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48-Year-Old Seeks Advice on Attaining Retirement Corpus of Rs. 2.7 Crore

Ramalingam Kalirajan |7330 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Dec 24, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Kaushik on Dec 24, 2024Hindi

I'm 48 years old (with moderate risk appetite) planning to start a monthly SIP of Rs. 40,000 in the following Mutual Funds. 1) Nippon India Large Cap Fund - 10,000 (25%) 2) ICICI Prudential Blue Chip Fund - 10,000 (25%) 3) UTI Nifty Fifty Index Fund - 8,000 (20%) 4) HDFC Flexi Cap Fund - 4,000 (10%) 5) HDFC Mid cap Opportunities Fund - 4,000 (10%) 6) Nippon India Small Cap Fund - 4,000 (10%) My ambition is to have a retirement corpus of 2.70 crore by the age of 60; expecting 6% interest on that corpus (16,20,000) in order to have a monthly SWP of 1,35,000 (16,20,000÷12). Kindly advise whether the retirement corpus is attainable as well as regarding the fund selection and percentage allocation.

Ans: Your initiative to plan for retirement and invest systematically is commendable. Let us evaluate your goal and proposed portfolio comprehensively.

Assessing Your Retirement Goal

Target Corpus: You aim to build Rs. 2.70 crore by age 60.

Monthly SWP Goal: You plan to withdraw Rs. 1,35,000 monthly, assuming a 6% return on the corpus.

Investment Period: You have 12 years to accumulate the desired corpus.

Monthly SIP Commitment: You intend to invest Rs. 40,000 every month.

Achieving this target is feasible with disciplined investing and prudent portfolio selection. Let us refine your approach to maximise the likelihood of success.

Analysis of Your Fund Selection and Allocation

Your portfolio consists of a mix of large-cap, flexi-cap, mid-cap, and small-cap funds. While this diversification is sensible, certain adjustments can optimise performance.

Allocation to Large-Cap Funds (50%)

Investing 50% in large-cap funds provides stability to the portfolio. Large-cap funds are less volatile and offer consistent returns over time.

However, consider actively managed large-cap funds instead of index funds. Actively managed funds outperform during market downturns and adjust dynamically to market conditions.

Index funds like Nifty Fifty have limitations in delivering consistent outperformance due to their passive management.

Allocation to Flexi-Cap Funds (10%)

Flexi-cap funds offer the advantage of dynamic allocation across market capitalisations.

This allocation is suitable as it provides both growth potential and stability. Ensure you select funds with proven track records and experienced fund managers.

Allocation to Mid-Cap Funds (10%)

Mid-cap funds balance growth and risk. They have the potential to outperform large-cap funds in the long term but come with moderate volatility.

A 10% allocation is reasonable for your moderate risk appetite.

Allocation to Small-Cap Funds (10%)

Small-cap funds have higher growth potential but also higher risk.

A 10% allocation is appropriate, provided you have a long-term horizon and regular monitoring.

Optimising Fund Allocation

Current allocation skews heavily towards large caps. Consider redistributing 5% from large caps to mid-cap or small-cap funds for better growth prospects.

A revised allocation could be:

Large-Cap Funds: 45%

Flexi-Cap Funds: 10%

Mid-Cap Funds: 15%

Small-Cap Funds: 15%

Debt/Hybrid Funds: 15% (for added stability).

Incorporating Debt and Hybrid Funds

Adding 15% allocation to debt or hybrid funds can reduce volatility. These funds provide stability, especially as you near retirement.

Consider funds with low duration or conservative allocation strategies.

Tax Implications

Equity Funds: Long-term capital gains (LTCG) over Rs. 1.25 lakh are taxed at 12.5%. Plan withdrawals to minimise tax liability.

Debt Funds: Gains are taxed as per your income tax slab. Avoid frequent redemptions to reduce tax burden.

SWP Taxation: Withdrawals are subject to capital gains tax. Efficient tax planning is crucial for optimising post-retirement cash flow.

Key Recommendations

Fund Selection

Choose funds with consistent performance and experienced fund managers.

Actively managed funds provide better long-term returns compared to index funds. Avoid index funds due to limited growth potential during volatile markets.

Portfolio Monitoring

Review the portfolio every six months. Replace underperforming funds promptly.

Rebalance the portfolio annually to maintain the desired allocation.

Emergency Fund

Maintain an emergency fund of 6-12 months’ expenses. This ensures liquidity during unforeseen events and prevents disruption to your SIPs.

Health Insurance

Ensure adequate health coverage for yourself and family. This prevents dipping into your retirement savings for medical needs.

Finally

Your retirement plan is well-thought-out. Minor adjustments to your fund selection and allocation can enhance growth potential and stability. Engage a Certified Financial Planner for scheme-specific recommendations and regular portfolio review. This ensures you stay on track to achieve your retirement goal.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

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