Financial Guidance

I have an eight year old daughter and a seven year old son. I have been investing in an SIP for the past 14 months. The purpose of these savings is to build a corpus for my children’s higher education in the field of engineering or medicine.

The details of my monthly SIP investments are as follows:

Reliance Regular Savings Fund       : Rs 2000
Birla Sunlife Frontline Equity Fund  : Rs 1000
HDFC Equity Fund                        : Rs 1000
ICICI Pru Focused Blue Chip Fund: Rs 1000
Reliance Growth Fund                     : Rs 2000
HDFC Top 200 Fund                      : Rs 1000
Sundaram Select Midcap                 : Rs 1000
HDFC Prudence Fund                     :  Rs 1000

All these are Growth funds, and the investment period is 10 years.

Please tell me whether my portfolio is sufficient for my goals, and advise me as to any changes I need to make. I am ready to make an additional monthly investment of Rs 3000 in other schemes.

- Venkateswararao K

Answer -

Firstly, locking in to a long-term 10 year SIP is among the best things you could have have done.

You are in a 100 per cent equity portfolio now. I would suggest that you moderate this with some bond funds, to the extent of 25 per cent, to give you some risk mitigation. This will give you a cushion during the inevitable low cycles. More importantly, if used wisely, it can provide a reservoir from which you can buy more equity funds at times when the markets fall by a great deal – typically when everyone else is pessimistic.

Assuming that a good graduate education would cost Rs 10 lakh each in today’s rupee terms, the same could cost as much as Rs 26 lakh by the time that your children are 17 years of age and are ready to go to college. To accumulate this sum, you will need an SIP of Rs 11000 for each of your children. If the total of Rs 22000 per month seems high, then keep increasing your SIP by atleast 10 per cent each year as your income grows from the present SIP amount. This strategy should take you to your goal.

You mentioned medical education. You must realise here that the cost of medical education is much higher than that of an engineering education, and could be as much as four times if one has to pay a donation. If that is the intention, you will need to increase your SIP proportionately.

Another piece of advice is that as you approach the goal, say a year or so before, try to secure the entire savings by transferring them a bank FD.[PAGE BREAK]

To comment on your present portfolio, it is over-diversified, i.e., it has way too many funds. Please trim your portfolio to three or four funds at the most.

The funds that I would suggest for your portfolio are:

A term insurance plan for Rs 20 lakh is also recommended to secure your children’s future.

The table below highlights the scheme performance of the recommended funds: