Hi sir, I am 29 year old, IT professional. My in-hand salary is around 3.2 lakhs per month. I invest around 1.7L through SIP in mutual funds (large cap, mid cap and 20k per month in small cap). My mutual fund corpus is at 33L. I also have...

Hi sir, I am 29 year old, IT professional. My in-hand salary is around 3.2 lakhs per month. I invest around 1.7L through SIP in mutual funds (large cap, mid cap and 20k per month in small cap). My mutual fund corpus is at 33L. I also have foreign stocks of 2 Crores in a single company. My monthly expenses include, EMI for an apartment of 35k, and a top up loan EMI on that for 19k, and rest 30k for other expenses. Totally, I have 60L in home loan. I'm currently married and living in that apartment. I also have another land worth 1.2 Crore (I used the top up loan here). Apart from all these, I have an emergency fund of 6L. I want to retire by having a corpus of 10 Crore. How do you recommend I go about doing that? And at what age can i retire by? Do you any suggestions on my portfolio?

Ans: It's impressive to see your dedication to financial planning at such a young age. Let's assess your current situation and chart a path towards your retirement goal.

Firstly, congratulations on building a substantial mutual fund corpus and investing in foreign stocks. Diversification is key to managing risk, and your investments reflect a balanced approach towards wealth creation.

Considering your monthly expenses and liabilities, including EMIs for your apartment and land, it's essential to ensure that your investment strategy aligns with your long-term financial goals.

To retire with a corpus of 10 Crore, we'll need to calculate the required monthly savings and investment returns. Based on your current investments and expenses, we can estimate a suitable savings target to achieve your retirement goal.

Given your age and income level, you have a significant advantage in accumulating wealth over time. By continuing to invest diligently and maximizing your savings, you can accelerate the growth of your investment portfolio.

As a Certified Financial Planner, I recommend reviewing your investment portfolio periodically to ensure it remains aligned with your risk tolerance and financial objectives. Consider diversifying your investments further to mitigate risk and optimize returns.

Moreover, explore options for tax-efficient investments like Equity Linked Savings Schemes (ELSS) and National Pension System (NPS) to enhance your savings potential and tax benefits.

Retirement planning is a long-term journey, and the age at which you can retire will depend on various factors, including your desired lifestyle, investment returns, and inflation rates. By working closely with a Certified Financial Planner, you can develop a personalized retirement plan and track your progress towards your goal.

In conclusion, with disciplined saving, prudent investing, and expert guidance, you can retire comfortably and achieve financial independence at a relatively young age.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Asked on - May 12, 2024 | Answered on May 12, 2024

Hi sir, Thank you for detailed reply. Would you recommend me to close out the loan or ilet it stay invested in either the foreign RSU stock or in Mutual Funds? Currently I'm paying around 8.5% interest on my loan of 60L. Also do you recommend a financial planner/advisor for me?

Ans: onsidering your situation, it's vital to weigh the options thoughtfully. Your loan bears a substantial interest rate of 8.5%, a considerable expense.

One option is to close out the loan using your investments. This would eliminate the debt burden, freeing up your finances for other purposes. However, it's essential to assess the potential returns on your investments against the interest you're paying on the loan.

Alternatively, you could retain your investments and continue servicing the loan. This strategy hinges on the performance of your investments outpacing the loan interest rate. It's a calculated risk that demands a thorough evaluation of your investment portfolio and its potential growth.

For a CFP, you can reach out to us using the below website.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Ans: At 41 years old, with a monthly income of Rs 10-15 lakh and a desire to retire in 10 years with a corpus of Rs 20-25 crore, it’s essential to evaluate your current financial status thoroughly. You have already built a significant base of assets, but fine-tuning your strategy is crucial to ensure you reach your ambitious retirement goal.

Let’s break down your financial scenario step by step, assess if you are on the right track, and offer suggestions for improvement.

