I and my wife work in the private sector. Both of us are in our 30s, we don’t have any kids now and may plan for it from end of next year. I am new to mutual funds and am attracted to them seeing their recent returns. I bought ICICI Prudential Long Term Equity Fund last year, which was my first fund. It is giving me an absolute return of 20%. Our joint monthly take home is Rs1.9 lakh. Our monthly expenses are around Rs70,000. We have been saving around Rs1.2 lakh a month for about 1 year and storing in fixed deposits. Our immediate goal is to buy a house (Rs1 crore). We have saved Rs50 lakh so far, which can be termed liquid savings. For the rest, we will take home loans. Apart from this, we have around Rs15 lakh in secured instruments like PPF, LIC, and EPF. I am looking to invest around Rs25,000 a month in mutual funds for 20-25 years. For one or two funds, time horizon may be 10-15 years. Please advise if this is the right approach. My ultimate goal is to have a pension of about Rs2 lakh at the age of 55, after factoring in inflation.
—Name withheld on request
Given that you have taken care of your intermediate goal of buying a house with your current savings, we can focus on your long-term investing needs such as retirement and (I’m guessing) education needs of children. You indicate that you would need Rs1.5 to 2 lakh a month in 25 years. Given that your current monthly spend is about Rs70,000, if you like to maintain a similar lifestyle into retirement, you would need a cash flow of Rs3.8 lakh a month in 25 years (assuming a 7% long-term inflation rate). To generate such an income, you would need a corpus of Rs5.2 crore for your retirement. The good news, though, is that you are already well on your way to creating this corpus because you would need to save and invest only Rs30,000 to Rs40,000 (depending on the long-term rate of return between 10 and 12%) to create that corpus in 25 years.
And that brings us to the amount of money you should be investing in systematic investment plans (SIPs) every month. You should create two SIP portfolios—one for your retirement and another for your intermediate goal in 10-15 years; and invest Rs40,000 a month in the former and Rs20,000 a month in the latter. This is Rs60,000 a month. For the first portfolio, invest equal amounts in Franklin India Blue Chip, ICICI Prudential Value Discovery, Kotak Select Focus, and L&T India Value Fund. For the second portfolio, you could invest in Aditya Birla Frontline Equity fund, Franklin India Prima Plus fund, Mirae Asset Emerging Blue Chip Fund, and L&T India Prudence fund. Both these portfolios are in themselves high-risk portfolios because you are already investing in sufficient debt instruments and you are investing for the long term.
I am 28 and started investing in mutual funds a few months back. I have bought IDFC Sterling Equity fund and SBI Magnum Monthly Income Growth fund in 80:20 ratio. However, I want to diversify my portfolio. Can you suggest how I should proceed? I am looking for long-term investment advice.
You are presently investing in a multi-cap fund and a debt-oriented hybrid fund in 80:20 ratio. These are reasonably good funds. The IDFC fund did really well in the past year, but has a moderate record over longer terms. I do not know if you are investing in these funds using SIP or if you made single-payment investments in them. If SIP, you can take half the amount that is going to the IDFC fund and channel it into a large-cap fund such as Aditya Birla Frontline Equity Fund. If these were single-payment investments, you should invest an equal amount as you presently have in the IDFC fund into the Aditya Birla fund mentioned above.
I am currently investing in monthly SIPs as below: Large Cap (36%): BSL Frontline Equity Fund, Franklin India Blue Chip Fund; Multi-flexi-Cap (38%): L&T Equity Fund, ICICI Prudential Value Discovery Fund; Mid-Cap (26%): Franklin India Prima Fund, L&T India Value Fund.
I plan to invest further Rs10,000 a month in Mirae Asset India Opportunities Fund. I am 35 years old and can take equity risk with a horizon of 8-10 years. Please also suggest new funds (including small-cap).
You are presently investing a total of Rs45,000 in a six-fund portfolio. You money is split evenly between large-cap and multi-cap funds and the remaining quarter is in mid-cap funds. You have selected good, established funds in their respective categories. To add another Rs10,000 to your portfolio, your choice is to bring in another large-cap fund. If you’d like to add a small-cap fund, you can consider splitting the Rs10,000 and use half of it in Franklin India Smaller Companies fund. That would take the large-cap exposure in your portfolio to 38%, and bring multi-cap and mid-cap to 31% each. It would still remain a high-risk, all-equity portfolio as you prefer.
Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com.
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