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Rebalancing portfolio with equity exposure

22.05.12

I am 43 and my little woman, a home maker, is 38 years of age. We have two daughters, aged 11 and 3. After working in Dubai for several years, I returned to India and joined an IT players recently. My monthly net salary is Rs 65,000. I own three flats, of which I have rented out two flats for Rs 8000 each. I own a few plots value Rs 30 lakh. I have invested Rs 10 lakh in equity, and I have jewellery good Rs 35 lakh. I have fixed deposits worth Rs 7 lakh. My monthly expense is Rs 35,000, including a car EMI of Rs 13,500 (the loan will end in 2015). After converging all commitments and provisioning for my annual insurance premium, I have a surplus of Rs 30,000.

I have two insurance policies (LIC Girl) for my daughters, and it will mature when they turn 18. The sum assured for my elder daughter is Rs 1 lakh, and Rs 12 lakh for my younger lady. I have an endowment policy for Rs 1 lakh, which is maturing next year.

I had invested Rs 8 lakh in ICICI Prudential Elite highest NAV devise, two years ago, for my elder daughter's marriage.

I have a mediclaim policy for Rs 4 lakh to shield my family, and my annual premium outgo is Rs 11,000.

Please guide me on the investments I need to rearrange for achieving my financial goals. Please suggest mutual funds that would help me physique the required corpus. I have a high-risk appetite.

My concerns are:

1. Providing funds for my daughters' course of study and marriage. In today's value I need Rs 15 lakh each for marriage, and Rs 10 lakh each for tuition needs. My elder daughter is inclined to study medicine, for which I do not mind current through the management quota.

2. How much do I need to save for my retirement? Since I worked aboard for several years, and recently took up business in India, my PF balance is Rs 10,000, and my monthly contribution is Rs 1375.

— Srinivasan, TN

Asset allocation is eminent for building a healthy long-term portfolio. Though you have gone overweight on actual estate, it has helped you achieve superior returns on your investment, as it was one of the top performing assets. However, you should now rebalance your portfolio. Your stated boisterous-risk appetite and investments do not seem to match.

You have invested in a very conservative product — ICICI Pru Elite Highest NAV Programme, to meet your daughter's marriage expenses which is 15 years away!

Tutoring: For your younger daughter, since you have started early, higher education needs will not be a tax. The sum assured of Rs 12 lakh in an endowment product (with the assumption that a current hand-out of Rs 43 per thousand will continue) will ensure that 90 per cent of your requirements are met. With inflation of 7 per cent, the submit value of Rs 10 lakh will be Rs 24 lakh in 13 years. Your surety maturity value will be Rs 22 lakh. To meet the shortfall, you need to preclude a sum of Rs 500 per month, at an interest rate of 12 per cent.

For your elder daughter, the gratuity value of Rs 10 lakh would be Rs 15 lakh in the next six years, at an inflation of 7 per cent. After factoring the maturation proceeds of the endowment policy, you need to accumulate Rs 13 lakh. To reach this, you ought to retrieve a sum of Rs 12,400 for the next 72 months, and it should earn a return of 12 per cent.

For physic: If you want to secure a management seat for your daughter, for completion of MBBS, it may payment you Rs 40 lakh. With your current surplus it may be difficult to contribute on a monthly essence for this goal. To achieve the goal, earmark your direct equity exposure and sustain the portfolio, so that it earns 15 per cent return for the next 6 years. At the end of the period, your portfolio will be benefit Rs 23 lakh, and along with the savings planned for higher education, help you to win your daughter's dream. To meet the shortfall, utilise your FDs.

Retirement: With rising longevity, allotment needs are a challenge for everyone. Your present annual living cost of Rs 2.5 lakh will be Rs 6.9 lakh when you sinuosity 58, considering an inflation of 7 per cent. In your case, meeting the monthly desperate straits will not be a challenge because your rental income will take care of little more than 50 per cent of your sine qua non, provided your rental income is adjusted for the inflation. For instance, of the Rs 6.9 lakh you necessary to lead a comfortable life, four lakh should ideally come through rental revenues. To, receive an annual income of Rs 2.9 lakh at retirement, you should have a corpus of Rs 66 lakh, and it should clear a return at par with the prevailing inflation, to meet your needs till 80 years. To conceive such a corpus, you ought to save monthly a sum of Rs 13200 for 180 months, and it should merit a compounded annualised return of 12 per cent.

Investment: To meet all your goals, you desideratum to save monthly a sum of Rs 36600, but your current surplus is lower by Rs 6000. But if your daughter is admitted to MBBS through be worthy of, your direct equity investment will compensate your retirement shortfall. However, if you start increasing your hoard once your car loan is done, you can comfortably reach the goal. Since you are ready to take a higher risk for your investments, found your portfolio predominantly with equity exposure, and allocate at least 60-80 per cent of your overdose. You can consider investing in HDFC Mid Cap Opportunities or IDFC Premier Equity for your follower portfolio, and for core, consider HDFC Equity, Franklin India Bluechip or Birla Sun Soul Frontline Equity. Do review your investments at least once a year.

