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Can I build wealth of 6 crores in 5 years with 31 lacs in MF and 1.3 cr in FD?

Ramalingam

Ramalingam Kalirajan  |8271 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 30, 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 ?????. on Aug 29, 2024Hindi
Money

i have 31 lacs in the MF generated over 7 years by now. i have fixed deposit of 1.3 crore. yearly contribution to MF currently is around 5 lacs(there are 7 to 8 MFs). is it possible to create a wealth of 6 crores in next 5 years?

Ans: Creating a wealth of Rs. 6 crores in the next 5 years with your current financial situation is ambitious. As a Certified Financial Planner, I'll guide you through this process. We'll analyze your existing investments, assess your goals, and provide a 360-degree approach to help you make informed decisions. Your question requires a detailed response, and I'll ensure every aspect is covered comprehensively.

Assessing Your Current Financial Position
Current Mutual Fund (MF) Value: You have Rs. 31 lakh invested in MFs. This has grown over 7 years. It's a good start, showing a commitment to long-term growth.

Fixed Deposits (FDs): You have Rs. 1.3 crore in FDs. This ensures safety and liquidity but with limited growth potential.

Annual MF Contribution: You contribute Rs. 5 lakh yearly to your MFs. This is a disciplined approach, and it's crucial to continue this.

Goal: You want to reach Rs. 6 crore in 5 years. This is a clear, ambitious target.

Evaluating Growth Potential
Mutual Funds' Expected Growth: Typically, equity mutual funds have the potential to grow at 10% to 12% annually. However, market conditions play a significant role in this.

Fixed Deposit Returns: FDs offer returns of around 5% to 7% annually. While safe, these returns are not enough to achieve high growth.

Gap Analysis: With your current portfolio, it's essential to assess if reaching Rs. 6 crore in 5 years is realistic. We’ll explore this with a structured approach.

Strategy for Wealth Creation
1. Maximize Equity Exposure
Higher Growth Potential: To aim for Rs. 6 crore, you need higher returns. Equity mutual funds provide this potential but come with higher risks.

Diversify Across Equity Funds: Diversifying into large-cap, mid-cap, and small-cap funds can help balance risk and reward. Each category has a different risk-return profile.

Increase SIP Contributions: If possible, consider increasing your annual contribution to MFs. Higher investment in equity funds can accelerate growth.

Risk Assessment: While higher equity exposure is necessary, it's crucial to understand the associated risks. Equity markets can be volatile, especially in the short term.

2. Reassess Fixed Deposit Allocation
Safety vs. Growth: FDs are safe but offer lower returns. If you rely heavily on FDs, achieving Rs. 6 crore may be difficult.

Partial Reallocation to Debt Funds: Consider reallocating a portion of your FDs into debt mutual funds. These funds offer slightly higher returns than FDs while maintaining relative safety.

Staggered FD Maturity: If you prefer keeping FDs, consider laddering them. This means having FDs maturing at different intervals, ensuring liquidity and reinvestment at possibly better rates.

3. Leverage Hybrid Funds
Balance Risk and Reward: Hybrid funds invest in both equity and debt. They offer a balanced approach, suitable for those not comfortable with full equity exposure.

Stability with Growth: These funds provide stability through debt investments and growth through equity exposure. They can be an essential part of your portfolio.

4. Tax Efficiency
Tax Planning: Ensure your investment strategy is tax-efficient. Long-term capital gains from equity mutual funds are taxed at a lower rate. This can improve net returns.


5. Avoid Direct Equity Investment
Focus on Mutual Funds: Given the complexity and risks of direct equity investment, it’s advisable to stick with mutual funds. They offer professional management and diversification.

Active Fund Management: Actively managed funds, guided by a Certified Financial Planner, can outperform the market. Avoid index funds, as they only track the market without aiming for outperformance.

Implementation and Monitoring
1. Regular Portfolio Review
Annual Reviews: Conduct an annual review of your portfolio with a Certified Financial Planner. This helps adjust your strategy based on market conditions and personal circumstances.

Rebalancing: Rebalance your portfolio if necessary. If equity markets perform exceptionally well, your portfolio might become equity-heavy. Rebalancing ensures you maintain your desired risk level.

Performance Tracking: Regularly track the performance of your investments. Ensure they align with your goal of achieving Rs. 6 crore in 5 years.

2. Adjusting Strategy Based on Market Conditions
Stay Flexible: Be prepared to adjust your strategy if market conditions change. For instance, if equity markets are bearish, you might need to increase your contributions to stay on track.

