Personal Finance

Medical insurance will safeguard portfolio

Suresh Parthasarathy | Updated on July 29, 2011 Published on July 23, 2011

I am 54 years and retiring in November 2016. My spouse is a home-maker aged 50. We have daughters aged 14 and 16 in school. For their education and marriage I have saved Rs 35 lakh in PPF, NSC, bank deposits, bonds, Kissan Vikas Patra. I also have a plot worth Rs 15 lakh. Besides that, I have Rs 15 lakh in mutual funds and Rs 2 lakh in direct equity. My monthly income is Rs 85,000 (inclusive of the rent) and my monthly expense is Rs 30,000.

On retirement I will get around Rs 86 lakh from PF and Rs 10 lakh from gratuity. My family is covered by company medical insurance for Rs 2 lakh. Apart from that I have no other medical insurance. But I am a diabetic. I am staying in a rented house and I pay a rent of Rs 15,000. I have let out my flat for Rs13, 000. After all my commitments I have a monthly surplus of Rs 12,000 which I retain in my savings bank account.

What would be the best investment avenue for this cash?

I am investing Rs 25,000 a month in SIP, Rs 5000 each in Fidelity Equity, HDFC Top 200, HDFC Equity, DSP Blackrock Equity and DSP Blackrock Top 100 since 2008.

I have invested Rs 1.3 lakh in Sundaram Select Focus since 2008 and I am not happy with my returns. I have invested Rs 20, 000 in Reliance long-term equity and that also has not yielded much in the last four years.

What should I do with these funds? Where can I divert the cash in case of closing these funds? Are my SIP investments okay?

What is the retirement corpus I should have, considering my current monthly expenses at Rs 30,000 (excluding my rent) and assuming that I live up to the age of 80? Do I need to take health insurance?

Baskar (name changed on request)

Solutions: Your investment reflects your risk aversion and your strategy to reach your goals predominantly through debt exhibits your disciplined savings habit. However, we wish to add a few points on investment that you need to take care of after retirement and health insurance to protect your retirement corpus.

Your anticipated marriage expenses of Rs 12 lakh inflated at 7 per cent for 8 years will be Rs 20 lakh for each of your children. However, if the current savings are allowed to grow in debt investments at 10 per cent, you can reach Rs 26.8 lakh.

If you wish to take equity risk and invest in balanced funds, your portfolio will have the potential to earn higher returns. If you invest in deposits as part of tax planning, it may be prudent to shift the fixed deposits in your daughter's name. At maturity, tax on interest earned will be based on their respective income-tax slabs. You can leave your residential plot as estate to your children

Retirement: After your retirement, if you still prefer to maintain the same standard of living with nominal monthly savings, you can comfortably meet your monthly expenses. Your current annual living expenses of Rs 3.6 lakh inflated at 7 per cent at retirement means that you would require Rs 5.4 lakh. To receive such a pension at the time of your retirement, you should have a corpus of Rs 1.05 crore. If you deploy this corpus at a return of one per cent over and above prevailing inflation, you can meet your needs till 80 years.

In the earlier years your monthly expenses will be lower than your retirement income. If you invest the monthly surplus of the first eight years in MF monthly income plans it will help you to meet your shortfall in the later years if you are not achieving interest rate targets.

As stated by you, if you receive Rs 96 lakh as retirement benefits, it will be short of your retirement kitty by Rs 9 lakh. With your current savings in MFs, even if you live for more years you can comfortably meet your requirements.

Insurance: Your current medical cover is too low. As you have an health issue, it is better to take additional cover beyond your employer's group health cover. You still have five years for retirement. Take a medical cover for Rs 5 lakh. Your diabetic condition will also be covered under the new policy after a gap of four years.

Investment: Exit Sundaram Select Focus and Reliance Long-Term Equity and shift the sale proceeds to SIPs in your accumulation. Continue the SIPs in HDFC Equity and HDFC Top 200. Both are top performers for over a decade.

Although the Fidelity Equity Fund's one-year return is below the peers in your portfolio, you can continue the SIP based on its consistent performance over a five-year period. It is good to have a compact MF portfolio for better monitoring.

Though DSPBR Equity and DSPBR Top 100 invest substantial portion of their assets in large-cap stocks, you can continue the investments in DSP BR Equity which has 30-40 per cent of its assets in mid-caps. This can help you prop up your portfolio return. Discontinue your investment in DSP BR Top 100 once the committed SIPs are honoured.

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