Hi, I am 37 years old working professional, my wife is 35 years and she is also working. I have a son of 7 years old. Both of us would like to retire in 2032 and these are our current investments and loans. We would need your opinion in terms of how we are placed to make an informed decision 7 years from now. - Own house valued at 3.5 cr as of current market trends, no loan - Second own house valued at 90 lacs, outstanding loan of 63 lacs - MF- 30 lacs - MF monthly SIP- 70k - PPF- 45 lacs - FD- 15 lacs - EPF- 60 lacs - Monthly savings apart from investments- 2 lacs - Life Insurance(pure term)- 1 cr - Life Insurance(Endowment)- 35 lacs, maturity in 2036 - Health Insurance(Parents)- 25 lacs - Health Insurance(Self and Family)- 1 cr Loans Home Loan- Current outstanding- 63 lacs(monthly emi- 56k)

Ans: Understanding Your Current Financial Situation

Your goal to retire by 40 with Rs 20 crores is ambitious and achievable with strategic planning. At 30 and 29, you and your wife have time on your side, which is an advantage. Let's dive into the details of your current financial situation and then outline a comprehensive plan to help you achieve your goals.

Income and Expenses

You have a combined monthly income of Rs 6.3 lakhs. Your current SIP contribution is Rs 55,000, divided into large cap (50%), mid cap (25%), and small cap (25%) funds. You have a property that is loan-free, and the rent from this property goes to your mother. Additionally, you pay your mother Rs 20,000 per month.

Debt Obligations

You have a significant home loan of Rs 1.7 crores with an EMI of Rs 1.25 lakhs for an under-construction property. Your wife has a home loan of Rs 18 lakhs with an EMI of Rs 36,000. These are substantial monthly obligations that need careful management.

Future Goals and Responsibilities

You plan to retire in 10 years with Rs 20 crores and also plan for your future children. Given the instability in the software industry, it’s crucial to build a robust financial plan that accommodates potential job changes or disruptions.

Compliments and Empathy

Your commitment to planning for your financial future is commendable. It’s clear you have a disciplined approach to savings and investment, which is essential for reaching your goals. Your thoughtful consideration of your family’s needs, such as supporting your mother and planning for future children, reflects your responsible and caring nature.

Detailed Financial Planning Strategy

1. Analyzing Current Investments

Your SIP allocation is balanced with a focus on growth. Large cap funds provide stability, mid cap funds offer growth potential, and small cap funds add a high-growth element, albeit with higher risk. Continue this diversified approach but review and adjust periodically based on market conditions and fund performance.

2. Emergency Fund

Ensure you have an emergency fund that covers 6-12 months of living expenses. This fund should be easily accessible and kept in a liquid form like a savings account or a liquid mutual fund. This will provide a safety net in case of job loss or other financial emergencies.

3. Home Loan Management

Your current home loan EMIs are substantial. Aim to pay off the smaller loan (Rs 18 lakhs) first, as it will free up Rs 36,000 per month, which can then be redirected towards your investments or the larger home loan. For the Rs 1.7 crore loan, consider making prepayments whenever possible to reduce the principal and interest burden over time.

4. Increase SIP Contributions

With your combined income, there is potential to increase your SIP contributions. Aim to gradually increase your SIP amount by 10-15% annually. This will significantly boost your corpus over the next 10 years. Prioritize large and mid cap funds as they offer a balance of stability and growth.

5. Tax Planning

Utilize tax-saving investment options under Section 80C to reduce your taxable income. Investments in ELSS (Equity Linked Savings Scheme) funds can provide tax benefits while offering equity exposure. Also, consider using the National Pension System (NPS) for additional tax benefits under Section 80CCD(1B).

6. Planning for Children

Start a dedicated investment plan for your future children. Child education plans or a separate SIP can ensure you accumulate a substantial corpus by the time your children need it. This will help in managing future educational expenses without straining your retirement corpus.

7. Retirement Corpus Calculation

To accumulate Rs 20 crores in 10 years, calculate the monthly investment required using a financial calculator. Assuming an annual return of 12% from your SIPs, you will need to invest approximately Rs 2.3 lakhs per month. Adjust your current expenses and income accordingly to meet this goal.

8. Review and Rebalance Portfolio

Regularly review and rebalance your investment portfolio. Monitor the performance of your funds and make necessary adjustments. Rebalancing helps in maintaining the desired asset allocation and managing risk effectively.

9. Avoid Real Estate Investments

Given your existing real estate commitments, focus on other investment avenues. Real estate requires significant capital and is less liquid. Stick to equity and debt investments which provide better liquidity and potential for higher returns.

10. RSUs and Bonuses

Utilize RSUs and bonuses effectively. Consider them as additional investment opportunities rather than immediate spending. Invest these amounts in your existing SIPs or use them for loan prepayments.

11. Insurance Planning

Ensure you have adequate life and health insurance. A term life insurance policy covering at least 10-15 times your annual income is crucial. Health insurance for you and your family should cover major medical expenses and critical illnesses.

12. