I am 30, based in Dubai and have two dependents: my wife and seven-year-old daughter. I have been investing since 2006 and recently bought gilt funds. Please suggest if these are the right investments for the future. Is there something I should do to better my investment portfolio to achieve my targets?
• To retire by the age of 45.
• To save Rs50 lakh in liquid cash by retirement (15 years).
• To save Rs10 lakh for daughter’s marriage (11 years).
• To save Rs7-8 lakh for her higher education (8 years).
Also See Investor’s Portfolio (PDF)
Rebalance your portfolio
It’s interesting to see that you have diversified your investments across asset classes. Unfortunately, you only have 1% investment in equity. You need to increase this exposure since it is an asset class that delivers the maximum returns in the long run. The high debt tilt will offer a stable portfolio but with heavy compromises on returns. A lot of your assets are in real estate and gold. Besides a higher exposure to equity, you need to have a specified amount in a relatively liquid asset for emergencies, such as a liquid fund or bank FD. You do not require a Ulip as your equity needs will be catered to by mutual fund (MF) investments and your insurance requirements are taken care of by your insurance policies. Stay away from Ulips. They are costly avenues and carry hidden charges. You should stop the premium in the Ulip and go for MFs.
Increase allocation to funds
When we look at your annual contribution towards various assets, the allocation towards mutual funds accounts for 44% (equity: 17%, debt: 27%). On the other hand, 23% goes towards gold and 27% towards Ulips. Right now you should focus on wealth accumulation, not wealth protection. So increase your investments to equity mutual funds.
The portfolio of a gilt fund consists of debt instruments issued by the government of India. The market value of these depends on the interest rate movement. As the interest rates go down, the price of the instrument rises, taking up the NAV of the fund. That’s what happened in 2008, when the successive rate cuts resulted in the gilt fund category (medium and long term) delivering a great performance. But now their performance has started to decline and the category delivered a return of -6.28% in January. A better option would be income funds as these have the leeway of investing in both government securities and corporate debt.
Be smart with your retirement corpus
You said you’d like your entire retirement corpus in cash. Why? You want to retire at 45. With a life expectancy of 80, you will have around 35 years post retirement. Your only source of income would be your retirement portfolio. A part of your portfolio can be invested to generate returns, with the rest kept for growth. Ideally, you should always keep money in liquid form to meet your expenses.
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