Your Financial Snapshot
Income: Rs 10-15 lakh per month
Monthly Expenses: Rs 2.5 lakh
EMI: Rs 80,000 per month, which will close in 2 years
Assets:

Real Estate: Rs 5 crore (3 flats and 2 plots)
Fixed Deposit: Rs 50 lakh
Mutual Fund Portfolio: Rs 60 lakh, with Rs 2 lakh monthly SIPs
High-Risk Investments: Rs 1 crore with 20% annual returns
LIC Policies: Rs 25 lakh maturing in 2026 and Rs 30 lakh maturing in 2030
Retirement Corpus Goal: Rs 20-25 crore in 10 Years
You aim to retire with Rs 20-25 crore in 10 years. It is an ambitious but achievable goal, given your income and current assets. However, the challenge lies in aligning your investments in a way that generates the necessary growth, with a balance between risk and returns. Here’s an evaluation of where you stand today and what adjustments may be needed.

Assessing Your Current Assets
Real Estate: Rs 5 crore
You have invested Rs 5 crore in real estate, including three flats and two plots. While this is a substantial amount and adds to your wealth, there are some key considerations:

Liquidity: Real estate is generally illiquid. Selling property can take time, and real estate prices fluctuate based on market conditions. This makes it a less reliable source of immediate funds during retirement.
Cash Flow: Unless these properties are generating rental income, they won’t contribute to your regular cash flow in retirement. Rental income can supplement your retirement, but it’s unpredictable and subject to market dynamics.
Investment Perspective: For retirement planning, liquid and growth-oriented investments are more suitable. Real estate, while a valuable asset, may not provide the steady returns you’ll need during your retirement years.
Mutual Fund Portfolio: Rs 60 lakh + Rs 2 lakh Monthly SIP
Your Rs 60 lakh mutual fund portfolio is a strong foundation. With a monthly SIP of Rs 2 lakh, you are investing in a growth-oriented vehicle. Let’s assess its potential:

Growth Potential: Assuming a conservative 12% annual return over the next 10 years, your mutual fund portfolio could grow significantly. In 10 years, this could potentially accumulate Rs 4-5 crore. However, to reach your retirement target of Rs 20-25 crore, you’ll need to increase your SIPs gradually.
SIP Top-Up Strategy: One of the best ways to ensure your mutual funds keep pace with your retirement goal is by increasing your SIP contributions annually. With rising income and the closure of your EMI in two years, you can redirect these funds toward increasing your SIPs.
High-Risk Investments: Rs 1 crore (20% returns)
You’ve allocated Rs 1 crore to high-risk, high-return investments with a 20% return expectation. While this is impressive, relying too much on high-risk investments for retirement can be problematic.

Risk Consideration: High returns come with high risk. As you get closer to retirement, it’s essential to reduce exposure to volatile investments. You don’t want to jeopardize your retirement corpus by holding too much in high-risk instruments.
Rebalance Gradually: Over time, you should consider moving a portion of these funds into more stable, diversified mutual funds or hybrid funds. This way, you can safeguard your retirement corpus while still aiming for growth.
Fixed Deposit: Rs 50 lakh
A Rs 50 lakh fixed deposit provides security, but it won’t help you grow your corpus significantly.

Low Returns: FDs typically offer lower returns compared to other investment options. Over the long term, inflation erodes the purchasing power of FD returns.
Alternative Options: You might want to explore safer mutual fund categories, such as debt mutual funds, which offer better returns and tax efficiency than FDs.
LIC Policies: Rs 25 lakh in 2026 and Rs 30 lakh in 2030
You have two LIC policies maturing in 2026 and 2030, which will provide you with Rs 55 lakh.