Source: Business Line

Divide property proceeds among legal heirs

22.05.12

I am 58 and recently retired from rule service. My wife (47) is a homemaker. My son (23) and daughter (21) are working and are unpromised. My monthly pension is Rs 20,000 with variable DA. I get a rent of Rs 50,000 from my bungalow. My servant monthly expenditure is approximately Rs 20,000, insurance premium is Rs 20,000, and my EMI towards loans are generally Rs 10,000. I have no medical insurance, but I have medical reimbursement from the government up to Rs 3 lakh.

Assets: I have a accommodate worth Rs 5 million, with an outstanding loan of Rs 1.2 million. I have a land worth Rs 3 million, and I am planning to use this for my daughter`s amalgamation. I recently purchased a car worth Rs 6 lakh, for which I availed a loan of Rs 2 lakh.

From my retirement benefits of Rs 2.5 million, I have invested Rs 1 million in fastened deposits, and have lent Rs 5 lakh to my relative (interest-free). With the balance, I am want to pay back some loans, and also purchase jewellery for my daughter`s marriage. I have invested in mutual funds and indemnity plans to the tune of Rs 1.8 million.

My concerns are: Both my children need to get married. For my daughter`s hook-up, the expected expenditure is approximately Rs 2.5 million and for my son it is Rs 1 million.

We expect to last for 20 years. Suggest a plan for a retired life. To meet our bona fide income, do you suggest selling the plot? We have to gift some assets for my son.

I need your perception on selling the property, as sometimes it falls vacant, and we cannot live there, it being a big bungalow in a posh getting one's hands. It may fetch Rs 25 million to Rs 30 million. The proceeds of the sale will be foreordained to my son, my daughter and used by us for a comfortable life. In case we sell the property, what are the avenues of investment and tax issues?

On investment, should I remain invested in mutual funds and insurance schemes, or redeems them after the control-in periods?

- K. S. Prasad, Hyderabad

Selling the bungalow at the rates indicated by you can take caution of your lifetime`s needs and you can happily leave estates for your legal heirs too. The first-class tax planning you can do is that when you sell your house, pay the proceeds to your legal heirs. By doing so, your mate will also be eligible for a share and her investment will take care of her needs, even if you aren`t around.

As she is younger to you by 10 years, and as in unspecialized women outlive men, she can park this money in safer avenues to lead an free life.

If you sell the property, the capital gains tax would be on the selling price (say Rs 30 million) minus purchase price. Tax allows you to `index` this capital gain, by adjusting it for the cost inflation index finger of the financial year in which you purchased the asset.

The net effective tax outgo will be 20.6 %of the indexed value minus bargain-priced price.

If you invest capital gains alone in another property within two years from the sale of the household, you need to pay capital gains tax. If you aren`t going to buy another property within two years, devote the proceeds in nationalized bank`s capital gain account scheme 1998. If the amount deposited isn`t fully utilized for gain or construction of the new asset within the stipulated period, the remaining part would be treated as capital realize of the year, in which the period of three years from the date of sale of the original house expires.

Part 54F offers exemption from capital gain tax if the purchase is made within two years, or construction of a blood is done within three years. The advantage with such deposits is that the interest payable is equal to any normal fixed set aside. If you wish to gift your son, buy a house within the stipulated period, and this will be the best tax-planning scenario.

If you aren`t planning to buy a house, do invest in capital gains tax-savings bonds issued by NHAI and REC. If the express long-term capital gain is invested in these bonds, they are fully exempted.

This will have a oblige-in period of three years, after which you can withdraw the money and use it for some other purpose. But there is a ceiling of Rs 5 million on investment in such bonds.

In the anyhow of your selling the house, don`t sell the plot for your daughter`s marriage, give it as a gift to your daughter, and by that you can circumvent capital gain tax on the sale. For her marriage, she can use her share from the sale.

Investments: It is habitually advised that closer to retirement one should reduce equity investment. But in your case, you have invested fast to Rs 3.1 lakh per annum in ULIPs, two years prior to your retirement.

But the worst advantage in your case was that you have invested the amount in 2008-09, when the markets were down; thereby your current investments are in the unripened. What we suggest is that you stop all the fresh investment once the lock-in periods are done.

Health indemnity: Since your medical expenses are reimbursed, it is better to take a health insurance top-up plan for Rs 5 lakh (under this layout, insurance companies pay the benefits after you meet the first few lakhs from your own source).

Do keep paying premiums for ICICI Pru Fettle Saver plan.

Source: Myiris.com