Avoid Panic Selling: Market volatility can be challenging, but avoid panic selling during market downturns. Stay committed to your long-term plan.

3. Emergency Fund and Liquidity Management
Maintain an Emergency Fund: Ensure you have an adequate emergency fund. This should be kept separate from your investment portfolio and can be held in liquid funds or a savings account.

Liquidity for Short-Term Needs: Ensure some of your investments are liquid or can be liquidated without penalties. This ensures you’re not forced to sell long-term investments prematurely.

Final Insights
Realistic Expectations: Achieving Rs. 6 crore in 5 years is ambitious. While it's possible with disciplined investing and a well-structured portfolio, it requires understanding the associated risks.

Balanced Portfolio: Aim for a balanced portfolio with a mix of equity, debt, and hybrid funds. This provides growth potential while managing risk.

Seek Professional Guidance: Working closely with a Certified Financial Planner is crucial. They provide the expertise needed to navigate market complexities and ensure your strategy aligns with your goals.

Long-Term Commitment: Stay committed to your plan, review it regularly, and be prepared to make adjustments as needed. This disciplined approach is key to achieving your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
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.
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Latest Questions
Ramalingam

Ramalingam Kalirajan  |8271 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 22, 2025

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Hello sir. I have invested Rs.1.00 lac in SBI Magnum Children's Benefit Fund- Investment Plan- Direct Plan - Growth. Actually I was planning to invest this amount in gold. However, after an intense inquiry and research from the Internet I decided to invest in SbI plan. Please let me know whether I did the best thing not opting for gold investment and investing in SBI Plan.
Ans: First of all, congratulations on taking the time to research and make an informed investment decision. That’s always the first step toward wealth creation. You’ve taken a thoughtful approach, and that is something to truly appreciate.

Let’s now evaluate your decision with a 360-degree view.

Why Choosing Mutual Funds Over Gold Can Be a Wise Decision

Gold is often used for preserving wealth, not creating it.

Over the long term, gold gives moderate returns.

Gold does not produce income or dividends.

It only grows based on price appreciation.

Mutual funds, especially equity-based ones, are better wealth creators.

They compound your money with professional fund management.

Equity funds outperform gold over long durations like 10–15 years.

Mutual funds are more aligned with long-term goals like child’s education or marriage.

Equity funds, though volatile in the short term, deliver better inflation-beating returns.

So yes, not choosing gold and opting for a fund is a better long-term move.

About SBI Magnum Children’s Benefit Fund – Investment Plan

This fund is not a typical diversified equity fund.

It is a hybrid fund meant for child-centric goals.

It has exposure to equity and debt.

Its goal is to provide long-term capital appreciation with some safety.

It’s structured with a lock-in for a few years.

This prevents premature withdrawal and keeps investments stable.

Suitable if your time horizon is long (8 to 10 years or more).

Also ideal if this money is for your child’s future education or marriage.

What This Fund Does Well

Offers equity upside with controlled risk.

Invests in equity (for growth) and debt (for safety).

Encourages long-term goal-based investing.

Limits withdrawal temptation with lock-in.

What You Should Be Aware Of

It may not perform as strongly as aggressive equity funds.

Returns may be moderate compared to pure equity funds.

Fund performance can vary depending on fund manager's strategy.

Lock-in means you can’t redeem early if needed.

Did You Make the Right Choice?

Yes, considering:

You had Rs 1 lakh and considered gold.

You switched to a goal-based mutual fund for children.

You moved from wealth preservation to wealth creation.

That’s a good decision for long-term financial planning.

You are now in a product with better potential and strategy.

Few Suggestions Going Forward

Don’t stop at just one-time investment.

Plan a monthly SIP if the goal is 5 years or more away.

Align it with a long-term goal like education or marriage.

Don’t redeem mid-way due to market dips.

Review this fund every year.

Check if it continues to match your goal and risk appetite.

Better Than Gold – Here’s Why

Gold gives no compounding; mutual funds do.

Gold is volatile during uncertain times.

It has storage issues and taxation headaches in physical form.

Mutual funds are digitally held and easy to manage.

Long-term gains in equity mutual funds are tax efficient.

For child goals, equity funds offer the best mix of returns and growth.

Final Insights

You’ve made a smart choice by avoiding gold and choosing a goal-based mutual fund.

Gold is emotional and traditional. Mutual funds are logical and long-term focused.

For children’s goals, equity-based hybrid funds are more aligned.

Just make sure you review it once every year with a Certified Financial Planner.

If you’re serious about this goal, continue investing more in small steps.

SIP is the best tool for building big wealth slowly and safely.

This one-time investment is a good start. But do plan further contributions.

Your money now has a higher chance of growing meaningfully.

And most importantly, it’s aligned with a real life goal.

Best Regards,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8271 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 22, 2025

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Sir, I am 45 years old and want to invest in equity mutual funds. I have time horizon of 10 years . Can you suggest me some good funds in large cap category, IT sector theme fund, 1 or 2 small/midcap funds or any other fund you think would be good for long term. I want to start SIP of Rs 40000/- across 4 mutual funds.
Ans: Your intent to invest Rs 40,000 per month in equity mutual funds for 10 years is a strong move.

Your fund choices across large-cap, IT sector, and mid/small-cap categories are sensible.

Let’s look at how to structure this investment efficiently.

Investment Objective Assessment

You have a long-term vision.

Ten years is a healthy horizon for equity.

SIP is the right approach.

Rs 40,000 monthly is a good contribution.

Your Ideal Asset Allocation Strategy

Diversify across categories.

Blend large-cap, sectoral, and mid/small-cap funds.

Avoid putting too much in one theme.

This lowers risk and boosts consistency.

Large-Cap Mutual Fund (Rs 14,000/month)

These funds invest in stable, top companies.

Ideal for long-term wealth growth.

Less volatile than mid/small-cap funds.

Good for capital preservation with growth.

IT Sector Fund (Rs 6,000/month)

IT sector can give high returns.

But it’s highly cyclical and sector-dependent.

Limit allocation to protect from volatility.

Use as a return booster, not a core.

Mid and Small-Cap Funds (Rs 14,000/month)

These funds carry high growth potential.

But they are more volatile and risky.

Suitable for your long-term horizon.

Split the allocation between mid and small caps.

Keep an eye on market trends regularly.

Flexi Cap or Multi Cap Fund (Rs 6,000/month)

This gives you market-wide exposure.

Fund manager picks across market segments.

Offers balance and flexibility in returns.

Helps when market cycles shift.

Avoid Direct Mutual Funds for Long-Term SIPs

Direct funds miss advisor insights.

You might make emotional, untimely exits.

They lack personalisation and professional guidance.

Regular plans via a CFP-MFD give strategy support.

Expert monitoring helps long-term discipline.

Stay Away from Index Funds

Index funds don’t beat the market.

They lack fund manager expertise.

No downside protection in falling markets.

Actively managed funds aim to outperform indices.

They adapt during market changes.

Review Your Plan Regularly

Review performance every year.

Rebalance based on life changes.

Switch underperforming funds if needed.

A Certified Financial Planner will guide you.

Monitoring is as important as starting.

Taxation Aspects You Must Know

Equity mutual funds have two tax rules.

Long-term gains above Rs 1.25 lakh: taxed at 12.5%.

Short-term gains: taxed at 20%.

Holding for 10 years is tax efficient.

Stay invested to maximise post-tax returns.

Emergency Fund Planning Before SIPs

Keep at least 6 months of expenses saved.

Don’t invest this in mutual funds.

Use liquid funds or bank deposits.

This protects your SIPs during emergencies.

Systematic Withdrawal Plan Later

After 10 years, use SWP for income.

It gives tax-efficient regular withdrawals.

Avoid lump sum exits.

Plan withdrawal strategy 1-2 years before maturity.

Should You Include Sectoral Funds Beyond IT?

Sectoral funds are risky.

Don’t add too many of them.

You already plan IT sector exposure.

Focus more on diversified equity.

This improves overall stability.

Insurance and Health Coverage Are Essential

Review your term plan now.

Make sure it covers all your liabilities.

Have health cover for your family.

Don’t rely only on employer policy.

Your SIP Distribution Suggestion (Rs 40,000)

Large Cap Fund: Rs 14,000

IT Sector Fund: Rs 6,000

Mid Cap Fund: Rs 7,000

Small Cap Fund: Rs 7,000

Flexi or Multi Cap Fund: Rs 6,000

Strategy to Add More SIPs Yearly

Increase SIP by 10% annually.

This boosts compounding significantly.

You’ll reach bigger goals faster.

Link SIP increase to your salary hike.

Final Insights

Your investment plan is smart and timely.

Your SIP amount and time horizon are ideal.

Diversify smartly across fund types.

Avoid direct plans; take regular funds via CFP.

Stay away from index funds and too many sector bets.

Review your plan yearly with your Certified Financial Planner.

Tax efficiency and goal focus are key to success.

Your long-term wealth is built step by step.

A clear path and steady discipline will help you achieve it.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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