Don’t over-diversify your mutual fund holdings

I am 38 years old and my monthly income is Rs 1.8 lakh. This amount comes from my salary, rental income and interest from deposits. My monthly expenses are Rs 30,000. I have two dependents — my wife who is a home maker and a 1-year-old daughter.

My key objectives are: I want my daughter to become a doctor. I wish to create a fund for her education.

I want to construct a house in my hometown by 2024. The current cost is Rs 80 lakh. Also, I wish to buy a plot for Rs 50 lakh as an investment within the next five years.

Finally, I need to take care of my retirement needs after 58 years.

My investments are: In direct equity - Rs 18 lakh; mutual funds - Rs 55 lakh. My monthly SIPs amount to Rs 1.1 lakh. My debt investments are Rs 72 lakh. I am investing in an RD of Rs 53,000 in banks and post office. My EPF balance is Rs 20 lakh and my monthly contribution is Rs 12,000. In Gold ETF, I have parked Rs 1 lakh.

Immovable assets are a flat worth Rs 35 lakh with rental income of Rs 10,000 and a few plots worth Rs 22 lakh. I have a group health plan for Rs 5 lakh and term cover for Rs 50 lakh. I have a personal health cover for Rs 8 lakh and Rs 3 lakh for my wife. I am a diabetic and hence not able to increase my term cover. I contribute Rs 70,000 a year in ULIPs.

— Vasan

Your portfolio is currently well diversified. But the diversification is within the same asset class. Investing in as many as 21 diversified schemes through SIPs will not help you shore up returns and would be difficult to monitor.

Education

In India, admission in a medical college (management quota) will cost you Rs 25-50 lakh. Considering inflation of 8 per cent, this would cost Rs 1.85 crore. To reach the target you should save a sum of Rs 27,970 for the next 204 months and it should earn a return of 12 per cent (same returns applied for all calculations).

Construction

To reach the target of Rs 2 crore in 10 years, you should save monthly, a sum of Rs 86,940 for 10 years. For purchasing a plot after five years, earmark your current accumulation in mutual funds.

Retirement

The current annual living expenses of Rs 3.6 lakh, will be Rs 13.93 lakh in 20 years. To have such an annual inflow till 80 years, you should have a corpus of Rs 2.73 crore and it should earn return of one per cent over and above inflation. Your debt portfolio will be Rs 3.56 crore.

Insurance

All insurance companies will factor in your diabetic state, while loading the premium. Take a higher term cover.

(The author is CEO, myassetsconsolidation.com)

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