I am 38 year old. I have been investing since I was 26 but mostly in traditional policies, post office recurring deposits (RD), Kisan Vikas Patra (KVP), fixed deposits (FD) and Public Provident Fund (PPF). I have no loans or liabilities and have my own house. I have not invested in equity and don’t have a term cover. I have individual health covers for Rs5 lakh each for my wife, child and myself. The value of FDs and RD is about Rs82 lakh and PPF is Rs15 lakh. I inherited Rs40 lakh 10 years ago. I earn Rs61,000 per month and spend about Rs54,000. I receive monthly interest of Rs40,000 from FDs. The traditional policies will give me a lump sum of about Rs20 lakh in 2019 and 2023. KVPs will return Rs10 lakh in 2015 and Rs9 lakh in 2019. My goals include education for my child for which I would require Rs75 lakh over 2021-2023. I want Rs1 lakh per month after retirement from 2025. Is my portfolio okay?
You have been a conservative investor with a low risk appetite. However, given rising interest rates and high inflation, you are losing the upside rally in interest rates. The long tenor of RD and KVP are not helping you either as they do not give the opportunity to participate in higher interest rate cycles. Further, high inflation is a dampener in providing net positive returns.
In the current market cycle and even otherwise, you should have some equity exposure. One way could be to invest the monthly income from FDs. This will also give you the comfort that your principal remains protected. You can invest in equities through a systematic investment plan, which can be used to build an equity portfolio over a period of time. This is also recommended as your child’s education is still 10 years away. You can create a basket of three-four funds. You can consider large-cap funds such as HDFC Top 200 and Birla Frontline Equity. Another fund can be from the multi-cap stable—HDFC Equity, Fidelity Equity or Prudential ICICI Dynamic Fund are good options. Lastly, hybrid funds such as HDFC Balanced, HDFC Prudence, Birla Sun Life 95 Fund can be considered.
Your current investments are not high on tax efficiency, dragging down your net earnings. You should have products that are more tax efficient even in the debt asset class. For instance, fixed maturity plans (FMPs) instead of FDs.
You have adequate health cover, what you need to provide for is term insurance. Consider a cover that is five-seven times your annual income.
Finally, your financial needs. We deal with this last because you need to follow the above to achieve your goals. You should revisit your retirement need as Rs1 lakh may not suffice post retirement. While you have factored in some increment, it needs to get further adjusted. To make sure, you fulfil all your targets, you have to be proactive in managing your portfolio. Don’t assume your job is done by investing in long-term assets.
Surya Bhatia, certified financial planner and principal consultant, Asset Managers
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