i am 37 yrs world married with 5 yrs boy.i earned around 70 k per month.i hv ppf of 30 lac,epf 40 lac.i hv 6 lac fd.lic 24k and 29 k premium paid per year,postal life insurance 36 k per year premium paid .
lump sum 50 k investment in icici preduantial small cap 2 yrs ago(still holding),lumpsum 70 k in axis bluechipfund 2 yrs ago(still holding),lumpsum 50k sbi balance advance fund(still holding),3.69 lac in sbi blue chip fund from 2014 which is now 5 lac
my present sips are on
1) 1000 sbi bluechipfund(running from 1.5 yrs)
2)2000 sbi contra fund(fresh adding)
3)2500 sbi kotak small cap(running from 2 yrs)
4)2500 parag parekh flexicap(running from 2 yrs)
5)2500 nippon small cap(fresh adding)
6)2500 axis quant fund(fresh adding)
should i stop lic..and invest more in sips ?i want some 50 lac in 7-8 yrs in returns which mutual fund would be better pls suggest me?
Ans: At 37 years old, you are married with a 5-year-old child and earn around Rs. 70,000 per month. Your current investments include:
PPF: Rs. 30 lakh
EPF: Rs. 40 lakh
FD: Rs. 6 lakh
LIC premiums: Rs. 24,000 and Rs. 29,000 annually
Postal life insurance: Rs. 36,000 annually
Mutual funds: Various lump sum investments and SIPs
Evaluating Your Current Investments
Public Provident Fund (PPF):
You have Rs. 30 lakh in PPF, which provides stable and tax-free returns. This is a good foundation for your long-term financial goals.
Employee Provident Fund (EPF):
With Rs. 40 lakh in EPF, you have another solid, low-risk investment for retirement.
Fixed Deposit (FD):
Your Rs. 6 lakh in FDs offers safety but lower returns compared to other investments.
Life Insurance Policies:
Your LIC and postal life insurance policies provide life cover but might not be the most efficient investment vehicles in terms of returns.
Mutual Funds:
You have diversified mutual fund investments, including lump sums and SIPs. These funds can potentially offer higher returns over the long term.
Financial Goals
Your goal is to accumulate Rs. 50 lakh in the next 7-8 years. Let's analyze how to optimize your investments to achieve this target.
Strategic Investment Plan
Reviewing Life Insurance Policies:
Life insurance is crucial, but high premiums can limit investment potential. Consider term insurance for adequate life cover at lower costs. You can then redirect savings into high-return investments like mutual funds.
Mutual Fund Investments:
Mutual funds are a powerful tool for wealth creation. Your current SIPs are well-diversified across different fund categories. To reach Rs. 50 lakh, let's focus on optimizing these investments.
Optimizing SIPs
Current SIPs:
SBI Bluechip Fund: Rs. 1,000
SBI Contra Fund: Rs. 2,000
Kotak Small Cap Fund: Rs. 2,500
Parag Parikh Flexi Cap Fund: Rs. 2,500
Nippon Small Cap Fund: Rs. 2,500
Axis Quant Fund: Rs. 2,500
Suggested Adjustments:
Increase your SIP amounts in funds with strong performance histories and potential for high returns. Consider the following:
SBI Bluechip Fund: Increase to Rs. 3,000
SBI Contra Fund: Maintain Rs. 2,000
Kotak Small Cap Fund: Increase to Rs. 5,000
Parag Parikh Flexi Cap Fund: Increase to Rs. 5,000
Nippon Small Cap Fund: Maintain Rs. 2,500
Axis Quant Fund: Maintain Rs. 2,500
Lump Sum Investments
Existing Lump Sums:
ICICI Prudential Small Cap: Rs. 50,000
Axis Bluechip Fund: Rs. 70,000
SBI Balance Advantage Fund: Rs. 50,000
SBI Bluechip Fund: Rs. 3.69 lakh (now Rs. 5 lakh)
These lump sums have been performing well. Continue holding them for potential growth.
Future Lump Sum Investments:
Redirect your FD amount into mutual funds. FDs offer lower returns, and shifting this amount can boost your investment growth. Consider splitting Rs. 6 lakh into these funds:
Large Cap Fund: Rs. 2 lakh
Mid Cap Fund: Rs. 2 lakh
Small Cap Fund: Rs. 2 lakh
Investing the Savings from Insurance Premiums
LIC and Postal Life Insurance:
If you choose to surrender or reduce these policies, you can redirect the premium amounts into SIPs or mutual funds. For example:
Rs. 24,000 (LIC) + Rs. 29,000 (LIC) + Rs. 36,000 (Postal) = Rs. 89,000 annually
This amount can be added to your SIPs for higher returns.
Calculating the Future Value
Using a conservative return rate of 12% per annum for mutual funds, let's estimate the future value of your investments.
PPF and EPF:
Continue to grow steadily. Let's assume no additional contributions.
Mutual Funds:
With increased SIPs and redirected lump sums, your portfolio can grow significantly. For example:
Monthly SIPs: Rs. 20,000
Lump Sums: Rs. 6 lakh (initial) + growth
Over 7-8 years, these investments can potentially exceed Rs. 50 lakh, considering compounding returns.
Contingency and Emergency Funds
Maintain an emergency fund equivalent to 6 months of expenses. This ensures financial security in case of unexpected events.
Regular Review and Adjustment
Regularly review your investment portfolio. Adjust your SIPs and investments based on performance and market conditions. Annual rebalancing can help maintain your desired asset allocation.
Conclusion
By optimizing your current investments and increasing your SIP contributions, you can achieve your goal of Rs. 50 lakh in 7-8 years. Here’s a summary of the action plan:
Review and potentially surrender LIC policies.
Increase SIP contributions in high-performing funds.
Redirect FD amounts into mutual funds.
Maintain an emergency fund.
Regularly review and adjust your investments.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in