I am 35 years old and married. I earn Rs80,000 per month after deductions. I have a pension plan, recurring deposit and invest 16% of my income in mutual funds (MF) through systematic investment plan (SIPs). I have Kotak Opportunities (Rs2,000), Kotak 30 G (Rs1,000), Kotak Midcap (Rs1,000), Sundaram Select Focus (Rs1,000), Sundaram Select Midcap (Rs1,000), HDFC Top 200 (Rs2,000), DSP BlackRock Top 100 Equity Fund (Rs2,000), Sundaram Capex opportunities (Rs2,000) and Fidelity Equity (Rs1,000). I spend 45% of my salary for rent and other expenses. I have traditional insurance of Rs7.5 lakh and a term plan of Rs20 lakh. I plan to invest in initial public offers (IPOs). My family is covered under a family floater for Rs5 lakh. About 12% of my income goes towards home loan but my in-laws stay in the house. I want to buy a second house by next year for which I would have to pay Rs40,000 per month for the loan. Should I continue with this investment pattern?
You are currently saving around 20% of your net income. This includes your MF investments, pension plan and recurring deposit. While you have not specified the savings in pension plan and recurring deposit it is assumed it will be another 5% of your net income. Your saving appears to be less. However, when you include your home loan, it becomes a more correct number.
The number of MFs you have in your portfolio is way too many. You can consider reducing your exposure from Kotak and Sundaram funds and also move out of sectoral funds. Increase your exposure to multi-cap funds. Have funds like HDFC Equity. In all, do not have more than five funds.
The reason of having a recurring deposit in the portfolio is not very clear. In case you have it for liquidity, then it is logical. However, if you have already provided for liquidity, then it is recommended you open a Public Provident fund (PPF). However, it is assumed that MFs and PPF are long-term investments.
You have done well by taking a family floater. However, where you lack is life insurance as you are covered for only twice your net annual income. And you haven’t even included your outstanding home loan. You should be covered for at least five times your annual income over and above your loans and liabilities.
Your preference for IPO is fine but be careful about stock selection. And don’t invest in IPO for short-term listing gains.
Your cash flows don’t permit you to buy a second house right now. As all your savings will be diverted towards your second house, it will be typically a case of “all eggs in one basket”, which is not recommended as this can then continue for many years. You need to wait for some years in case you are very keen on the second house.
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Surya Bhatia, certified financial planner and principal consultant, Asset Managers