Rebalancing portfolio with equity exposure

I am 43 and my wife, a home maker, is 38 years of age. We have two daughters, aged 11 and 3. After working in Dubai for several years, I returned to India and joined an IT company recently. My monthly net salary is Rs 65,000. I own three flats, of which I have rented out two flats for Rs 8000 each. I own a few plots worth Rs 30 lakh. I have invested Rs 10 lakh in equity, and I have jewellery worth Rs 35 lakh. I have fixed deposits worth Rs 7 lakh. My monthly expense is Rs 35,000, including a car EMI of Rs 13,500 (the loan will end in 2015). After meeting all commitments and provisioning for my annual insurance premium, I have a surplus of Rs 30,000.

I have two insurance policies (LIC Child) for my daughters, and it will mature when they turn 18. The sum assured for my elder daughter is Rs 1 lakh, and Rs 12 lakh for my younger child. I have an endowment policy for Rs 1 lakh, which is maturing next year.

I had invested Rs 8 lakh in ICICI Prudential Elite highest NAV plan, two years ago, for my elder daughter's marriage.

I have a mediclaim policy for Rs 4 lakh to cover my family, and my annual premium outgo is Rs 11,000.

Please guide me on the investments I need to make for achieving my financial goals. Please suggest mutual funds that would help me build the required corpus. I have a high-risk appetite.

My concerns are:

1. Providing funds for my daughters' education and marriage. In today's value I need Rs 15 lakh each for marriage, and Rs 10 lakh each for education needs. My elder daughter is inclined to study medicine, for which I do not mind going through the management quota.

2. How much do I need to save for my retirement? Since I worked aboard for several years, and recently took up employment in India, my PF balance is Rs 10,000, and my monthly contribution is Rs 1375.

— Srinivasan, TN

Asset allocation is important for building a healthy long-term portfolio. Though you have gone overweight on real estate, it has helped you achieve superior returns on your investment, as it was one of the top performing assets. However, you should now rebalance your portfolio. Your stated high-risk appetite and investments do not seem to match.

You have invested in a very conservative product — ICICI Pru Elite Highest NAV Plan, to meet your daughter's marriage expenses which is 15 years away!

Education: For your younger daughter, since you have started early, higher education needs will not be a burden. The sum assured of Rs 12 lakh in an endowment product (with the assumption that a current bonus of Rs 43 per thousand will continue) will ensure that 90 per cent of your requirements are met. With inflation of 7 per cent, the present value of Rs 10 lakh will be Rs 24 lakh in 13 years. Your insurance maturity value will be Rs 22 lakh. To meet the shortfall, you need to save a sum of Rs 500 per month, at an interest rate of 12 per cent.

For your elder daughter, the present value of Rs 10 lakh would be Rs 15 lakh in the next six years, at an inflation of 7 per cent. After factoring the maturity proceeds of the endowment policy, you need to accumulate Rs 13 lakh. To reach this, you ought to save a sum of Rs 12,400 for the next 72 months, and it should earn a return of 12 per cent.

For medicine: If you want to secure a management seat for your daughter, for completion of MBBS, it may cost you Rs 40 lakh. With your current surplus it may be difficult to contribute on a monthly basis for this goal. To achieve the goal, earmark your direct equity exposure and nourish the portfolio, so that it earns 15 per cent return for the next 6 years. At the end of the period, your portfolio will be worth Rs 23 lakh, and along with the savings planned for higher education, help you to secure your daughter's dream. To meet the shortfall, utilise your FDs.

Retirement: With rising longevity, pension needs are a challenge for everyone. Your present annual living cost of Rs 2.5 lakh will be Rs 6.9 lakh when you turn 58, considering an inflation of 7 per cent. In your case, meeting the monthly need will not be a challenge because your rental income will take care of little more than 50 per cent of your requirement, provided your rental income is adjusted for the inflation. For instance, of the Rs 6.9 lakh you need to lead a comfortable life, four lakh should ideally come through rental income. To, receive an annual income of Rs 2.9 lakh at retirement, you should have a corpus of Rs 66 lakh, and it should earn a return at par with the prevailing inflation, to meet your needs till 80 years. To create such a corpus, you ought to save monthly a sum of Rs 13200 for 180 months, and it should earn a compounded annualised return of 12 per cent.

Investment: To meet all your goals, you need to save monthly a sum of Rs 36600, but your current surplus is lower by Rs 6000. But if your daughter is admitted to MBBS through merit, your direct equity investment will compensate your retirement shortfall. However, if you start increasing your saving once your car loan is done, you can comfortably reach the goal. Since you are ready to take a higher risk for your investments, build your portfolio predominantly with equity exposure, and allocate at least 60-80 per cent of your surplus. You can consider investing in HDFC Mid Cap Opportunities or IDFC Premier Equity for your satellite portfolio, and for core, consider HDFC Equity, Franklin India Bluechip or Birla Sun Life Frontline Equity. Do review your investments at least once a year.

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