Retirement Target of 25000 per month

I am 27 years old, working in a knowledge process outsourcing (KPO) unit. Currently, I am the only earning member in my family. My aim is to create a retirement corpus that will give me a monthly income of Rs 25,000. I have attached my current investment details. I have deliberately not balanced or diversified my portfolio yet. I felt the need to first get it reviewed and obtain some guidance on that front. This should help me choose my future investments properly. Please suggest me some funds that I should choose to fulfil my goals. I would also appreciate some guidance concerning my investment strategies.

Existing Portfolio
Funds

Yearly Amt (Rs)
DSPBR Top 100 Equity Reg-G 12,000
HDFC Taxsaver-G 10,000
Kotak Opportunities-G 12,000
Magnum Taxgain-G 10,000
Reliance Diversified
Power Sector Retail-G 12,000
Sundaram BNP Paribas Taxsaver-G 12,000

ULIPS/Insurance/Mediclaim

Yearly Premium(Rs)
LIC Market Plus 20,000
LIC Profit Plus(Two) 20,000
LIC Jeewan Tarang(Two) 50,000
HDFC Unit Linked Endowment Plan 20,000

Government
Instruments Maturity
Amount (Rs) Maturity
Date
PPF 50,134 8/1/2023
Kisan Vikas Patra 100,000

11/19/2015
National Saving Certificate 16,010 1/25/2013
National Saving Certificate 24,015 2/23/2012
Post Office MIS 33,000 1/29/2009
Post Office MIS 13,200 2/28/2009


REPLY :

Your approach of investing 30 per cent of your income in various short- and long-term assets and keeping 10 per cent in cash for emergencies reflects a sensible and disciplined approach towards investing.

Let's look at each of them.

DEBT
Even though you are young, it is always important to have some amount of exposure to this asset class. Your investment in debt is in Kisan Vikas Patra (KVP), National Savings Certificate (NSC), Post Office Monthly Income Scheme and Public Provident Fund (PPF). All these are very safe since they are backed by the government.

Due to their fixed return and safety, they will provide the stability to your portfolio. Also, your investments in PPF and NSC will fall under Section 80C of the Income Tax Act, enabling you to use the tax benefit. But please keep in mind the tenure of the instruments and try and ensure that you will not need this money for the entire time-frame. For example, the NSC has a lock-in period of 6 years, while it is 15 years for PPF.

UNIT-LINKED INSURANCE PLANS OR ULIPS
We are not against insurance. And since you are the only earning member in your family, it is mandatory in your case. But we do not advocate mixing insurance with investments.

Currently, you have four Ulips in your portfolio and this is eating away a lot of money in the form of expenses. We did a simple comparison between a Ulip (LIC Market Plus) and a mutual fund scheme on the basis of chargeable expenses. We allocated Rs 20,000 annually for 20 years in both the instruments.

In the case of the Ulip, the deductible charges amounted to Rs 6,356, including the premium allocation, policy administration, fund management charges, addition to fund charges and other charges.

After deducting the chargeable expenses, we found that in case of the Ulip, the investable amount stands at Rs 13,644 and in mutual funds Rs 19,600. Looking at this as the annual investment for the next 20 years, the corpus in hand will eventually stand at Rs 11.41 lakh (Ulip) and Rs 13.80 lakh (mutual fund). This difference of almost 20 per cent is directly the result of expense charges. The commission paid to agents, which goes as high as 50-70 per cent of the premium, was not taken into account.

Currently, with four Ulips and two 'with-profit whole-life' plans, you are paying a heavy premium to get insured. For instance, your annual premium for the two LIC policies is Rs 50,000. But had you opted for a basic-term policy, you would be able to obtain a huge cover at a cheap rate. And you would be in a position to invest the balance amount elsewhere.

MUTUAL FUNDS
Your current portfolio is high on quality in spite of tax-saving funds, accounting for 57 per cent of the total investment.

In your mutual fund portfolio, you have eight schemes. You can make DSPBR Top 100 Equity and Magnum Tax Gain your core holdings. Both these funds are large-cap schemes with a strong track record.

From the remaining two -- HDFC Tax Saver and Sundaram BNP Paribas Tax Saver -- you can stay invested in any one of them. But do remember to sell only after the lock-in period. HDFC Tax Saver is a mid-cap-oriented fund, while the other is a multi-cap fund.

It would be wise to stay away from theme-based funds like DSPBR World Gold Fund and Reliance Diversified Power Sector Fund. You can take a minimum exposure to Kotak Opportunities Fund. For the debt allocation, do consider a debt fund like Kotak Flexi Debt and not just fixed-return instruments.

GETTING THERE
Our entire analysis is based on your need to create a corpus that will offer you Rs 25,000 a month. Let's make a few assumptions:

* You retire at the age of 57.

