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Business News/ Opinion / Online-views/  Don’t consider your term plan premium as part of your saving
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Don’t consider your term plan premium as part of your saving

This is a premium which you are paying to ensure your financial plan runs smoothly.

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I am 30 years old and I save around 35,000 per month out of my take home salary of 50,000. I put 10,000 annually in a money-back plan, 50,000 yearly in a term plan and 15,000 in three dynamic bond funds through systematic investment plans (SIPs) and 10,000 in a large-cap equity fund. Should I consider restructuring my portfolio?

—Naveen

Your saving rate is really praiseworthy. And it is good to save more at an age where you have less responsibility. Over the next few years, you may find your saving rate coming down as other financial needs will take away some portion of savings and the present saving will help you accumulate for your future needs.

Your investments are skewed towards debt. Dynamic debt funds are a good option but having three dynamic funds via SIPs may not be the best of scenarios. You can continue having one SIP in dynamic debt and the balance should be invested with higher equity exposure. You are already investing in large-cap funds. So you can consider multi-cap funds, where Reliance Equity Opportunity fund and HDFC Equity are good options. You can consider an equity-debt ratio of 60:40. Equity exposure can be even higher based on your financial needs as well as risk appetite and risk capacity. In case you want to keep low equity exposure, you can consider the hybrid category, where the funds take exposure in debt assets up to 35%. Funds with good track record are HDFC Balanced, Tata Balance and Reliance RSF Balanced. Alternately, you can consider Franklin Templeton India Dynamic PE Ratio FOF. This dynamic category of fund adjusts between equity and debt based on the valuation of the markets and hence keeps your equity exposure in check. Monthly income plans (MIPs) are another asset class which is debt hybrid—having 70-90% in debt and 10-30% in equity and funds to consider are Reliance MIP and HDFC MIP-LT.

You should keep your term insurance premium over and above the savings rate. This is a premium which you are paying to ensure your financial plan (to save) runs smoothly and in case something happens to you, your family is financially protected. Hence, this also needs to be reviewed once in every 2-3 years or whenever you believe there is a change in your financial goals. The money-back plan is more of an investment plan which gives some insurance cover. But the sum assured offered will be quite low and hence should not be counted for insurance. This, therefore, is to be covered under debt investments.

Lastly, you should have a medical insurance. This is important as this is another area which can make your financial plan go haywire. In case you already have one, you can always consider using the portability benefits with a scheme offering better features.

Queries and views at mintmoney@livemint.com

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Published: 21 Jan 2013, 08:20 PM IST
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