canara Robeco Income).
(source: valueresearchonline.com)
Mutual Fund News update from Nishit Doshi (9824021680) a leading MF Advisor based in Ahmedabad. Gujarat.
Thursday, August 12, 2010
Increase Equity Exposure
I am 34, married with a 4-year old daughter. My monthly salary is Rs 60,000, post tax and deductions. After meeting all my expenses, I have a surplus of Rs 5,000, which I plan to invest for wealth accumulation. I am servicing two loans and would like to close my home loan by the time I retire. The home loan EMI is Rs 10,000, which I have to pay for next 15 years. The personal loan EMI is Rs 3,000. I have a few long-term goals concerning my retirement and daughter's wedding
Life Insurance
A term insurance policy of Rs 15 lakh till the age of 60.
Medical Insurance
Provided by the employer up to Rs 2 lakh.
Goals
Retirement
Rs 1 crore
11 years
Daughter's wedding
Rs 7.50 lakh
20 years
Gold for the wedding
250 gms
20 years
Investments
The Problem
Equity allocation is insufficient
The Solution
Since your goals are far off, increase your equity allocation from the current 70 per cent to 80 per cent. As you near the goals, gradually lower it and increase debt allocation.
The Problem
Exposure to fixed return instruments is too high
The Solution
There is a constant contribution to the EPF. So don't concern yourself with recurring deposits. Instead, focus on equity. For the debt exposure, consider a debt fund. Your ongoing investments in debt (EPF, recurring deposits) account for 85 per cent of total monthly investments. A low equity exposure reduces the overall returns on your portfolio. Do not renew your 1-year deposit. Exit your 5-year deposit too if there is no cost involved or it is not too high.
The Problem
Tax allocation is overdone
The Solution
Since Section 80C has a limit of Rs 1 lakh, consider a tax saving fund only if you have not reached that amount after you pay your insurance premium, home loan EMI and contribution to EPF.
The Problem
Stock exposure with a significant mid cap tilt could backfire
The Solution
Your exposure to stocks is approximately 50 per cent of your equity portfolio. Investing in stocks requires adequate knowledge to buy as well as the capability to track individual companies and industries to decide when to sell them. Also, your focus is more on mid caps, which will result in a volatile portfolio. If you are capable of making such decisions, then increase exposure to large caps. If not, stick to mutual funds.
Goals
The Problem
The task of wealth accumulation is all the more difficult since you plan to retire by the time you are 45. You have just 11 years in hand and a daughter's wedding post retirement. If we assume an inflation rate of 6.5 per cent per annum, Rs 1 crore today, which is your retirement target, will be valued at about Rs 2 crore in 11 years.
Daughter's Wedding
As for the wedding, you have put that target amount as Rs 7.5 lakh, at today's prices. But 20 years down the road, it will amount to around Rs 26.42 lakh.
Post retirement, you will not be availing of a monthly salary and no fresh investments will be made. Hence, you need to accumulate the money required for the wedding by the time you retire. If you can accumulate Rs 16 lakh in 11 years, it will grow to around 26 lakh in the balance 9 years.
Loan repayment
You have not stated the tenure of the personal loan but we assume that it should close quickly. However, you aim to repay your loan amount three years prior to the scheduled 2021. Do check with your home loan provider if the EMI can be increased. But going by your current expenses/investments, it does not appear that you have the capacity to service a higher monthly installment, especially since you need to up your savings to achieve the other two goals mentioned above.
The Solution
Looking at your current investment portfolio, you contribute Rs 17,000/month towards your investments. To fulfill the retirement and marriage goal of Rs 2.16 crore by the time you retire, you need to hike that to around Rs 28,700 and keep increasing it at a rate of 15 per cent every year. For this we have assumed that your EPF contribution grows at the rate of 10 per cent per annum, earning an average return of 7.5 per cent per annum.
If you cannot manage that, here are some alternatives.
1. Mellow down your retirement corpus to Rs 75 lakh, which will be equivalent to about Rs 1.5 crore 11 years down the road. You can reach this target by investing approx Rs 19,800/month and keep increasing it by 15 per cent every year.
2. Alternately, stay with your targeted amount but extend the retirement age by another 5 years and keep investing on the same lines till then.
The Fund Portfolio
Redirect your ongoing SIP in HDFC Taxsaver and HDFC LT Advantage to other diversified equity funds, such as HDFC Top 200, DSPBR Equity, Magnum Contra or BSL Frontline Equity. You have not invested in any of the fixed income schemes. Consider Fortis Flexi Debt or Canara Robeco Income. This will give some balance to your portfolio and help in rebalancing it annually.
