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Ramalingam Kalirajan |7831 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Oct 16, 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

Asked by Anonymous - Oct 15, 2024Hindi

I am 34 years of age. I have 10 lakh of land property, 6 lakh of Gpf and Pf savings. And I have 2 lakh of mutual fund ( Monthly 25 thousand per month) till now. My monthly salary is 1 lakh per month. Have home loan of 10 thousand per month EMI. What to do to retire at 45 with the corpus of 1 corer. ?

Ans: You’re 34 years old and aiming to retire at 45 with a Rs 1 crore corpus. Let's first break down how to achieve this goal while considering your current investments, savings, and loan obligations.

Current Financial Snapshot
Land property: Rs 10 lakh
GPF/PF savings: Rs 6 lakh
Mutual fund investment: Rs 2 lakh
Monthly SIP: Rs 25,000
Home loan EMI: Rs 10,000 per month
Salary: Rs 1 lakh per month
You have a steady salary, a manageable home loan EMI, and a good start with mutual fund investments. However, reaching Rs 1 crore by age 45 requires careful planning and disciplined investment.

Step 1: Assessing Your Retirement Goal
Your target is to accumulate Rs 1 crore in the next 11 years. With Rs 2 lakh in mutual funds and a SIP of Rs 25,000 per month, you're on the right track, but some adjustments can optimize your path.

Investment Growth Assumption: Assuming a 10% annual return on your mutual fund investments, your current SIPs may not be enough to reach Rs 1 crore. You will need to increase your monthly SIP over time.

Retirement Lifestyle: A Rs 1 crore corpus may provide around Rs 5-6 lakh per year as a sustainable withdrawal. This might not be sufficient for a comfortable retirement lifestyle in urban areas, especially with rising inflation and unforeseen expenses.

Action Plan:
Increase your monthly SIP: From Rs 25,000 to Rs 35,000 or more if possible. This will accelerate the growth of your retirement corpus.

Review mutual fund portfolio: Ensure you're investing in a mix of actively managed equity mutual funds and hybrid funds to achieve long-term growth.

Land Property: Keep the land property as part of your overall portfolio. It may appreciate over time, but don’t rely on it solely for retirement unless you plan to sell it and reinvest the proceeds.

Step 2: Analyzing Monthly Expenses and Loan Obligations
You have a home loan EMI of Rs 10,000 per month, which seems manageable considering your salary. Clearing this loan before retirement would reduce financial stress in your later years.

Action Plan:
Prepay the home loan: Use any additional savings or bonuses to prepay your loan. This will free up funds that can be redirected toward your retirement savings.

Maintain Emergency Fund: Ensure you have at least 6 months’ worth of expenses set aside as an emergency fund in liquid funds or fixed deposits.

Step 3: Maximizing Investment Options
In addition to mutual funds, explore other tax-efficient investment options like NPS (National Pension Scheme) and PPF (Public Provident Fund). These will offer long-term growth with tax benefits.

PPF: It’s a low-risk option with a decent interest rate and can be a stable part of your retirement corpus.

NPS: Consider increasing your contributions to the NPS if you’re not already maximizing the tax benefit under Section 80CCD(1B) (up to Rs 50,000 deduction).

Reaching Rs 1 Crore at Age 40 with a Dental Practice
You are currently 33 years old, working in your own dental clinic, and aim to accumulate Rs 1 crore by age 40. This is an ambitious but achievable goal if you continue investing wisely.

Current Financial Snapshot
Mutual funds: Rs 15 lakh
Stocks, PPF, FD: Rs 6 lakh in stocks, Rs 2 lakh in PPF, Rs 3 lakh in FD
Real estate: Rs 2 lakh
NPS: Rs 1.8 lakh
Car loan: Rs 3 lakh
Income: Rs 1.2 lakh per month
Monthly expenses: Rs 35,000 (groceries, EMI, miscellaneous)
With Rs 15 lakh in mutual funds and Rs 1.2 lakh in monthly income, you’re in a good position. However, accumulating Rs 1 crore in 7 years will require you to focus more on your investment strategy and possibly increase your savings rate.

Step 1: Increase Your Investment Contributions
To reach Rs 1 crore by age 40, you need to consistently invest a higher portion of your income.

Action Plan:
Increase monthly SIPs: With your current Rs 15 lakh in mutual funds, you may need to increase your monthly SIPs to Rs 50,000 or more.

Reassess stock investments: Ensure your stock portfolio is well-diversified and aligned with your risk tolerance. Consult a Certified Financial Planner (CFP) to optimize your stock allocation for growth.

Step 2: Managing Your Loans
You have a car loan with Rs 3 lakh outstanding. Clearing this loan within the next three years is a good goal, but ensure that the EMI payments don’t hinder your ability to save for retirement.

Action Plan:
Prepay the car loan: If possible, consider prepaying the car loan faster to free up more funds for investment.

Debt management: Avoid taking on any new loans until you’re on track with your Rs 1 crore target.

Step 3: Planning for Lifestyle Goals
You’ve mentioned wanting to take more breaks from your clinic, close for a day or two each week, and take holidays abroad. This is a reasonable goal but requires careful planning to ensure your business continues to thrive.

Action Plan:
Build a business buffer: Set aside a separate fund to cover business expenses for those weeks you plan to take off. This ensures that your clinic operations remain smooth without affecting your personal finances.

Increase passive income: Consider diversifying your investments into assets that can generate passive income, like mutual funds with a Systematic Withdrawal Plan (SWP), once your portfolio grows. This will provide you with a steady income even during periods when you take time off.

Final Insights
For both cases:

SIPs: Increasing your monthly SIP is crucial to reaching Rs 1 crore. A goal-focused investment strategy with actively managed equity funds will offer better long-term growth.

Debt management: Prepay your loans as soon as possible to free up cash flow for investments. Prioritizing debt reduction will reduce financial strain.

Emergency Fund: Maintain an emergency fund for unexpected expenses.

Lifestyle adjustments: Both of you can afford to take holidays or reduce working days, but planning for these lifestyle goals should go hand-in-hand with maintaining business stability and ensuring your long-term financial security.

Professional Guidance: Consult with a Certified Financial Planner (CFP) to regularly review and adjust your portfolio as you move closer to your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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

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