48-Year-Old Investor Asks: Is My MF Allocation Correct for My Children's Education?

Ans: Reviewing Your Current Investments
At 48 years old, you are taking important steps toward securing your family's financial future. You are investing in Sukanya Samriddhi Yojana, HDFC Life Youngstar Super Premium, and a well-diversified SIP portfolio. Let’s take a closer look at your mutual fund allocation and assess if any adjustments are needed for your children’s education and overall financial goals.

Sukanya Samriddhi Yojana Contribution
Your commitment to the Sukanya Samriddhi Yojana (SSY) is commendable. This scheme offers a safe and secure way to save for your daughter’s future.

Long-Term Growth: SSY provides a fixed return, which is beneficial for long-term planning.

Tax Benefits: The contributions to SSY are eligible for tax deductions under Section 80C.

Continue with your current investment in SSY as it aligns well with your goal for your daughter’s higher education and marriage expenses.

HDFC Life Youngstar Super Premium
You and your wife are both investing Rs 1 lakh annually in HDFC Life Youngstar Super Premium. However, investment-cum-insurance plans like this often come with high costs and lower returns compared to pure investment products like mutual funds.

High Costs: The premium charges and mortality costs can reduce the overall returns on your investment.

Limited Flexibility: You might be restricted by the lock-in periods and surrender charges.

Given these points, it may be wise to reconsider continuing with this plan. A better approach could be to separate your insurance and investment needs. Consider term insurance for pure life cover and redirect the investment portion into mutual funds for potentially higher returns.

Evaluating Your SIP Portfolio
You have a SIP portfolio of Rs 60,000 per month allocated across various funds. Let’s examine the suitability and balance of your current fund selection:

Nippon Mutual Fund (Rs 15,000): This large-cap fund offers stability and steady growth. Large-cap funds are typically less volatile, making them a good foundation for your portfolio.

HDFC Balanced Fund (Rs 10,000): Balanced funds offer a mix of equity and debt. This combination provides a balance between growth and safety, making it a prudent choice for a long-term portfolio.

SBI Bluechip Fund (Rs 10,000): Another large-cap fund, it adds stability to your portfolio. However, having two large-cap funds might lead to overlap. Consider diversifying into other categories for better risk-adjusted returns.

Parag Parikh Flexicap Fund (Rs 10,000): Flexi-cap funds provide exposure across all market capitalizations. This fund’s flexibility to move between large, mid, and small-cap stocks adds growth potential to your portfolio.

UTI Nifty50 Index Fund (Rs 10,000): Index funds replicate the performance of an index like the Nifty50. However, they lack the potential for higher returns provided by actively managed funds. Index funds do not benefit from active fund manager expertise.

Quant ELSS Tax Saving Fund (Rs 5,000): ELSS funds provide the dual benefit of tax savings and equity exposure. They have a three-year lock-in period, which also encourages long-term investing.

Recommendations for Portfolio Optimization
Your current SIP portfolio is quite diverse, but there are a few adjustments that could improve your risk-return profile:

Reduce Overlap: Since you have two large-cap funds (Nippon and SBI Bluechip), consider reducing your allocation to one of them. You can redirect this amount to mid-cap or small-cap funds for better diversification.

Replace Index Fund: The UTI Nifty50 Index Fund could be replaced with an actively managed large or mid-cap fund. Actively managed funds tend to outperform index funds over the long term due to the expertise of fund managers.

Maintain Balanced Exposure: Continue with the HDFC Balanced Fund. It provides stability, which is crucial as you approach retirement.

Increase ELSS Allocation: Given that ELSS funds offer tax benefits, consider increasing your allocation to Quant ELSS, especially if you are looking to optimize your tax planning.

Planning for Your Children’s Education
Your children’s education is a significant financial goal, especially with one in 10th grade and the other in 7th grade. The next 5-7 years will likely involve substantial expenses for higher education.

Higher Education Costs: Depending on the field of study and location (domestic or international), education costs can vary widely. Estimate the future cost and compare it with your current investments.

Dedicated Education Fund: It’s essential to have a dedicated corpus for each child’s education. Consider earmarking certain funds specifically for this purpose and review them regularly to ensure they are on track.

Regular Review: Every year, review your investments with a Certified Financial Planner. They can help you adjust your portfolio based on market conditions and ensure you are on track to meet your education goals.

Finally
You are taking commendable steps toward securing your financial future and your children’s education. A few tweaks in your investment strategy could significantly enhance your portfolio’s growth potential.

Reassess HDFC Youngstar Plan: Consider whether the returns justify the costs. Separate insurance and investment might yield better results.

Optimize SIP Portfolio: Reduce fund overlap, replace index funds with actively managed funds, and maintain a balanced approach.

Focus on Education Fund: Regularly review your education fund to ensure it meets future requirements.

With these adjustments and a disciplined approach, you can confidently work towards your financial goals and secure a bright future for your children.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in