Outlook Money – 01.03.2018

14 Outlook Money March 2018 http://www.outlookmoney.com

Queries

a home loan of `1 crore. The EMI of a 20-year

loan of this amount, at the current rate of

interest (8.35 per cent), comes to

approximately `88,000. This will put a severe

strain on your monthly expenses.

■ Your plan of selling your real estate asset

for `50 lakh and investing it in a dividend

paying mutual fund to help lessen the

burden of home loan EMI, has two

major risks:

• Funds may not pay dividends at
  regular intervals


• The amount of dividend is not fixed
  As a result, inflow from dividend funds will
  be uncertain, but outflow of home loan EMI
  will be fixed.
  ■ Hence, instead of investing that `50 lakh
  in a mutual fund, you can use it to make the
  down payment while purchasing the house.
  This will nearly halve the amount of home
  loan required and bring down your EMI to a
  manageable level.
  ■ However, even after this, the EMI will
  significantly change the equation of your
  monthly outflows. Therefore, at this juncture,
  you would need to re-evaluate and prioritise
  your goals.
  ■ You may invest any surplus income (bonus,
  etc.) that you get, spread over a few months,
  to give a further boost to the growth potential
  of your portfolio.
  ■ One or two years prior to your planned
  withdrawals, you can gradually shift a
  proportionate amount of the corpus to an
  equity arbitrage fund (debt-like performance
  and equity taxation) or ultra short-term or

insurance Premium (annual)

(in `)

amount of Cover

(in `)

Comments

Term insurance

(self) 18,000 1 Cr

The insurance cover seems to be adequate for now.

After purchasing the house, buy an additional term

insurance to cover the home loan

Mediclaim

(self, wife

& child)

25,000 10 L

Every few years, you would need to review the amount

of cover required, based on prevailing medical costs

and family members’ health

Mediclaim

(parents) 33,000 13 L -

Critical illness

(self) 7,000 20 L -

short-term fund; this will help you to preserve

your capital.

Since the actual amount invested in each

of the 32 funds is not known, a detailed

recommendation is not possible. However,

your portfolio consists of too many funds.

This may result in your portfolio delivering a

sub-optimal performance, as the universe of

equity stocks (and sectors) from all the funds

taken together, could be very wide. Since the

performance of these securities can be quite

divergent, underperforming stocks may prove

to be a drag on the well-performing stocks.

It is advisable to consolidate your equity

mutual fund portfolio into few select funds,

including ELSS, 50-60 per cent of the portfolio

in three to four large-cap funds, 20-30 per cent

in two to three small/mid-cap funds and the

remaining in international fund-of-funds. Over

the long term, international funds have had a

low correlation with domestic equities, thus,

helping in diversifying risk.

When selecting funds, consider their

past performances. This, along with their

performance vis-a-vis benchmark indices (like

Sensex, Nifty, etc) would indicate consistency

across time-frames and market cycles.

You could consider the fund’s AUM (AUM

should be greater than `500 crore) and

period of existence (longer the better). This

information, along with fund research notes/

ratings that are provided by independent

research firms, can help one select suitable

funds. You should review your investments

every 18 to 24 months to ensure that the

performance is in line with your expectations.