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Ramalingam Kalirajan |8933 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 09, 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 Suraj on Jun 08, 2024Hindi

I'm currently 25 years old, regularly investing in various instruments. I have investments in Indian stocks worth ?7 lakhs (Beta of 1.07), US stocks worth ?2lakhs, Mutual Funds worth ?2 lakh(Small cap ?3k/month, Large Cap ?2k/month and Multi-Cap ?3.5k/month) and PPF worth ?5Lakhs. It's totalling around ?17Lakhs..I can invest nearly ?42000/month(assume a 10% step up annually), considering my expenses and EMIs. Kindly please suggest me a good strategy to take my portfolio to ?1 Crore before I turn 31

Ans: Understanding Your Current Financial Position
Congratulations on your disciplined approach to investing at a young age. You have a diversified portfolio that includes Indian and US stocks, mutual funds, and PPF. Let's break down your current investments:

Indian Stocks: Rs 7 lakhs with a Beta of 1.07
US Stocks: Rs 2 lakhs
Mutual Funds: Rs 2 lakhs (Small Cap: Rs 3k/month, Large Cap: Rs 2k/month, Multi-Cap: Rs 3.5k/month)
PPF: Rs 5 lakhs
Your total current investment is Rs 17 lakhs. You have the capacity to invest Rs 42,000 per month with a 10% annual step-up. Your goal is to reach Rs 1 crore by the age of 31, giving you six years to achieve this.

Setting Realistic Financial Goals
Achieving Rs 1 crore in six years is an ambitious goal, but with a strategic approach, it’s possible. We will leverage your current investments and future contributions to create a solid plan.

Compounding and Regular Investments
The power of compounding is crucial in wealth creation. Your consistent monthly investments, along with annual step-ups, will significantly contribute to your goal. Here’s how your future contributions could look:

Year 1: Rs 42,000 per month
Year 2: Rs 46,200 per month (10% increase)
Year 3: Rs 50,820 per month (10% increase)
Year 4: Rs 55,902 per month (10% increase)
Year 5: Rs 61,492 per month (10% increase)
Year 6: Rs 67,641 per month (10% increase)
Calculating Future Value of Current Investments
To estimate the future value of your current investments, we assume an average annual return. For simplicity, let's consider different returns for various assets:

Indian Stocks: 12% per annum
US Stocks: 10% per annum
Mutual Funds: 12% per annum (blended rate)
PPF: 7.1% per annum (current rate)
Indian Stocks
Future Value = Rs 7,00,000 * (1 + 0.12)^6 = Rs 13,75,963

US Stocks
Future Value = Rs 2,00,000 * (1 + 0.10)^6 = Rs 3,54,292

Mutual Funds
We consider both the existing corpus and future SIPs:

Existing Mutual Funds Corpus:
Future Value = Rs 2,00,000 * (1 + 0.12)^6 = Rs 3,93,772

SIPs in Mutual Funds:
Small Cap: Rs 3,000/month, Large Cap: Rs 2,000/month, Multi-Cap: Rs 3,500/month = Rs 8,500/month total SIP
Assuming an annual return of 12%, compounded monthly:
Future Value = SIP * [(1 + r/n)^(nt) - 1] / (r/n)
= Rs 8,500 * [(1 + 0.12/12)^(12*6) - 1] / (0.12/12)
= Rs 8,500 * 101.60
= Rs 8,63,600

PPF
Future Value = Rs 5,00,000 * (1 + 0.071)^6 = Rs 7,52,147

Summing Up Current Investments' Future Value
Indian Stocks: Rs 13,75,963
US Stocks: Rs 3,54,292
Mutual Funds (existing): Rs 3,93,772
Mutual Funds (SIP): Rs 8,63,600
PPF: Rs 7,52,147
Total Future Value of Current Investments: Rs 37,39,774

Projecting Future Investments
Now, let’s calculate the future value of your monthly investments. Assuming an annual return of 12% for mutual funds:

Year 1:
Future Value = Rs 42,000 * [(1 + 0.12/12)^(12*6) - 1] / (0.12/12) = Rs 42,000 * 101.60 = Rs 42,67,200

Year 2:
Future Value = Rs 46,200 * [(1 + 0.12/12)^(12*5) - 1] / (0.12/12) = Rs 46,200 * 79.69 = Rs 36,82,638

Year 3:
Future Value = Rs 50,820 * [(1 + 0.12/12)^(12*4) - 1] / (0.12/12) = Rs 50,820 * 60.64 = Rs 30,80,945

Year 4:
Future Value = Rs 55,902 * [(1 + 0.12/12)^(12*3) - 1] / (0.12/12) = Rs 55,902 * 44.39 = Rs 24,80,927

Year 5:
Future Value = Rs 61,492 * [(1 + 0.12/12)^(12*2) - 1] / (0.12/12) = Rs 61,492 * 30.05 = Rs 18,47,224

Year 6:
Future Value = Rs 67,641 * [(1 + 0.12/12)^(12*1) - 1] / (0.12/12) = Rs 67,641 * 17.41 = Rs 11,77,066

Total Future Value of Monthly Investments: Rs 1,65,36,000

Combined Future Value
Adding the future values of current and monthly investments:

Total Future Value = Rs 37,39,774 (current investments) + Rs 1,65,36,000 (monthly investments) = Rs 2,02,75,774

Strategic Adjustments and Risk Management
To ensure you reach your goal, consider these strategies:

Diversify Your Portfolio
Continue investing in a mix of equity and mutual funds. Diversification reduces risk and provides balanced growth.

Active Fund Management
Actively managed funds can outperform index funds by leveraging market opportunities. Certified Financial Planners can guide you in selecting the best funds.

Regular Monitoring
Regularly review your portfolio performance. Adjust your investment strategy based on market conditions and personal goals.

Emergency Fund
Maintain an emergency fund to cover unexpected expenses. This prevents you from dipping into your investment corpus.

Insurance
Ensure adequate health and life insurance coverage. This protects your investments and family from unforeseen events.

Avoid Direct Funds
While direct funds have lower expense ratios, regular funds managed through a Certified Financial Planner offer professional guidance and strategic rebalancing, leading to potentially better returns.

Final Insights
Achieving Rs 1 crore before you turn 31 is an ambitious yet attainable goal. By leveraging the power of compounding, disciplined monthly investments, and strategic portfolio management, you can reach this milestone. Regular monitoring and adjustments, along with professional advice, will keep you on track. Stay focused and committed to your financial plan.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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