Term insurance
A cover of Rs 15 lakh is insufficient, keeping in view your future needs. The cover should be bought for an amount that is sufficient to cover outstanding loans, provide for the future goals and the regular need for expenses of your dependents. Increase your coverage.
Medical Insurance
Does the medical insurance cover your wife and daughter too? If you leave your job for another, during that transition phase you will not be covered. Or, if you retire by the time you are 45, you will have no cover and have to take a fresh policy then.
Emergency Planning
Don't forget to create a contingency fund to meet immediate cash requirements in case of an emergency. You may use the amount lying in your savings bank account if any need arises in the future as it gives you accessibility 24x7.
Purchasing Gold
You can keep purchasing small amounts of gold as and when you have surplus money. Alternatively, you could periodically buy units of a Gold Exchange Traded Fund (Gold ETF). These are funds that invest in physical gold but investors need to buy units which are sold on the stock exchange. Each unit represents a certain quantity of physical gold, usually 1 gm. As you approach the wedding, you can sell these units and with that money buy physical gold.
The returns are based on the assumption that the equity investments will earn 10% p.a.
(source: valueresearchonline.com)
Life Insurance
A term insurance policy of Rs 15 lakh till the age of 60.
Medical Insurance
Provided by the employer up to Rs 2 lakh.
Goals
Retirement
Rs 1 crore
11 years
Daughter's wedding
Rs 7.50 lakh
20 years
Gold for the wedding
250 gms
20 years
Investments
The Problem
Equity allocation is insufficient
The Solution
Since your goals are far off, increase your equity allocation from the current 70 per cent to 80 per cent. As you near the goals, gradually lower it and increase debt allocation.
The Problem
Exposure to fixed return instruments is too high
The Solution
There is a constant contribution to the EPF. So don't concern yourself with recurring deposits. Instead, focus on equity. For the debt exposure, consider a debt fund. Your ongoing investments in debt (EPF, recurring deposits) account for 85 per cent of total monthly investments. A low equity exposure reduces the overall returns on your portfolio. Do not renew your 1-year deposit. Exit your 5-year deposit too if there is no cost involved or it is not too high.
The Problem
Tax allocation is overdone
The Solution
Since Section 80C has a limit of Rs 1 lakh, consider a tax saving fund only if you have not reached that amount after you pay your insurance premium, home loan EMI and contribution to EPF.
The Problem
Stock exposure with a significant mid cap tilt could backfire
The Solution
Your exposure to stocks is approximately 50 per cent of your equity portfolio. Investing in stocks requires adequate knowledge to buy as well as the capability to track individual companies and industries to decide when to sell them. Also, your focus is more on mid caps, which will result in a volatile portfolio. If you are capable of making such decisions, then increase exposure to large caps. If not, stick to mutual funds.
Goals
The Problem
The task of wealth accumulation is all the more difficult since you plan to retire by the time you are 45. You have just 11 years in hand and a daughter's wedding post retirement. If we assume an inflation rate of 6.5 per cent per annum, Rs 1 crore today, which is your retirement target, will be valued at about Rs 2 crore in 11 years.
Daughter's Wedding
As for the wedding, you have put that target amount as Rs 7.5 lakh, at today's prices. But 20 years down the road, it will amount to around Rs 26.42 lakh.
Post retirement, you will not be availing of a monthly salary and no fresh investments will be made. Hence, you need to accumulate the money required for the wedding by the time you retire. If you can accumulate Rs 16 lakh in 11 years, it will grow to around 26 lakh in the balance 9 years.
Loan repayment
You have not stated the tenure of the personal loan but we assume that it should close quickly. However, you aim to repay your loan amount three years prior to the scheduled 2021. Do check with your home loan provider if the EMI can be increased. But going by your current expenses/investments, it does not appear that you have the capacity to service a higher monthly installment, especially since you need to up your savings to achieve the other two goals mentioned above.
The Solution
Looking at your current investment portfolio, you contribute Rs 17,000/month towards your investments. To fulfill the retirement and marriage goal of Rs 2.16 crore by the time you retire, you need to hike that to around Rs 28,700 and keep increasing it at a rate of 15 per cent every year. For this we have assumed that your EPF contribution grows at the rate of 10 per cent per annum, earning an average return of 7.5 per cent per annum.
If you cannot manage that, here are some alternatives.
1. Mellow down your retirement corpus to Rs 75 lakh, which will be equivalent to about Rs 1.5 crore 11 years down the road. You can reach this target by investing approx Rs 19,800/month and keep increasing it by 15 per cent every year.
2. Alternately, stay with your targeted amount but extend the retirement age by another 5 years and keep investing on the same lines till then.
The Fund Portfolio
Redirect your ongoing SIP in HDFC Taxsaver and HDFC LT Advantage to other diversified equity funds, such as HDFC Top 200, DSPBR Equity, Magnum Contra or BSL Frontline Equity. You have not invested in any of the fixed income schemes. Consider Fortis Flexi Debt or Canara Robeco Income. This will give some balance to your portfolio and help in rebalancing it annually.
Term insurance
A cover of Rs 15 lakh is insufficient, keeping in view your future needs. The cover should be bought for an amount that is sufficient to cover outstanding loans, provide for the future goals and the regular need for expenses of your dependents. Increase your coverage.
Medical Insurance
Does the medical insurance cover your wife and daughter too? If you leave your job for another, during that transition phase you will not be covered. Or, if you retire by the time you are 45, you will have no cover and have to take a fresh policy then.
Emergency Planning
Don't forget to create a contingency fund to meet immediate cash requirements in case of an emergency. You may use the amount lying in your savings bank account if any need arises in the future as it gives you accessibility 24x7.
Purchasing Gold
You can keep purchasing small amounts of gold as and when you have surplus money. Alternatively, you could periodically buy units of a Gold Exchange Traded Fund (Gold ETF). These are funds that invest in physical gold but investors need to buy units which are sold on the stock exchange. Each unit represents a certain quantity of physical gold, usually 1 gm. As you approach the wedding, you can sell these units and with that money buy physical gold.
The returns are based on the assumption that the equity investments will earn 10% p.a.
(source: valueresearchonline.com)
Reduce Number of Funds
I am 31 years old. I live with my wife and a 17-month old son. I am the sole breadwinner with a take-home monthly salary of Rs 70,000. My monthly expenses are around Rs 25,000. After meeting my other liabilities, I invest Rs 34,000 per month in mutual funds via systematic investment plans (SIPs).
Currently, I have three insurance policies which provide a total life cover of Rs 22 lakh. The premium I pay towards them exhausts my exemption limit of Rs 1 lakh under Section 80C. I intend to buy a term insurance policy worth Rs 1.5 crore, a child plan to cover my child's education and a pension plan.
Please help me revamp my portfolio so that I am able to achieve my goals.
-Raghvendra Sharma
Current Investments
FDs - Rs 1.65 lakh
NSC - Rs 20,000
MFs - Rs 8.53 lakh
We are impressed by your consistent investment philosophy and how well you have articulated your goals. However, we are not totally clear about your entire portfolio. You have mentioned three insurance policies but have not provided adequate details on whether they are Ulips, money back policies or term insurance policies. While you have mentioned National Saving Certificate (NSC) and fixed deposits (FDs), you have not mentioned the details of the Employees Provident Fund (EPF) or Public Provident Fund (PPF).
In our view, your current investments (Rs 10.4 lakh) and the monthly commitment to ongoing investments (Rs 34,000) will definitely help you achieve your goals. However, we are making that statement based on three assumptions:
1) Your investment allocation will increase by 10 per cent every year till the time you retire.
2) All your investments earn a return of 10 per cent per annum.
3) Inflation @ 6.5 per cent per annum has been taken into account.
Buying a house
When you take a home loan, you will be required to put up around 15 per cent of the total cost as a margin payment. Your current ongoing investments and the total value of your present investments (Rs 10.4 lakh) will be worth around Rs 20 lakh in two years. This should help you take care of that amount.
Retirement
After meeting your other goals, you will be able to accumulate a corpus of Rs 3.4 crore by the age of 60, which will take care of your monthly requirement of Rs 1.65 lakh post-retirement. Any amount that you receive from your insurance policies or provident fund will be additional income for you.
Term Insurance
A life cover of Rs 1.5 crore, along with your present insurance policies, should be sufficient to meet all your liabilities and monthly expenses of your dependants in the case of your demise.
Child Plan/ Pension Plan
Are you referring to insurance products? You already have three policies and are taking out one more. To build up a corpus, stick to investments by way of mutual funds; it is cost efficient, transparent and gives a higher return than any other avenue.
Contingency planning
Have you planned for any emergency? Some money in a savings bank account or a flexi deposit in your bank would help.
Trimming the mutual fund portfolio
Your fund portfolio has an exposure of around 75 per cent to equities; increase it to 90 per cent. Your goals are far off and a higher equity exposure will help in wealth accumulation.
Your current portfolio holds 24 funds which add up to a total of more than 350 stocks. This is a clear case of over-diversification. Moreover, it becomes difficult to manage so many funds. A fall-out of such diversification is that each of them has a negligible share in your portfolio. So even if they display great performance, it will not have a significant impact on your overall portfolio.
Our advice: Continue with an SIP but stick to around 7 funds.