* Since you are 27 years of age, that will leave you with 30 years to invest.

* You live for 43 years after you retire.

To survive on a monthly income of Rs 25,000 for 43 years, you will require a corpus of Rs 1.30 crore when you retire.

To generate Rs 25,000 a month, you need to systematically invest Rs 9,000 every month for the next 30 years. This will allow you to sit on a corpus of Rs 2 crore, if we assume a compounded annual return of 10 per cent, quite moderate if the asset in question is equity.

Also visit my other blog goodtravelplanner.blogspot.com,
http://buycall.blogspot.com/
and http://indiahotelstariff.blogspot.com/

New LIC Policy - Jeevan Aastha

Dear friends,
Within a few days, A lot of freinds among u 'll receive phone calls from LIC agents on this policy- JEEVAN AASTHA.

Here is a detailed analysis of the policy for benefit for all of u as well as for ur friends. This mail is meant for making an informed decidion.

This new plan of LIC (Jeevan Aastha) although provide gtd. returns but plz. note the NET Yield is variable for different age person due to difference in prem. paid for the same amount of cover.

Some info for this policy is given below.
Minimum Sum assured = 150000 & can be purchsed in multiples of 30000
Max. Sum assured = No limit
Prem. type = single prem. only
Type of policy = Traditional endowment policy with gtd. return
Minimum entry age = 13 years (nearest birth day)
Max. entry age = 60 years (nearest birth day)
Policy term = 5 years or 10 years
in First policy year the SA = 6 times of Single prem. paid (appx.)
From 2nd year onwards SA = 2 times of single prem. paid (appx.)
Maturity SA = 1/6th of original SA
GTD. addition per year = 100 Rs. for per 000 maturity SA for 10Y plan & 90 Rs. for 5 year plan
Loan & surrender value = after completion of 1st policy year

Sample benefit illustration for a 35year normal healthy male stamdard life.
Age of life assured = 35 years
SA = 300000
Maturity SA = 1/6 of Initial SA = 50000
Single prem. = 48975
Term of policy = 10 years
In case of death during 1st policy year claim amount = Initial SA + GTD addition = 300000 + 5000 (@ 100 Rs. per 000 maturity SA for 50,000 maturity SA)
In case of death during 2nd to 10th year claim amount = 100000 (reduced SA) + GTD. addition of 5000 Rs. per year
Maturity amount after 10 years = 50000 (maturity SA) + 50000 (gtd. addition) + 10000 (lyality addition if any, not gtd.) = 110000 Rs.

From investment point of view (it `ll be the main sales pitch to be adopted by LIC agents al over india), the CAGR for above person = 8.43% with Loyality addition & 7.5% with out Loyality addition of 10000 Rs. which is non guaranteed.

My Take on jeevan Aastha plan -

It`s a carefully designed Fixed Maturity Plan (FMP). Yes u read it right, it`s indded a FMP as the term as well as returns r known to u before taking the policy & are almost gtd. in nature (just leaving loyality addition as a non gtd. one).
Being an ins. plan offeed by the largest Ins. co. of india, it`s also Tax efficient too. In the first year the SA is almost 6 times of single prem. hence 20% prem. to SA rule is taken care off at the time of investment. being investment oriented policy, from 2nd year the SA is reduced immediately to have lesser expenses for mortality charges.

The biggest catch lies in the GTD. bonus calculation.
PLZ. NOTE THE GTD. ADDITION `LL BE CALCULATED ON THE MATURITY SA ONLY WHICH IS 1/6TH OF INITIAL SA.

As the maturity amount is fixed for the policy term, the Net yield (CAGR) `ll be higher for persons in the age bracket of 13-35 years & `ll be very low for the persons in 45-60 age bracket. Anywhere from 6% to 7%. This is due to higher mortality charges for this age bracket.

My Judgement - This Policy is not suitable for any age class. for Y`ger people (20-35 age), the 10 year term can provide better returns from market linked instruments like Eq. & Debt. MFs. For older age people the return is not that much attractive. In fact for the persons who r in their 50s, the 10.5% bank FDs & PPF & Bhavishya Nirmaan Bonds (BNB) of Nabard r better option. as By that time the Ins. needs r over & even if one purchase it for ther partial ins. benefit, the real ins. is very poor.

Another reason why you should not invest in Jeevan Aastha
Let us say you have invested Rs 10,000.
In ten years if your amount has doubled to Rs 20,000 - then the return is 72 / 10 = 7.2%. If your returns are 8% - then the time taken to double your money is 72/8 = 9 years.
The formula is -

72 / rate of return = no of years to double your money or
72/ no of years to double your money = rate of return.