Low Yield: Traditional LIC policies often provide returns lower than equity or mutual fund investments. While they offer security, the returns might not align with your retirement goal.
Post-Maturity Strategy: Once these policies mature, reinvest the proceeds into growth-oriented mutual funds or other higher-return instruments. This can boost your corpus further during the final stretch of your retirement planning.
Evaluating Your Progress
You have an excellent foundation for achieving your Rs 20-25 crore retirement corpus. Here’s a summary of your current progress:

Real Estate: Rs 5 crore (not a liquid retirement asset)
Mutual Funds: Rs 60 lakh with Rs 2 lakh monthly SIPs
High-Risk Investments: Rs 1 crore, growing at 20% per annum
Fixed Deposit: Rs 50 lakh
LIC Policies: Rs 55 lakh maturing in 2026 and 2030
The key areas of improvement include increasing your SIPs, reducing reliance on high-risk investments, and finding alternatives to low-yield investments like FDs and LIC policies.

Recommendations for Growth and Stability
Increase SIP Contributions
To meet your retirement goal, consider increasing your SIP contributions over time. This will help your portfolio grow faster.

Top-Up SIP Strategy: You could increase your SIP by 10-15% each year. For example, after your EMI closes in two years, you can divert the Rs 80,000 into additional SIPs. This strategy helps ensure your investments keep pace with inflation and your growing income.
Diversify High-Risk Investments
Your Rs 1 crore in high-risk investments is providing excellent returns, but you should not rely too heavily on it for your retirement corpus.

Reduce Exposure Over Time: As you near retirement, begin shifting a portion of these funds into more stable mutual funds or hybrid funds. This will reduce volatility in your portfolio while still providing growth.
Balanced Approach: A balanced approach with a mix of equity and debt mutual funds can provide both growth and stability. Aim for a portfolio that gradually becomes more conservative as you approach your retirement date.
Reconsider Fixed Deposits
Fixed deposits are safe but offer limited growth.

Shift to Debt Mutual Funds: You may want to move part of your FD savings into debt mutual funds, which can offer better returns and are more tax-efficient. Debt funds, particularly those with low credit risk, can provide stability and liquidity while outperforming FDs.
LIC Maturity Reinvestment
Once your LIC policies mature, reinvest the proceeds wisely.

Reinvest in Growth Funds: After 2026 and 2030, when your LIC policies mature, consider reinvesting the Rs 55 lakh into diversified mutual funds. This will help accelerate the growth of your retirement corpus during the final years of your working life.
Focus on Tax Efficiency
Your portfolio should also consider tax efficiency, particularly as you approach retirement.

Equity Mutual Funds: Gains above Rs 1.25 lakh are taxed at 12.5%. Plan your withdrawals accordingly to minimise taxes.
Debt Mutual Funds: Gains in debt mutual funds are taxed according to your income slab. These can still be more efficient than FDs due to indexation benefits over the long term.
Regular Review and Adjustments
Retirement planning is not a one-time exercise. You should regularly review and adjust your portfolio.

Annual Review: Sit down with a Certified Financial Planner each year to review your progress. This ensures that your investments are on track and that you’re making the necessary adjustments based on market conditions and personal changes.
Rebalancing: As your mutual fund portfolio grows, periodically rebalance between equity and debt to ensure your portfolio remains aligned with your risk tolerance and retirement goals.
Projecting Your Retirement Corpus
Based on the current investments and a disciplined approach to increasing your SIPs, you are likely to accumulate between Rs 15-18 crore in 10 years. Achieving Rs 25 crore will require higher risk-taking or an extension of your retirement timeline by a few years.

However, your diversified portfolio, combined with regular reviews, can still provide you with a comfortable retirement if managed well.

Finally
You are on a strong path to retirement with your existing assets and investment plan. However, to ensure you reach your goal of Rs 20-25 crore, consider the following:

Gradually increase your SIPs to boost your mutual fund portfolio.
Diversify your high-risk investments over time to reduce volatility.
Move away from low-yield options like FDs, and reinvest LIC maturities into higher-growth funds.
Review your investments annually with a Certified Financial Planner to stay on track.
By following this strategy, you can confidently build a retirement corpus that ensures a secure and comfortable retirement.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment