Hi Sreekanth,
Thank you for running this blog - it has gone a long way in helping me understand the value of investing in the long term.
Please find my questions below.
Parents' Portfolio Creation: Dad is 68, Mom is 61. They want to make a lumpsum investment of 40L, and keeping their financial goals in mind (they do not need any income from their investments till Jan 2019), what is the breakup I should recommend to them?
a) Short term (3 years) - They will need 70k monthly income from April '19 onwards - i) What lumpsum amount should they invest in as of today, ii) in which product such that iii) they are able to receive 70k every month from it starting April '19?
b) Medium term (6-7 years) - 40L minus [sum invested in short term instruments]
c) Long term (10 years) - Apart from the lumpsum, they are able to create an SIP for an investment of 55k every month, for 35 months - starting May 2016 - which MF might be best for their long term goal of being as financially independent as possible at the ages of 78yr and 71yr respectively?
Also, given the impending market crash forecast for this year, would it be wise to invest the lumpsum immediately, or to wait for a few months?
Thank you, and looking forward to your response.
6 Answers
Hi,
Thank you for your appreciation.
Retirement Planning (Parents) : Suggest you to download the calculator and calculate the approx required retirement corpus to receive the required periodic (monthly income).
Read: Retirement Planning Goal & Calculator.
As per your calculations, do revert to me if you they can achieve the periodic income with the available lump sum money. You can play with expected Return on Investment in the calculator to arrive at the required amount of corpus.
May I know the reason for being so sure that equity markets WILL crash this year? Would like to know your viewpoint.
Hi Sreekanth,
Thanks for your response.
In light of your advice, they have decided to rework the math on their finances, which looks something like this: 40L lumpsum investment for 4.5 years in: a) 10L in HDFC Childrens Gift Fund - Investment Plan b) 10L in Birla Sunlife MIP II Wealth 25 c) 5L in HDFC Balanced Fund d) 5L in ICICI Prudential Fund - Regular Plan e) 5L in TATA Balanced Fund f) 5L in UTI Midcap fund (planning to hold this for 10 years)
Do you think the above a) through e) are good funds to invest in, for ~5 year timeline?
Further, they have decided to start an SIP for 4.5 years (~55 installments) in: a) 15k monthly in Franklin India Prima Plus Fund b) 16k monthly in Birla Sunlife Frontline Equity Fund They plan to stay invested in these two funds for 5-7 years after they stop contributing the monthly investment in 2020.
Looking forward to your thoughts. Thank you. Rishabh.
p.s - I have no crystal ball about what the markets WILL or WON'T do :) I only requested your advice on "forecasted market crash in 2016". Cheers
Hi Rishabh,
May I know the reason for shortlisting 'HDFC Children's Gift fund'? If they are planning to invest in this fund, kindly go through my review : Children's Gift Mutual Funds - review.
What is the scheme name of ' ICICI Prudential Fund – Regular Plan'?
As these are equity oriented funds (except Birla fund), consider investing for 3 to 4 years (except UTI midcap) and then can switch to safer investment avenues (like Debt funds / MIPs / FDs).
They can consider adding one balanced fund for 5-7 time horizon goal. All the shortlisted funds are good ones.
Hi Sreekanth, Thank you for taking the time to have this detailed discussion. After reading your review of the HDFC Children's fund, I realized the fund has to be in the minor's name, which does not apply to them, since I want all funds to be in their name only. What do you think of the below? 1. 15L in Birla Sunlife MIP II Wealth (growth plan) - 5 years 2. 15L in HDFC Balanced Fund - 5 years 3. 5L in TATA Balanced Fund - 5 years 4. 5L in UTI Midcap fund -10 years 5. 15k SIP in Franklin India Prima Plus - 10 years 6. 15k SIP in Birla Sunlife Frontline Equity Fund - 10 years Is there any rule of thumb that correlates (roughly) the type of investment and the duration of time it should be held for? For example, it appears that pure equity should be held for the longest duration of time (10 years+), hybrid for medium term (5-7) and MIPs for short term (3-5yr) - would you say that is the case, generally? Thanks!
Hi,
The portfolios looks fine (Lump sum & SIP).
Though UTI Midcap is a good fund, kindly note that the Fund manager of this fund has been changed. So, since you are starting a fresh investment, suggest you to look at HDFC Mid-cap opportunities fund or BNP Paribas Mid-cap Fund (just a suggestion).
Regarding the ideal duration; the Longer the duration the lower is the probability of negative returns. So, the chances of getting better returns (over and above the inflation/taxes) can be higher in the longer period.
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