Core Holdings (70%)
From your existing funds, stick to 4 or 5 as your core holdings.
Continue with your SIP in these funds.
Take your pick from these but ensure that your selection is across fund houses: DSPBR Top 100 Equity, DSPBR Equity, Franklin India Prima Plus, Templeton India Equity Income, HDFC Top 200, UTI Opportunities, Magnum Contra, Reliance Regular Savings Equity and Tata Equity PE.
Debt Exposure (10%)
Select one, either Fortis Flexi Debt or Canara Robeco Income.
Supporting Funds (20%)
When you invested in DSPBR World Gold Fund, were you aware that this fund carries a lot of risk since it invests in stocks of gold mining companies across the globe? If you want an exposure to gold, then you could try a Gold Exchange Traded Fund (Gold ETF).
You also invested in UTI Infrastructure Advantage and ICICI Prudential Infrastructure. If you want an exposure to this theme, stick with ICICI Prudential Infrastructure.
Offloading The Rest
Once you decide on your core holdings and the thematic offerings you wish to hold, start the process of offloading the rest.
Begin by terminating all your other SIPs.
To avoid short-term capital gains, start by selling those funds which you have held for more than a year. Since you have been investing via SIP, the investments have been ongoing and continuous so it would take a while. If possible, try and avoid paying any exit load.
From your 4 close ended funds: UTI Infrastructure Advantage- Series 1, HDFC Mid-Cap Opportunities, UTI Wealth Builder and Franklin Templeton Capital Safety, the latter is the only one that does not allow premature redemptions. You, therefore, have no choice but to hold on to it till maturity.
(source: valueresearchonline.com)
Currently, I have three insurance policies which provide a total life cover of Rs 22 lakh. The premium I pay towards them exhausts my exemption limit of Rs 1 lakh under Section 80C. I intend to buy a term insurance policy worth Rs 1.5 crore, a child plan to cover my child's education and a pension plan.
Please help me revamp my portfolio so that I am able to achieve my goals.
-Raghvendra Sharma
Current Investments
FDs - Rs 1.65 lakh
NSC - Rs 20,000
MFs - Rs 8.53 lakh
We are impressed by your consistent investment philosophy and how well you have articulated your goals. However, we are not totally clear about your entire portfolio. You have mentioned three insurance policies but have not provided adequate details on whether they are Ulips, money back policies or term insurance policies. While you have mentioned National Saving Certificate (NSC) and fixed deposits (FDs), you have not mentioned the details of the Employees Provident Fund (EPF) or Public Provident Fund (PPF).
In our view, your current investments (Rs 10.4 lakh) and the monthly commitment to ongoing investments (Rs 34,000) will definitely help you achieve your goals. However, we are making that statement based on three assumptions:
1) Your investment allocation will increase by 10 per cent every year till the time you retire.
2) All your investments earn a return of 10 per cent per annum.
3) Inflation @ 6.5 per cent per annum has been taken into account.
Buying a house
When you take a home loan, you will be required to put up around 15 per cent of the total cost as a margin payment. Your current ongoing investments and the total value of your present investments (Rs 10.4 lakh) will be worth around Rs 20 lakh in two years. This should help you take care of that amount.
Retirement
After meeting your other goals, you will be able to accumulate a corpus of Rs 3.4 crore by the age of 60, which will take care of your monthly requirement of Rs 1.65 lakh post-retirement. Any amount that you receive from your insurance policies or provident fund will be additional income for you.
Term Insurance
A life cover of Rs 1.5 crore, along with your present insurance policies, should be sufficient to meet all your liabilities and monthly expenses of your dependants in the case of your demise.
Child Plan/ Pension Plan
Are you referring to insurance products? You already have three policies and are taking out one more. To build up a corpus, stick to investments by way of mutual funds; it is cost efficient, transparent and gives a higher return than any other avenue.
Contingency planning
Have you planned for any emergency? Some money in a savings bank account or a flexi deposit in your bank would help.
Trimming the mutual fund portfolio
Your fund portfolio has an exposure of around 75 per cent to equities; increase it to 90 per cent. Your goals are far off and a higher equity exposure will help in wealth accumulation.
Your current portfolio holds 24 funds which add up to a total of more than 350 stocks. This is a clear case of over-diversification. Moreover, it becomes difficult to manage so many funds. A fall-out of such diversification is that each of them has a negligible share in your portfolio. So even if they display great performance, it will not have a significant impact on your overall portfolio.
Our advice: Continue with an SIP but stick to around 7 funds.
Core Holdings (70%)
From your existing funds, stick to 4 or 5 as your core holdings.
Continue with your SIP in these funds.
Take your pick from these but ensure that your selection is across fund houses: DSPBR Top 100 Equity, DSPBR Equity, Franklin India Prima Plus, Templeton India Equity Income, HDFC Top 200, UTI Opportunities, Magnum Contra, Reliance Regular Savings Equity and Tata Equity PE.
Debt Exposure (10%)
Select one, either Fortis Flexi Debt or Canara Robeco Income.
Supporting Funds (20%)
When you invested in DSPBR World Gold Fund, were you aware that this fund carries a lot of risk since it invests in stocks of gold mining companies across the globe? If you want an exposure to gold, then you could try a Gold Exchange Traded Fund (Gold ETF).
You also invested in UTI Infrastructure Advantage and ICICI Prudential Infrastructure. If you want an exposure to this theme, stick with ICICI Prudential Infrastructure.
Offloading The Rest
Once you decide on your core holdings and the thematic offerings you wish to hold, start the process of offloading the rest.
Begin by terminating all your other SIPs.
To avoid short-term capital gains, start by selling those funds which you have held for more than a year. Since you have been investing via SIP, the investments have been ongoing and continuous so it would take a while. If possible, try and avoid paying any exit load.
From your 4 close ended funds: UTI Infrastructure Advantage- Series 1, HDFC Mid-Cap Opportunities, UTI Wealth Builder and Franklin Templeton Capital Safety, the latter is the only one that does not allow premature redemptions. You, therefore, have no choice but to hold on to it till maturity.
(source: valueresearchonline.com)
Reduce Number of Funds
I am 31 years old. I live with my wife and a 17-month old son. I am the sole breadwinner with a take-home monthly salary of Rs 70,000. My monthly expenses are around Rs 25,000. After meeting my other liabilities, I invest Rs 34,000 per month in mutual funds via systematic investment plans (SIPs).
Currently, I have three insurance policies which provide a total life cover of Rs 22 lakh. The premium I pay towards them exhausts my exemption limit of Rs 1 lakh under Section 80C. I intend to buy a term insurance policy worth Rs 1.5 crore, a child plan to cover my child's education and a pension plan.
Please help me revamp my portfolio so that I am able to achieve my goals.
-Raghvendra Sharma
Current Investments
FDs - Rs 1.65 lakh
NSC - Rs 20,000
MFs - Rs 8.53 lakh
We are impressed by your consistent investment philosophy and how well you have articulated your goals. However, we are not totally clear about your entire portfolio. You have mentioned three insurance policies but have not provided adequate details on whether they are Ulips, money back policies or term insurance policies. While you have mentioned National Saving Certificate (NSC) and fixed deposits (FDs), you have not mentioned the details of the Employees Provident Fund (EPF) or Public Provident Fund (PPF).
In our view, your current investments (Rs 10.4 lakh) and the monthly commitment to ongoing investments (Rs 34,000) will definitely help you achieve your goals. However, we are making that statement based on three assumptions:
1) Your investment allocation will increase by 10 per cent every year till the time you retire.
2) All your investments earn a return of 10 per cent per annum.
3) Inflation @ 6.5 per cent per annum has been taken into account.
Buying a house
When you take a home loan, you will be required to put up around 15 per cent of the total cost as a margin payment. Your current ongoing investments and the total value of your present investments (Rs 10.4 lakh) will be worth around Rs 20 lakh in two years. This should help you take care of that amount.
Retirement
After meeting your other goals, you will be able to accumulate a corpus of Rs 3.4 crore by the age of 60, which will take care of your monthly requirement of Rs 1.65 lakh post-retirement. Any amount that you receive from your insurance policies or provident fund will be additional income for you.
Term Insurance
A life cover of Rs 1.5 crore, along with your present insurance policies, should be sufficient to meet all your liabilities and monthly expenses of your dependants in the case of your demise.
Child Plan/ Pension Plan
Are you referring to insurance products? You already have three policies and are taking out one more. To build up a corpus, stick to investments by way of mutual funds; it is cost efficient, transparent and gives a higher return than any other avenue.
Contingency planning
Have you planned for any emergency? Some money in a savings bank account or a flexi deposit in your bank would help.
Trimming the mutual fund portfolio
Your fund portfolio has an exposure of around 75 per cent to equities; increase it to 90 per cent. Your goals are far off and a higher equity exposure will help in wealth accumulation.
Your current portfolio holds 24 funds which add up to a total of more than 350 stocks. This is a clear case of over-diversification. Moreover, it becomes difficult to manage so many funds. A fall-out of such diversification is that each of them has a negligible share in your portfolio. So even if they display great performance, it will not have a significant impact on your overall portfolio.
Our advice: Continue with an SIP but stick to around 7 funds.
Core Holdings (70%)
From your existing funds, stick to 4 or 5 as your core holdings.
Continue with your SIP in these funds.
Take your pick from these but ensure that your selection is across fund houses: DSPBR Top 100 Equity, DSPBR Equity, Franklin India Prima Plus, Templeton India Equity Income, HDFC Top 200, UTI Opportunities, Magnum Contra, Reliance Regular Savings Equity and Tata Equity PE.
Debt Exposure (10%)
Select one, either Fortis Flexi Debt or Canara Robeco Income.
Supporting Funds (20%)
When you invested in DSPBR World Gold Fund, were you aware that this fund carries a lot of risk since it invests in stocks of gold mining companies across the globe? If you want an exposure to gold, then you could try a Gold Exchange Traded Fund (Gold ETF).
You also invested in UTI Infrastructure Advantage and ICICI Prudential Infrastructure. If you want an exposure to this theme, stick with ICICI Prudential Infrastructure.
Offloading The Rest
Once you decide on your core holdings and the thematic offerings you wish to hold, start the process of offloading the rest.
Begin by terminating all your other SIPs.
To avoid short-term capital gains, start by selling those funds which you have held for more than a year. Since you have been investing via SIP, the investments have been ongoing and continuous so it would take a while. If possible, try and avoid paying any exit load.
From your 4 close ended funds: UTI Infrastructure Advantage- Series 1, HDFC Mid-Cap Opportunities, UTI Wealth Builder and Franklin Templeton Capital Safety, the latter is the only one that does not allow premature redemptions. You, therefore, have no choice but to hold on to it till maturity.
(source: valueresearchonline.com)
Currently, I have three insurance policies which provide a total life cover of Rs 22 lakh. The premium I pay towards them exhausts my exemption limit of Rs 1 lakh under Section 80C. I intend to buy a term insurance policy worth Rs 1.5 crore, a child plan to cover my child's education and a pension plan.
Please help me revamp my portfolio so that I am able to achieve my goals.
-Raghvendra Sharma
Current Investments
FDs - Rs 1.65 lakh
NSC - Rs 20,000
MFs - Rs 8.53 lakh
We are impressed by your consistent investment philosophy and how well you have articulated your goals. However, we are not totally clear about your entire portfolio. You have mentioned three insurance policies but have not provided adequate details on whether they are Ulips, money back policies or term insurance policies. While you have mentioned National Saving Certificate (NSC) and fixed deposits (FDs), you have not mentioned the details of the Employees Provident Fund (EPF) or Public Provident Fund (PPF).
In our view, your current investments (Rs 10.4 lakh) and the monthly commitment to ongoing investments (Rs 34,000) will definitely help you achieve your goals. However, we are making that statement based on three assumptions:
1) Your investment allocation will increase by 10 per cent every year till the time you retire.
2) All your investments earn a return of 10 per cent per annum.
3) Inflation @ 6.5 per cent per annum has been taken into account.
Buying a house
When you take a home loan, you will be required to put up around 15 per cent of the total cost as a margin payment. Your current ongoing investments and the total value of your present investments (Rs 10.4 lakh) will be worth around Rs 20 lakh in two years. This should help you take care of that amount.
Retirement
After meeting your other goals, you will be able to accumulate a corpus of Rs 3.4 crore by the age of 60, which will take care of your monthly requirement of Rs 1.65 lakh post-retirement. Any amount that you receive from your insurance policies or provident fund will be additional income for you.
Term Insurance
A life cover of Rs 1.5 crore, along with your present insurance policies, should be sufficient to meet all your liabilities and monthly expenses of your dependants in the case of your demise.
Child Plan/ Pension Plan
Are you referring to insurance products? You already have three policies and are taking out one more. To build up a corpus, stick to investments by way of mutual funds; it is cost efficient, transparent and gives a higher return than any other avenue.
Contingency planning
Have you planned for any emergency? Some money in a savings bank account or a flexi deposit in your bank would help.
Trimming the mutual fund portfolio
Your fund portfolio has an exposure of around 75 per cent to equities; increase it to 90 per cent. Your goals are far off and a higher equity exposure will help in wealth accumulation.
Your current portfolio holds 24 funds which add up to a total of more than 350 stocks. This is a clear case of over-diversification. Moreover, it becomes difficult to manage so many funds. A fall-out of such diversification is that each of them has a negligible share in your portfolio. So even if they display great performance, it will not have a significant impact on your overall portfolio.
Our advice: Continue with an SIP but stick to around 7 funds.
Core Holdings (70%)
From your existing funds, stick to 4 or 5 as your core holdings.
Continue with your SIP in these funds.
Take your pick from these but ensure that your selection is across fund houses: DSPBR Top 100 Equity, DSPBR Equity, Franklin India Prima Plus, Templeton India Equity Income, HDFC Top 200, UTI Opportunities, Magnum Contra, Reliance Regular Savings Equity and Tata Equity PE.
Debt Exposure (10%)
Select one, either Fortis Flexi Debt or Canara Robeco Income.
Supporting Funds (20%)
When you invested in DSPBR World Gold Fund, were you aware that this fund carries a lot of risk since it invests in stocks of gold mining companies across the globe? If you want an exposure to gold, then you could try a Gold Exchange Traded Fund (Gold ETF).
You also invested in UTI Infrastructure Advantage and ICICI Prudential Infrastructure. If you want an exposure to this theme, stick with ICICI Prudential Infrastructure.
Offloading The Rest
Once you decide on your core holdings and the thematic offerings you wish to hold, start the process of offloading the rest.
Begin by terminating all your other SIPs.
To avoid short-term capital gains, start by selling those funds which you have held for more than a year. Since you have been investing via SIP, the investments have been ongoing and continuous so it would take a while. If possible, try and avoid paying any exit load.
From your 4 close ended funds: UTI Infrastructure Advantage- Series 1, HDFC Mid-Cap Opportunities, UTI Wealth Builder and Franklin Templeton Capital Safety, the latter is the only one that does not allow premature redemptions. You, therefore, have no choice but to hold on to it till maturity.
(source: valueresearchonline.com)
Know-Your-Distributor Norms Soon
The Association of Mutual Funds in India (AMFI) is planning know-your-distributor (KYD) norms in line with the existing know-your-customer (KYC) details, a source close to the development told Value Research.
According to the source, who is member of an AMFI committee, the decision on the same would most likely be taken in an AMFI meeting slated later today (August 11). When contacted AMFI Chairman A P Kurian said the draft of the norms would be finalised in another couple of days. He refused to divulge further details
Under the KYD norms, details such as address, ARN (AMFI registered numbers) etc would be sought from a distributor and a data base of all these details would be maintained by an AMFI body.
As per the KYC norms, an investor has to provide the fund house proof of their identity and address, PAN card and photographs. KYC formalities are required to be completed for all unit holders for any investment (whether new or additional purchase) of Rs 50,000 or more in mutual funds. For the convenience of investors, all mutual funds have made special arrangements with CDSL Ventures Ltd (CVL), a wholly owned subsidiary of Central Depository Services (CDSL).
A mutual fund distributor told Value Research that KYD norms would improve servicing of clients by distributors. "In many cases, independent financial advisors and individual distributors would simply sell the products and never show their face again to the clients. Now, with a comprehensive data base on distributors, once can trace such distributors," he said.
(source: valueresearchonline.com)
According to the source, who is member of an AMFI committee, the decision on the same would most likely be taken in an AMFI meeting slated later today (August 11). When contacted AMFI Chairman A P Kurian said the draft of the norms would be finalised in another couple of days. He refused to divulge further details
Under the KYD norms, details such as address, ARN (AMFI registered numbers) etc would be sought from a distributor and a data base of all these details would be maintained by an AMFI body.
As per the KYC norms, an investor has to provide the fund house proof of their identity and address, PAN card and photographs. KYC formalities are required to be completed for all unit holders for any investment (whether new or additional purchase) of Rs 50,000 or more in mutual funds. For the convenience of investors, all mutual funds have made special arrangements with CDSL Ventures Ltd (CVL), a wholly owned subsidiary of Central Depository Services (CDSL).
A mutual fund distributor told Value Research that KYD norms would improve servicing of clients by distributors. "In many cases, independent financial advisors and individual distributors would simply sell the products and never show their face again to the clients. Now, with a comprehensive data base on distributors, once can trace such distributors," he said.
(source: valueresearchonline.com)
Revision of exit load for switch outs under Birla Sun Life MIP II – Saving 5
Birla Sun Life Mutual Fund has revised the exit load applicable to switch outs from Birla Sun Life MIP II – Saving 5 Plan to certain fixed income schemes, with effect from August 12, 2010.
Revised Provision:
For Switch out(s) made from Birla Sun Life MIP II – Saving 5 Plan to any other schemes of Birla Sun Life Mutual Fund, exit load as applicable to the scheme shall be charged.
Existing Provisions:
No exit load shall be charged for switch-out(s) made from various plans/options under Birla Sun Life MIP II – Saving 5 Plan to Birla Sun Life Dynamic Bond, Birla Sun Life Income Fund, Birla Sun Life GSF – Long Term Plan, Birla Sun Life Monthly Income and Birla Sun Life MIP II – Wealth 25 Plan.
