I pay annual premiums of Rs 50,000. I started systematic investment plans (SIP) from February in HDFC Top 200 G (Rs 5,000), HDFC Equity G (Rs 1,000), Birla Sun Life Frontline Equity Fund Plan G (Rs 1,000), IDFC Premier Equity Fund Plan A G (Rs 2,000) and Reliance Regular Saving Fund Equity Plan G (Rs 1,000). I have invested lump sums of Rs 50,000 in HDFC Top 200 G and Rs 25,000 in Birla Sunlife Frontline Equity Fund Plan G. I have a family floater plan with a sum assured Rs 3 lakh for my spouse and kid and Rs 1.5 lakh for my father. I want Rs 50 lakh in 15 years for retirement, kid’s education and medical expenses. Should I discontinue the traditional life covers and take a term plan?
While your fund selection is fine, you have the same category of funds. For instance, both HDFC Equity and Reliance RSF Equity belong to the diversified category; discontinue the latter. Similarly, HDFC Top 200 and Birla Frontline Equity are large-cap funds. Both are good but you can choose Birla Frontline Equity (to diversify from the fund house perspective). You can add a balanced fund; choose among HDFC Prudence, HDFC Balanced and Birla Sun Life 95 Fund. You can add gold through exchange-traded funds or gold funds. Also, even out your exposure across funds. In gold, you can limit yourself to 10%.
Have your term insurance in place before you discontinue your traditional policies. The saving in premium can be used to increase monthly savings.
Achieving a corpus of Rs 50 lakh should not be a problem. You need to increase your savings every year based on increase in your salary and inflation rate.
My retirement benefit (Rs 20 lakh) has been put in bank fixed deposits (FDs). I have a couple of lakhs in equities. I want around Rs 25,000 per month.
The returns you are expecting is as high as 15% per annum. Currently, no asset class is giving this kind of return—be it debt or equity. The only asset class which has done well and has delivered this kind of return in the past few years is gold. But this asset is now witnessing volatility and otherwise also, it is fundamentally incorrect to invest in only one asset class even if it is a performing asset class.
However, in the long term, equity has delivered this kind of return. But the practical problem will be achieving that on a monthly basis. Hence in this kind of environment, the best case scenario would be to consider long-term bank FDs and company deposits (CDs). If you go for CDs, make sure your criteria is high credit rating and not higher returns.
You can invest 70% of your corpus in this asset class. The balance 30% can be invested in hybrid equity funds, in which you can go for a dividend payout option. The equity portion will give a return kicker to your overall portfolio.
Queries and views at email@example.com