I have been investing in stocks and funds since January 2005. I began investing for tax-saving purposes, then decided to build a portfolio to achieve my future goals—retirement, my children’s education and their marriage. Please give me suggestions for my portfolio for the long term. Which funds should I retain and remain invested in?
— Suresh Babu
You have well-defined long-term goals but your approach has been slightly desultory. A portfolio of 16 mutual funds and 15 stocks built over a period of three years isn’t ideal. It should be avoided because as individual investments, they stop having any significant effect on the overall portfolio. In your case, the total number of stocks (direct and funds combined) amount to around 300. Of them, only 21 have an allocation of more than 1% in your portfolio. This means that if any stock sees a surge in price, the same effect won’t be seen in your portfolio. It’s best to opt for quality over quantity. On the basis of your goals, we have done some calculations for you.
Goal 1. Children’s education: A decent corpus is required for your children’s higher education. Since you married recently, the minimum time after which you will need the corpus is 20 years. If you invest Rs2,000 per month through systematic investment plans (SIPs) for the next 20 years, you can accumulate Rs16.19 lakh for this goal.
Also See Investor’s Portfolio (Graphic)
Goal 2: Children’s marriage: Similarly, if you allocate Rs2,000 per month, but with an increased time horizon of 27 years, your corpus would increase to Rs33.97 lakh.
Goal 3: Retirement corpus: At 28, you have 32 more years to generate a corpus for your retirement. If you invest Rs5,000 per month for the next 32 years, you could generate Rs1.15 crore for your retirement and assuming you live 40 years more, you can draw Rs24,000 per month to meet your expenses.
From your monthly savings of Rs12,000, Rs9,000 has been used for different purposes; now keep the remaining Rs3,000 for other uncertainties or contingencies in life.
To give you a further idea of what we think you should be investing in, we have devised a portfolio that would be ideal for your investment needs. As you can see, the “suggested portfolio” is made up of seven funds and has an increased debt allocation of approximately 12%. The portfolio is high on large-caps, so as to ensure higher stability. We suggest you rebalance it every year and make changes as per your requirements and the funds’ performances.
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Graphics by Ahmed Raza Khan / Mint