ELSS investment shouldn’t be more than your tax-saving capability
2 min read 27 Nov 2018, 07:22 AM ISTPortfolio building requires diversification and allocation based on the investor's financial goals as well as risk capacity and appetite
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I save ₹ 8,000 per month in Aditya Birla Sun Life Tax Relief 96, DSP Tax Saver, Kotak Tax Saver and Motilal Oswal Long Term Equity. I would like to stay invested for 15 years. Currently I am paying ₹ 20,000 as personal loan and will clear it in three years. After that I can increase my investments. I am not in favour of buying LIC policies or Public Provident Fund (PPF). Please suggest if I am on the right track to gain ₹ 50 lakh with my current investment.
—Jiban Jha
Portfolio building requires diversification and allocation based on the investor’s financial goals as well as risk capacity and appetite. In your case, you want to create a long-term portfolio, with a 15-year investment horizon. You also have a risk taking appetite as can be seen from your existing portfolio and your lack of interest in fixed income instruments. However, what is currently lacking is the diversification within the equity asset class as the complete investible corpus is invested in four equity-linked savings schemes (ELSS). It is good to have only one ELSS and instead have allocation in large-cap, multi-cap and even mid-cap categories. Even if you need to have an ELSS for tax saving, not more than two schemes are required as you will not be able to do more savings.
Further, you also have a personal loan; it is recommended that the loan should be tried to be repaid at a faster pace instead of the 3-year loan period. Do check if there are any prepayment charges to decide the pace of loan repayment. And if it requires you to reduce the savings rate, so be it. It will also be good if you create an emergency corpus for yourself as equity should never be an asset class to dip in case of an emergency and that too an ELSS scheme which comes with a lock-in of 3 years. Hence, if you need funds, there may not be any option to partially redeem.
As far as savings are concerned, monthly savings at the rate of ₹ 8,000 per month for 15 years will lead to a principal corpus of ₹ 14.40 lakh and assuming an interest rate at 14%, the accumulated corpus will become ₹ 49 lakh. And when you increase the savings rate after repayment of your personal loan, the savings rate can be increased and will enable you to increase your accumulated savings.
Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com
