Building Wealth For Goals
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Q: I am 25 years of age, a single, extremely independent lady living in Mumbai. I would like your advice on how and where I should diversify my portfolio.
Currently, my salary is Rs 35000, and I am due for a raise in the month of October 2012. I do not pay towards a Provident Fund. My current, miserly investments are as follows:
| Fund House | Fund | Amount Invested P.A. (Rs) |
|---|
| LIC | | 14500 |
| LIC Mediclaim | | 5811 |
| HDFC Life | HDFC Endowment Assurance | 5248 |
| SBIPPF | | 1000 |
I live in rented accommodation, and my current monthly rent is Rs 4000, which is due to be increased.
As of now, I have stopped investment in the HDFC Tax Saver Fund, but can still invest in the same if needed.
I am originally from Goa and plan on shifting back after marriage or in the next year, if the situation permits.
Current Plans
- Save tax and build wealth. (Do you suggest anything else?)
- Send at least Rs 3000 to my parents on a monthly basis.
- Get married in the next two-three years.
- Buy property and build a house on it in Goa.
- Save for my children (planning on two children) in terms of lifestyle, etc.
- Provide quality education for my children.
- Travel the world, preferably to at least one foreign destination before marriage.
What amount would you advise me to save on a monthly basis? Do you think Rs 20000 is too little, keeping my goals and my current salary in mind?
It would be great if my above queries were addressed. I appreciate your kind help in advance.
-Cyndy Mascarenhas
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A: Cyndy, this is among the most elaborate queries I have received so far, and I love it! If more people were as clear about what they wanted and were willing to plan for it, I am sure society would be a more satisfied and contented place to live in.
I will proceed to answer you in the order in which you have presented your queries. You have told me about some of your goals, immediate and long term. Going by what I have understood of you, I have made some broad investment plans to reach these goals, as follows:
| Goal | Goal Year | Years To Goal | Current Cost (Rs) | Inflation Adjusted Cost/Target (Rs) | Monthly Plan (Rs) |
|---|
| Marriage | 2015 | 3 | 100000 | 119100 | 2916 |
| Property (down payment) | 2022 | 5 | 310000 | 500000 | 6500 |
| Leisure Holiday | 2014 | 2 | 200000 | 233000 | 8941 |
| Sub-total (A) | | 14298 |
| Schooling (Including Lifestyle For Extra-Curricular Activities) |
| Child 1 | 2020 | 8 | 100000 | 215000 | 1471 |
| Child 2 | 2021 | 9 | 100000 | 235000 | 1350 |
| Graduation |
| Child 1 | 2032 | 20 | 1000000 | 6730000 | 8863 |
| Child 2 | 2033 | 21 | 1000000 | 7400000 | 8691 |
| Post Graduation |
| Child 1 | 2035 | 23 | 500000 | 4500000 | 4223 |
| Child 2 | 2036 | 24 | 500000 | 4900000 | 4119 |
| Sub-total (B) | | 28717 |
At your present income level, your tax liability is very low since you fall under the 10 per cent tax bracket. This also can be saved by investing in PPF /EPF. Thus, you can build wealth by saving taxes. (Not by evading them!)
By following the SIP as I have indicated, you will have a fairly diversified portfolio of bonds and stocks through mutual funds. You can add gold, but minimally. Though we have seen gold rising in value in the last few years, it remains unpredictable in nature. Buy as much gold in ETF form as you think you will need in the future for cultural purposes. This can also be done by way of an SIP. International funds can come in later.
| Choice Of Funds |
|---|
| Debt Funds |
| Templeton India Income Opportunities Fund |
| Birla Sun Life Dynamic Bond Fund |
| Equity Funds |
| Franklin India Bluechip Fund |
| HDFC Equity Fund |
| ICICI Prudential Dynamic Equity Fund |
There have been some good balanced funds such as the HDFC Prudence Fund, but I would prefer to view them in the light of overall asset allocation. Once you have your asset allocation target, allocating funds to your SIP in the same ratio will generate a similar result with greater flexibility in choice of fund managers.
| Asset Allocation Table |
|---|
| Goal | Monthly Plan (Rs) | Debt (%) | Equity (%) |
|---|
| Marriage | 2916 | 90 | 10 |
| Property (down payment) | 6457 | 50 | 50 |
| Leisure Holiday | 8941 | 90 | 10 |
| Sub-total (A) | 18314 | | |
| Schooling |
| Child 1 | 1471 | 50 | 50 |
| Child 2 | 1350 | 50 | 50 |
| Graduation |
| Child 1 | 8863 | 50 | 50 |
| Child 2 | 8691 | 50 | 50 |
| Post Graduation |
| Child 1 | 4223 | 50 | 50 |
| Child 2 | 4119 | 50 | 50 |
| Sub-total (B) | 28717 | | |
I am sure that you will easily be able to save for your immediate needs. You are likely to have some savings left over, in which case you can increase your contribution towards your SIP. The money isn’t going anywhere! You can withdraw the funds whenever you need them. As long as you do not give up your discipline of investing through an SIP, you should be alright.