(source: valueresearchonline.com)
Revised Provision:
For Switch out(s) made from Birla Sun Life MIP II – Saving 5 Plan to any other schemes of Birla Sun Life Mutual Fund, exit load as applicable to the scheme shall be charged.
Existing Provisions:
No exit load shall be charged for switch-out(s) made from various plans/options under Birla Sun Life MIP II – Saving 5 Plan to Birla Sun Life Dynamic Bond, Birla Sun Life Income Fund, Birla Sun Life GSF – Long Term Plan, Birla Sun Life Monthly Income and Birla Sun Life MIP II – Wealth 25 Plan.
(source: valueresearchonline.com)
Evaluating Fund Performance
Harish Gupta, a 35-year-old sales executive who works with a multinational firm in Delhi, holds three equity diversified funds in his portfolio.
He wants to assess the performance of these funds to decide whether he should stay invested in them or offload them. Here is how our website www.valueresearchonline.com can ease his task of making this decision.
Fund compare. On the home page of the website go to the tool named Fund Compare. Go down the list of funds and select the fund that you own. Then click on the 'Add' tab. Repeat this to add all the funds that you hold. Thereafter click on the 'Get Data' tab. The basic details of all the funds in your portfolio appear. These include the risk grade, rating, 1-year return, and expense ratio of the funds.
Now if you wish to examine each fund in greater detail, click on the name of each.
Snapshot. This is the default tab that opens when you click on the name of a fund. Here further details such as the latest net asset value (NAV), net assets, and trailing returns of the fund over various investment horizons are provided. Category average returns over the same time horizons are also given in the next column to enable you to make quick and easy comparisons.
Performance. Here you get to see the rating and the return grade of the fund. You can also look up statistics such as R-square, Alpha and Beta. Measures of volatility and risk adjusted return are also provided.
Lower down on this page, you can also look up the periods when the fund turned in its best and worst performance. Next, trailing returns of the fund over different time horizons ranging from 1 week to 5 years are given.
Annual returns from the fund are juxtaposed against the category-average returns and returns from the major benchmark indices such as Nifty and Sensex (again to facilitate comparison). Quarterly returns over the last 5-6 years are also available.
Portfolio. On this page data on the fund's asset allocation and portfolio concentration are provided. Savvy investors can look up valuation-related numbers such as portfolio P/B ratio and portfolio P/E ratio, and also top stock and sectoral holdings.
Analysis. In this section you can read an informed analysis on the fund written by a Value Research analyst. You can also read a brief biodata of the fund manager on this
With this amount of statistics, data and information displayed in a user-friendly format, evaluating the quality of the fund becomes a cakewalk for investors like Gupta page of the website.
.(source: valueresearchonline.com)
He wants to assess the performance of these funds to decide whether he should stay invested in them or offload them. Here is how our website www.valueresearchonline.com can ease his task of making this decision.
Fund compare. On the home page of the website go to the tool named Fund Compare. Go down the list of funds and select the fund that you own. Then click on the 'Add' tab. Repeat this to add all the funds that you hold. Thereafter click on the 'Get Data' tab. The basic details of all the funds in your portfolio appear. These include the risk grade, rating, 1-year return, and expense ratio of the funds.
Now if you wish to examine each fund in greater detail, click on the name of each.
Snapshot. This is the default tab that opens when you click on the name of a fund. Here further details such as the latest net asset value (NAV), net assets, and trailing returns of the fund over various investment horizons are provided. Category average returns over the same time horizons are also given in the next column to enable you to make quick and easy comparisons.
Performance. Here you get to see the rating and the return grade of the fund. You can also look up statistics such as R-square, Alpha and Beta. Measures of volatility and risk adjusted return are also provided.
Lower down on this page, you can also look up the periods when the fund turned in its best and worst performance. Next, trailing returns of the fund over different time horizons ranging from 1 week to 5 years are given.
Annual returns from the fund are juxtaposed against the category-average returns and returns from the major benchmark indices such as Nifty and Sensex (again to facilitate comparison). Quarterly returns over the last 5-6 years are also available.
Portfolio. On this page data on the fund's asset allocation and portfolio concentration are provided. Savvy investors can look up valuation-related numbers such as portfolio P/B ratio and portfolio P/E ratio, and also top stock and sectoral holdings.
Analysis. In this section you can read an informed analysis on the fund written by a Value Research analyst. You can also read a brief biodata of the fund manager on this
With this amount of statistics, data and information displayed in a user-friendly format, evaluating the quality of the fund becomes a cakewalk for investors like Gupta page of the website.
.(source: valueresearchonline.com)
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