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Flying high, can go higher

Bangalore-based Vaishali and Gitesh Butalia have a well-diversified portfolio. But they must up the ante in equity investments to maximise returns.

Bangalore-based Vaishali and Gitesh Butalia have a well-diversified portfolio. But they must up the ante in equity investments to maximise returns.

You just can’t say he is shy of risks. For Indian Air Force pilot Gitesh Butalia lives by them. And winging through the skies is not the only way this 34-year-old aviator gets his kicks. He courts risks by playing the stock markets too. The objective remains the same—to enjoy life. Says Butalia: “I have reaped good returns from my investments in the past and liquidated them to splurge on things I always wanted.”

Following much the same philosophy, he has marked out a list of to-dos (children’s education, bigger car, etc) that need to be financed by intelligent investments. Partnering him in fulfilling these aspirations is wife Vaishali, a soft-skill trainer.

Together, the couple earns a neat packet of Rs 62,000 a month. Keeping expenses within Rs 12,000 allows them to channel about 77% of their earnings in investments. More investment-savvy of the two, Gitesh has spread their investments across all asset classes.

Real estate forms the biggest chunk of their portfolio with approximately Rs 14 lakh tucked into an apartment in Pune and a plot in Jaipur. The apartment purchase couldn’t have been timed better. Bought during the property market boom, it has already appreciated by a whopping 220% in three years.

Butalias have stashed away Rs 3.5 lakh in National Savings Certificates. Looking for secure returns, they invest Rs 15,000 every month in provident funds and fixed deposits. Jewellery worth Rs 50,000 forms the near-cash component of their finances.

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The couple has a healthy equity exposure through a bouquet of nine mutual funds and six direct stock holdings. So far they have invested about Rs 1 lakh in mutual funds and committed Rs 3,500 a month to systematic investment plans (SIPs). Their direct stock kitty, including both small companies like Clutch Auto and blue chips like ITC and Wipro has given them about 40% absolute returns. Other than Gitesh’s mandatory insurance cover (given that he is employed in the armed forces) of Rs 25 lakh, neither spouse has bought any insurance policy.

Clearly, the Butalias are wellintentioned investors. Their high savings rate and disciplined investments in debt and equity is commendable. Says Gitesh: “Our goal is to build a sizeable corpus to maintain the current standard of living even after retirement.” But they haven’t leveraged the advantage of age and good pay packages to optimise returns. Tweaking the direction of future investments should do the trick.

To begin with, they must try and prepay at least part of their outstanding home loan of Rs 8.5 lakh. For this, they can dip into their provident fund account or sell some of their mutual funds. The resulting deficit in savings can be made up by ways suggested later in the portfolio analysis.

Still in their early thirties, the couple should have an equity-heavy portfolio to maximise returns. An equity-debt ratio of 70:30 is considered ideal. However, the Butalias have an exactly opposite incremental savings plan. They invest thrice the amount in monthly fixed-income options than in equities. We suggest that instead of investing in fixed deposits they put in Rs 10,000 in equity mutual funds through the SIP route every month.

Their existing fund collection is good and well-diversified. Three funds, namely Franklin India Prima Plus, Magnum Contra and Fidelity Equity are fit to play a core role in the portfolio. The mix of one infrastructure theme-based fund, three mid-caps and two tax plans should give them good returns. But the three core funds account for just 20% of their equity investments, while the mid-cap funds constitute 40%. This slightly skews the investments towards smaller companies. The fact that half of their direct stock holdings are in small companies contributes to this bias.

Therefore, it is advisable to stop investing more in Franklin India Prima and re-direct this monthly SIP of Rs 1,000 towards Franklin India Prima Plus. Edelweiss has identified about Rs 20,000 of the couple’s combined income lying idle in their savings account. We recommend funnelling Rs 13,000 of this amount in Franklin India Prima Plus and Fidelity Equity through SIPs.

The Butalias have randomly picked up growth or dividend option in their funds. This serves little purpose and adds to the complexity of the portfolio. It is best to opt for only growth options unless they prefer dividends from time to time.

While the Butalias’ direct equity portfolio has given some profits, more than 90% of the returns have been generated by just two stocks— Reliance Industries and Gremac Infrastructure. Gains on Asahi India and Wipro are nominal while ITC and Clutch Auto have made losses. This investing strategy appears arbitrary and it would be better if the couple stick to mutual funds for steadier and perhaps higher returns.

For stability, the couple can invest in fixed maturity plans. Though they give the same returns as fixed deposits, indexation benefits make them more tax efficient.

Regarding insurance, Gitesh is suitably covered for Rs 25 lakh by the mandatory policy. But since the couple have two four-year-old sons, they might wish to expand the cover and include Vaishali too. Though we usually recommend buying pure term insurance policies, a joint Ulip with sum assured of about Rs 17 lakh fits the Butalias’ investment profile better. As well-informed investors they can leverage the additional benefits of Ulips such as free switches between different kinds of funds according to market movements and tax exemptions under Section 80C of the Income Tax Act.

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