MF Review

POSTED BY Ayan Guha ON March 2, 2013 12:13 pm COMMENTS (13)

Hi Ashal/Ramesh and Manish

I am reading the forums for last couple of months and it has really been eyeopener at many fronts. Thank you guys for sharing knowledge.

To my question, I am newbie in MF world. My goal is wealth creation and my plan is to maintain 2-3 funds over next 7 years and then leave it to grow for another 12 years (total 19 yrs). My goal is to reach a 3Cr corpus @ age of 52, which will be my pension corpus

I have chosen following funds

1. Debt: IDFC GSec PF Regular (G) : 20K/m

2. Quantum LT Equity Fund(G): 2k/m

I am planning to add 1 more equity (2K/m) and one balanced fund (4k/m)

As you can make out, I am pretty much want to be @ conservative side.

Please review and point me to correct direction, if you think I should change strategy or tweak it.

Thanks again

13 replies on this article “MF Review”

  1. Dear Ayan, the additional details were not there in original query. So recalculate your expense need @ 35K mly expense. 🙂

    Thanks

    Ashal

  2. Ayan Guha says:

    Ashal
    Thanks. I still kind of stick to my amount, reasons:
    1. I now spend some amount on my parents, which will need to be. However, my med costs will go up
    2. By that time spending on my son’s education will be done, hopefully
    3. I have EPF and PPF (my To do in 1 week) which can support additional requirements.
    4. I hope to buy/get my own place to live, so a large amount which I spend on rent will be saved.
    Overall, I am ok to plan till 70 yrs of age.
    Please do not think this is my rigidness, I would like to see how this amount can be achieved in plan.

    Coming to child plan, I do not think I have done any “planning” bit of it. It is all traditional LIC plans amounting to 13L in next 13 yrs. I do not have to think much on this, because there are some ancestral source to fund him if needed.

    Again, thanks for putting up with me in this journey

  3. Dear Ayan, 3.6L Rs. a month means 42L Rs. yly amount. Remember it’s post tax amount we are referring to. For age 65, 8.5L Rs. a month means 1.05Cr. Rs. yly. Interesting. So by the age of 66-67, you ‘ll out of money of those 3Cr. Rs. which you thought just a comfortable no.

    Now I’m stopping here & want you to recalculate your actual retirement comfort no. Either use your own brain or simply use calculators from http://www.freefincal.wordpress.com

    Now is your turn to discuss child policies. Please share details.

    Thanks

    Ashal

  4. Ayan Guha says:

    with 9%, @age of 55 monthly expense needed would be around 3.6L, and age of 65, it would be 8.5L a month!!!
    Sure I would enjoy this exercise

  5. Dear Ayan, your current age is 33Y. Good that you are thinking for your retirement now. For your current mly expenses of 50K, please calculate on your own & do a home work & tell me what ‘ll be the inflation adjusted figure for your age 55, 60, 65, 70, 75, 80 & 85Y? Please consider Inflation figure at least 8% if not 9% in your calculation. I hope you ‘ll enjoy this home work kind approach.

    Thanks

    Ashal

  6. Ayan Guha says:

    FFC: I agree with you. And please comment if you have any POV. I think it is better to learn than not 🙂

  7. Ayan Guha says:

    3CR amount is nothing but a number…sorry if it is distracting…

    Here is my financial situation as of today:

    1. Insurance: 1 CR term insurance taken on myself.
    2. Health coverage: 5L pa
    3. Emergency funding: 10L in Bank+FD
    4. Tax Planning: PF covers almost entire 80C, rest LIC
    5. EPF is there. Going for VPF and PPF this month.

    Current monthly cost is around 50K. Spare amount I can spend is around 30K

    Son: 5 yrs old. have done some LIC child plans which can cover his college costs.

    Goals:
    1. Buy a house – 3-5 yrs (approx value that time would be 70-80L). I am looking for good opportunities now also.
    2. Pension Corpus: More is merrier till 52 yrs. My retirement age is 55 yrs.
    3. Travel fund: Approx 1 L a year (which comes from my bonus)
    4. Jwellery: 1L a year
    5. Buy a car (good to have) in another 2-3 years.

    Hope this helps!!

    Thanks Ramesh and Ashal and FFC for pointing me with correct documents, much appreciated.

    1. Among your essential goals are you sure the LIC plans will cover college costs?

      You need to be careful reg. retirement savings as your other goals might interfere with it.

      Not my business to comment on the necessity of each goal but I suggest you have a go at this goal optimizer and see if you can manage all of them

      http://freefincal.wordpress.com/goal-planning/optimize-your-goal-investment-amount/

  8. Dear Ayan, what is going to happen age 52? Why your retirement corpus is linked with this age point? From where you calculated 3Cr. as your cut off point for retirement? What’s conservative in your own words? What about Inflation? Is it your total financial saving? What about your other goals? What about your insurance, family security, emergency funding, tax planning, PF, PPF, other investments…….?

    Thanks

    Ashal

  9. Ramesh says:

    Selecting funds is only 1 part.

    You need to have a holistic view.

    1. Write down an Investment Policy Statement about the hows and whys. Take help from:

    http://www.morningstar.in/posts/10705/making-your-investment-policy-statement.aspx

    http://www.bogleheads.org/wiki/Investment_Policy_Statement

    http://www.abcsofinvesting.net/investment-policy-statement/

    2. Explain why 20k in a debt fund. Why that fund? To yourself and in that policy statement.
    3. Explain why the rest in equity. And why those funds. So that next year at the time of review, you are clearer about evaluation and can go back to these things in an objective fashion.
    4. 3 crore is an elusive figure, and too far distant in future. The value of 3 crore will change every year.
    5. Take help of FFC’s excellent calculators and use them as a generic advise.
    6. I fail to understand, leave for 12 years. What will you do in those years? Stop working?
    7. Understand Asset Allocation and how does that work. Assigning SIP values will be different from the actual valuation of the Assets after 2-3 years onwards.

    these are a lot of questions, and you need to have approximate answers for them. Keep learning.

  10. Ayan Guha says:

    Hi FFC
    Thanks for your comment.

    3Cr is the goal, I have not calculated it any way. I do not mind upwards though 🙂

    How do you think I should structure my portfolio on equity/balanced only to reach the goal?

    Again, thanks a lot for your help

    1. Suggest you use this

      http://freefincal.wordpress.com/retirement-calculators-3/online-retirement-calculator-version-2/

      and get a ballpark figure first.

      Then you need to figure out how much can save for this goal taking into account other goals.
      Based on this you fix the return you need taking at least 8-10% inflation.

      Then assume 10-12% long term equity returns and 8-9% debt returns (keep tax in mind).

      No figure out the % equity needed to generate the net return.

      For example if you need 10% average return

      10% = X*12% +(1-X)*8%
      Find X that will give you equity allocation.

      The point is your risk appetite is sometimes irrelevant to inflation-risk

      I will guess you would need at least 60% in equity
      Choose debt with care. PPF , EPF (or NPS in my case) are good debt instruments because they are tax free on maturity.

  11. Investing 28000 for 7 years at an average return of 10% and then letting the sum grow for 12 years at 10% will only fetch you 1 cr.

    Even if you invested 28K at 10% for 19 years you will reach 1.7 Cr.

    So you need to invest in equity more. Inflation risk and is more important than volatility risk.

    Btw a PPF account will roughly match the post-tax returns of a gilt fund.

    Can you share how you came up with 3cr number. For something 19 years away it seems a little on the lower side

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