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How to Retire with 10-15 Crore at 23 with a 15-20 Lakh Salary?

Ramalingam Kalirajan |8182 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Nov 01, 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 Mohammed on Oct 29, 2024Hindi

I am 23, Currently unmarried , I earn around 15-20 lakhs a year. I want to retire with 10-15 crores. How do I do, where to start m ? I have knowledge on mutual funds but I doubt if their is any mutual fund which gives more than 20% return

Ans: At 23 and with a strong income, you are at an excellent point to build your wealth. Targeting a retirement corpus of Rs. 10-15 crores is achievable with consistent planning, disciplined investing, and realistic expectations. Let's break down your strategy into clear, actionable steps.

1. Set Clear Financial Goals

Defining your goals is crucial. Your retirement corpus of Rs. 10-15 crores is a significant milestone. Identify any other goals, such as buying a car, traveling, or starting a family. Setting specific timelines and priorities helps in creating an effective investment roadmap.

2. Establish an Emergency Fund

An emergency fund is your first safety net. Aim for 6 to 12 months of your living expenses. Use a liquid or short-term debt fund for this purpose, keeping it accessible and safe. With this foundation, you can invest for growth confidently without dipping into your investments during emergencies.

3. Define Your Investment Strategy

Given your income, you can allocate a substantial portion to high-growth investments. Equities, especially equity mutual funds, are ideal for achieving long-term wealth. While mutual funds have historically delivered around 12-15% over the long term, a return of 20% is ambitious. High returns typically mean higher risks. Instead, aim for a balanced approach with realistic expectations.

4. Focus on Equity Mutual Funds

Equity mutual funds can be excellent for wealth accumulation, and SIPs (Systematic Investment Plans) are effective for building a disciplined habit. SIPs provide the benefit of rupee cost averaging, which helps manage volatility. Since you have a long investment horizon, choose diversified equity funds that suit your risk profile and time horizon. Actively managed funds often outperform in terms of returns over index funds. They offer a chance to generate above-average returns with professional expertise navigating market shifts.

5. Avoid Direct Mutual Funds

While direct mutual funds have lower expense ratios, they require in-depth research and tracking. With a regular fund, you benefit from an MFD’s support and a Certified Financial Planner’s guidance. This partnership helps you choose suitable funds, monitor performance, and rebalance your portfolio periodically. Regular funds are ideal for investors focused on maximising gains while managing risk with professional assistance.

6. Consider Sectoral and Thematic Funds Cautiously

While sectoral funds (focusing on sectors like IT, banking, etc.) and thematic funds can offer high returns, they also carry higher risk. Avoid concentrating too much in these funds unless you have high-risk tolerance and an understanding of market trends. Balance is key for a stable, long-term portfolio.

7. Explore Small-Cap and Mid-Cap Funds

Small-cap and mid-cap funds can yield high returns but come with high volatility. Allocating a small portion here may be suitable if you can tolerate risk. However, aim to keep a diversified portfolio with a mix of large-cap funds for stability, which helps balance growth and risk.

8. Tax-Efficient Planning

Knowing the tax implications on your investments is essential for optimising your gains. With equity mutual funds, long-term capital gains (LTCG) over Rs. 1.25 lakh are taxed at 12.5%. Short-term gains are taxed at 20%. For debt funds, LTCG and STCG are taxed based on your income tax slab. Understanding these rules allows you to plan withdrawals more effectively, maximising your post-tax returns.

9. Regularly Review and Rebalance Your Portfolio

Your portfolio should adapt as you progress in your career and as market conditions change. Reviewing your investments every 6-12 months with a Certified Financial Planner helps keep your portfolio aligned with your goals. Rebalancing ensures you’re on track, especially if some funds outperform or underperform. An active review is particularly important for equity-heavy portfolios where market volatility is high.

10. Embrace a Long-Term Mindset

Building Rs. 10-15 crore corpus will take time and patience. Equity investments require a minimum 7-10 years to show substantial returns. Avoid making frequent withdrawals, as compounding works best with consistent, long-term investments. Patience with market ups and downs and a disciplined approach can yield solid returns.

11. Supplement SIPs with Lump Sum Investments When Possible

Since you earn a good income, consider lump sum investments during market dips. This can amplify returns, allowing you to take advantage of market volatility. Keep funds for lump-sum investments in liquid funds until a good opportunity arises. Strategic lumpsum additions alongside SIPs can accelerate wealth creation over time.

12. Prioritise Pure Protection Insurance Plans

Term insurance provides pure life cover, ensuring financial protection for dependents without investment components. Avoid mixing investment with insurance, like in ULIPs. A straightforward term plan offers high cover at low premiums. Similarly, health insurance provides additional security. Starting early means lower premiums and comprehensive coverage.

13. Avoid Investment in Real Estate and Annuities

Real estate is typically illiquid, involving high costs and long holding periods. It may not align with your goal of liquid wealth accumulation. Annuities also don’t suit your goal, as they provide fixed returns with limited growth. Focus instead on liquid, growth-oriented investments like equity funds and fixed income options for short-term needs.

14. Track Progress Against Goals Periodically

Evaluating your progress is crucial to achieving your financial targets. Set benchmarks and compare portfolio growth periodically. Tracking helps identify areas for improvement, and a Certified Financial Planner can provide insights based on current market trends and conditions.

Finally

At your age, you have the advantage of time and compounding. By focusing on disciplined investing in equity mutual funds, balancing risk, and leveraging professional guidance, you can confidently work toward your goal of Rs. 10-15 crore retirement corpus. Avoid high-risk speculation and stay committed to a long-term approach.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.