Mutual Funds

Your Fund Portfolio

Aarati Krishnan | Updated on February 03, 2019 Published on February 03, 2019

I am an NRI aged 39 living in the UAE. I invest ₹10,000 each through the SIP route in Parag Parikh Long Term Equity, Invesco India Contra and HDFC Small Cap Fund. The investment horizon is 10-plus years and the goal is my children’s weddings (aged 10 and three years now).

I am also investing ₹8,000 each in Mirae Asset Emerging Bluechip, Principal Emerging Bluechip, UTI Equity and L&T Emerging Businesses, with an investment horizon of 7-8 years for my children’s education. I would like to increase the SIPs by 50 per cent this year. All the SIPs are in direct funds. Please comment on the fund selection, and suggest modifications if required.

Shrihari AN

You have made quite an early start and are investing a sizeable sum of ₹62,000 per month, putting your financial goals well within reach. However, before we get to suggesting new funds, it makes sense to prioritise your goals so that you can plan better.

The education and wedding needs of your first child will arise about seven years before the same goals for your second child. Therefore, it makes sense to create two separate portfolios for your two children.

For your elder child, you will need a higher education corpus in roughly eight years. Assuming you target ₹20 lakh for higher education at today’s prices, your elder child will need about ₹35 lakh in eight years to fund his/her higher education, assuming a 7 per cent inflation rate. Investing about ₹21,500 per month in equity funds earning 12 per cent a year on average can get you to that goal in eight years.

If you target a similar sum of ₹20 lakh towards his/her wedding expenses at today’s prices, that goal will come up in 15 years (assuming your child gets married at 25). At a 7 per cent inflation rate, you will need ₹55 lakh to fund the wedding.

This will require an investment of ₹11,100 per month in equity funds earning 12 per cent. In all, currently investing about ₹32,600 per month should take care of your first child’s education and wedding goals.

Given that your second child has 15 years to go to seek college admission, you have a longer horizon to build up his/her education corpus. Assuming a 7 per cent inflation rate on a goal of ₹20 lakh, you will need ₹55 lakh in 15 years and will need to invest ₹11,100 per month in equity funds to reach that goal.

His/her wedding will likely arise 22 years hence (when he/she is 25). At a 7 per cent inflation, a sum of ₹20 lakh at today’s prices will equal ₹89 lakh after 22 years. But if you invest in equity funds compounding at 12 percent, an investment of ₹8,000 per month can get you that goal. In all, therefore, a current investment of ₹19,100 can help you fund your younger child’s college and wedding expenses.

If you would like larger sums for your children’s education, you will need to proportionately step up your SIPs. On the choice of funds, we suggest that you invest in multi-cap funds for the goals that are nearer (elder child’s college education eight years hence) and consider a higher allocation to mid-cap funds for goals that are 15 or more years away (like your first child’s wedding, or younger one’s education and wedding).

Parag Parikh Long Term Equity, UTI Equity Fund and Quantum Long Term Equity are good multi-cap fund choices for the eight-year goal.

For your 15-plus-year goals, you could use a combination of large- and mid/small-cap funds. A Nifty Next50 Index fund will be a good large-cap choice, while Mirae Asset Emerging Bluechip and HDFC Small Cap are good aggressive fund choices.

We also suggest that you prioritise the education goals of your children over their wedding. If at the time of their college admissions, there’s a shortfall in the corpus of the education fund you’ve built up, do draw from their wedding funds.

But do remember that the above calculations are based on assumed inflation and return rates. The actual returns that you earn on your investments can vary significantly based on stock-market conditions, fund performance and your ability to stick to plan. You will need to review and tweak this portfolio from time to time to get to your goals.

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