Wealth Spl: Does my portfolio look alright?

Starting this week, we begin a series called 'Does my portfolio look alright?'. Every Thursday, our experts will review a portfolio sent in by our readers and give some tips on how to improve their investment strategy.

This week, our financial expert, Kartik Jhaveri gives Raj smart tips to improve his investments and alter his portfolio in order to achieve his financial objectives.

I am 41 years of age with two children, one studying in 12th and the other in 5th grade. I earn around Rs 9 lakh per annum.

My asset allocation is as follow:

Public Provident Fund 15 per cent

Kisan Vikas Patra 23 per cent

Shares 17 per cent,

Diversified mutual fund 40.9 per cent,

Infrastructure bond 1.9 per cent,

Non Convertible Debentures 0.44 per cent and

Cash 1.7 per cent.

Insurance:

I have a term policy of Rs 10 lakh, and a medical insurance of Rs 5 lakh (on behalf of the company).

How can I improve my investments?

-- Raj

Returns are a result of the investments we do, investments are a fallout of the financial strategy, and the financial strategy is a product of financial objectives. So, the question should be what are my financial objectives?

Here is an analysis:

Your investment allocation is around 60 per cent into higher return generating assets viz. stocks and mutual funds while the other 40 per cent is into fixed return generating assets.

The modifications you need to make in your strategy to achieve your financial objectives are;

a. Estimation of your financial objective

b. Do a bit of mathematics

How do we do that? Here's an example:

Your younger child is around 10 years old. Now let’s say you require Rs 5 lakh (factoring inflation) to plan your child’s wedding, which will happen in about 15 years time. Calculate how much you will need to reach Rs 5 lakh in 15 years time. You can start with say 8 per cent returns per annum.

The answer: Rs 1.6 lakh per annum

Now, if you find that you have more money, reduce your risk by investing into a conservative product – something that gives you less than 8 per cent post tax.

Now, if you feel that you have less money, ie lesser than Rs 1.6 lakh, you need to take more risk to increase your rate of return. You will need just Rs 92,000 to start with if you are looking at 12 per cent return. Your advisor can help locate suitable product and manage your portfolio so that you earn this 12 per cent return net of tax

To sum it up: If you have more money, you can afford to be in safer instruments and if you are short on money, you have to be invested with higher risk products. This exercise must be repeated for each financial objective.

In the event that you don’t have lump sum cash, you can also consider making monthly investments. For example: if you invest Rs 10,000 per month in 5 years at 8 per cent you can get Rs 8 lakh, in 10 years you can get about Rs 23 lakh and in 15 years you can reach about Rs 50 lakh.

Caution: Equity investments and similar high risk investments like commodities and real estate may be considered only for financial objectives of 4 to 5 years or more.

Last word: Do not have too many diverse products to work with and too many products of the same category, eg KVPs. Over time we tend to run the risk to losing papers as also the risk of forgetting what we have where. That’s the worse thing to do.

What do YOU do with your money? Where do YOU invest? Share your story with us. Mail us at [email protected] mentioning your name, age, profession and the city you reside in. We would love to hear from you!

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