The new JEEVAN AASTHA policy - your money approximately doubles in 10 years.
So the rate of return is 72 /10 = 7.2% (approx) and not 10% as projected by your insurance agent.

     Regulars to this Blog know that I hate Combining Insurance with Investment. My advise has always been, and will continue be, For Insurance Take Term Plan, which is the cheapest form of Insurance and then invest the remaining in Diversified Equity Funds. Finally, my advise on Jeevan Aastha is,

- PLZ. DON`T TAKE THIS POLICY. -
Best of luck, 
Srikanth Shankar Matrubai





Thank you Ashal Jauhari and Ranjan for invaluable inputs
Also visit my other blog goodtravelplanner.blogspot.com and http://indiahotelstariff.blogspot.com/

Best Funds for A Cautious Investor

ASiingh wrote :
DSPBR T.I.G.E.R. Reg-G - 10%
Kotak 30-G -25%
Magnum Contra-G - 20%
Reliance Growth-G - 20%
Sund. BNP Par. Select Focus Reg-G - 25%

This combination is also Giant/Large cap heavy so is safer. Monthly allocation percentage indicated. What do you feel ?

SRIKANTH SHANKAR MATRUBAI replied :

Dear Asiingh,
Three of the funds chosen by you would not be a good idea for Cautious Investors., namely DSPBR Tiger Fund, Reliance Growth and SBI Magnum Contra fund.
DSPBR is a Infrastructure Sector Oriented Fund and is very volatile and for a cautious investor will not be a very wise investment.
Reliance Growth Fund has had a terrific past and the future too should be good, but the fund is heavily titled towards Mid-caps and I would avoid this fund too.
SBI Magnum Contra Fund has had a good past, but the frequent change in the Fund Manager is starting to tell on the performance of the Fund and also the Fund`s strategy could change anytime from being a Diversified Fund to a Contrarian Fund, for which it was initially conceptualised.

Instead my 3 funds to compliment your other 2 funds would be
HDFC Prudence Fund - A Balanced Fund which has a unmatched past through bull and bear runs.
DSPBR Top 100 Fund - Again a Fund with a Clean Record.
Fidelity Equity Fund - A Go Anywhere Fund with a good record in Bear Markets (for more on this, visit goodfundadvisor dot blogspot dot com)
So, the final selection would be
DSPBR Top 100 Fund
Fidelity Equity Fund
HDFC Prudence Fund
Kotak K30 Fund
Sundaram Select Focus Fund
By the way, I would have a equal propotion of 20% each in these 5 funds.

Best of luck,
Srikanth Shankar Matrubai





Also visit my other blog goodtravelplanner.blogspot.com and http://indiahotelstariff.blogspot.com/

GSPL - Oversold, Worth a Long Term Buy

Dear All,
Gujarat State Petronet Limited is first company in India to transport natural gas on open access basis and is a Pure Natural Gas Transmission Company.
The Gujarat State Petronet Ltd stock has undergone a drastic correction, more than halving in value from its high of Rs.110 currently quoting at around 26. The recent hammering was more pronounced due to the forced direction from the Gujarat Govt to contribute 30% of PBT for Social projects.
GSPL has a focussed business model as a transporter of natural gas in Gujarat without any exposure to commodity price risk. It would not matter for this company whether Gas prices are going up or down because they don`t own any gas. It is well-positioned in the Gujarat gas market with its pipelines connecting gas sources to existing and developing markets. GSPL is also venturing into city gas distribution through investment in group companies engaged in the lucrative and growing markets.
GSPL will see a doubling in pipeline capacities and quadrupling of Revenues over the next 4 years..the stock should become a core infrastructure play .
Gujarat-The Biggest Natural Gas Consumer :::Gujarat currently moves 18mmscmd of gas per day whereas demand is expected to shoot up to 95 mmscmd by 2010.
GSPL has picked up strategic stakes in group companies — GSPC Gas, Sabarmati Gas and Krishna Godavari Gas Network Ltd — that are setting up city gas businesses in Gujarat and Andhra Pradesh. City gas distribution, which includes supply of compressed natural gas for automobiles, will be a natural diversification for GSPL from its transportation business.
RISKS:
Tarrif Regulations, delay in Gas production from KG basin, 30% allocation to Social projects as mandated by Guj Govt and higher debt.
This is a simple business model which makes money
year in and year out without any glamor associated. Peter Lynch and Warren Buffet would love to invest in this one. And me too.
Investors can buy the stock with a medium to long term view. The Stock should be a steady performer and a Good Dividend play.
Best of luck,
Srikanth Shankar Matrubai,

Also visit my other blog goodtravelplanner.blogspot.com and http://indiahotelstariff.blogspot.com/