I'm 29-year-old salaried professional from Pune, earning Rs. 60,000 per month. My wife is self-employed and we have a 1.5-year-old daughter. I need some advice on investment planning.
I stay in a rented apartment in Pune, which costs me Rs. 10,000 per month. My priority is tax-saving followed by contingency fund accumulation and wealth creation. I currently invest in Bank FD, PPF and NSC. I also have a LIC Policy with a premium of Rs. 1,021 per month. I invest approx. Rs. 3,350 (for self, spouse and mother) in Post Office Savings (No Tax Benefit), which will end in 2017.
I want to add ELSS/MF to my portfolio for higher returns. Could you please guide me how should I go about it and which funds should I choose and their allocation/tenure? Also please suggest if my current portfolio needs any restructuring or additions?
- Devendra D. Gundecha
You are thinking in the right direction by choosing the mutual fund route to create your wealth. We firmly believe that equity as an asset class has a potential to beat inflation over a course. Therefore, investments in equity mutual funds give you a better chance at beating inflation. It is also nice to note that you are investing in Bank FDs, NSC&PPF. However, you must invest more in equity compared with debt instruments given your age, so that you generate inflation-beating returns over the long term.
In the Union Budget 2014, the Finance Minister, Mr.ArunJaitley, hiked the Investment limit u/S 80C from Rs. 1.00 lakh to Rs. 1.50 Lacs. It means you can now save more tax by investing additional Rs. 50,000 in ELSS schemes.
Your investment in ELSS schemes will offer you twin benefits. First, it allows you to save your tax up to Rs 1.5 lakh under Section 80C. Second, it helps investors to build their desired corpus over the period of time. You can consider investing in Reliance Tax Saver (returned 21.03% p.a. in the last 3 years) and Axis Long Term Equity Fund (gave 22.05% p.a. in the last 3 years) through a SIP route.
Allocation: A thumb rule of 100 suggests that one should subtract the investor's age from 100, and the difference amount would be allocated to equities. For a person of your age, the rule suggests that 71% of your portfolio should expose to equities and the rest 29% should be invested in debt. You can alter this ratio with age, with reduction in equity, and additions in debt. By following this rule, you can restructure your portfolio. My only suggestion is that you need to increase exposure to equities and invest 71% of your monthly savings in equities and the rest 29% in debt instruments. You can split your investment equally between aforementioned funds.
Tenure: An investment in ELSS comes with a lock-in-period of 3 years from the date of investment. Hence, your investment remains invested in them for at least 3 years. I would also like to inform you that in case of SIPs, each SIP tranche is considered as a fresh investment in ELSS Fund and each instalment must complete 3 year compulsory lock-in-period. Until each tranche completes mandatory 3 years of lock-in-period, you can't redeem it.
You also need to decide your investment horizon. For this, you have to identify the purpose of your investment first. Set your goals accordingly. You have to decide the investment horizon till what time you can hold these investments and corpus size that you are looking to build in that particular time.
I stay in a rented apartment in Pune, which costs me Rs. 10,000 per month. My priority is tax-saving followed by contingency fund accumulation and wealth creation. I currently invest in Bank FD, PPF and NSC. I also have a LIC Policy with a premium of Rs. 1,021 per month. I invest approx. Rs. 3,350 (for self, spouse and mother) in Post Office Savings (No Tax Benefit), which will end in 2017.
I want to add ELSS/MF to my portfolio for higher returns. Could you please guide me how should I go about it and which funds should I choose and their allocation/tenure? Also please suggest if my current portfolio needs any restructuring or additions?
- Devendra D. Gundecha
You are thinking in the right direction by choosing the mutual fund route to create your wealth. We firmly believe that equity as an asset class has a potential to beat inflation over a course. Therefore, investments in equity mutual funds give you a better chance at beating inflation. It is also nice to note that you are investing in Bank FDs, NSC&PPF. However, you must invest more in equity compared with debt instruments given your age, so that you generate inflation-beating returns over the long term.
In the Union Budget 2014, the Finance Minister, Mr.ArunJaitley, hiked the Investment limit u/S 80C from Rs. 1.00 lakh to Rs. 1.50 Lacs. It means you can now save more tax by investing additional Rs. 50,000 in ELSS schemes.
Your investment in ELSS schemes will offer you twin benefits. First, it allows you to save your tax up to Rs 1.5 lakh under Section 80C. Second, it helps investors to build their desired corpus over the period of time. You can consider investing in Reliance Tax Saver (returned 21.03% p.a. in the last 3 years) and Axis Long Term Equity Fund (gave 22.05% p.a. in the last 3 years) through a SIP route.
Allocation: A thumb rule of 100 suggests that one should subtract the investor's age from 100, and the difference amount would be allocated to equities. For a person of your age, the rule suggests that 71% of your portfolio should expose to equities and the rest 29% should be invested in debt. You can alter this ratio with age, with reduction in equity, and additions in debt. By following this rule, you can restructure your portfolio. My only suggestion is that you need to increase exposure to equities and invest 71% of your monthly savings in equities and the rest 29% in debt instruments. You can split your investment equally between aforementioned funds.
Tenure: An investment in ELSS comes with a lock-in-period of 3 years from the date of investment. Hence, your investment remains invested in them for at least 3 years. I would also like to inform you that in case of SIPs, each SIP tranche is considered as a fresh investment in ELSS Fund and each instalment must complete 3 year compulsory lock-in-period. Until each tranche completes mandatory 3 years of lock-in-period, you can't redeem it.
You also need to decide your investment horizon. For this, you have to identify the purpose of your investment first. Set your goals accordingly. You have to decide the investment horizon till what time you can hold these investments and corpus size that you are looking to build in that particular time.
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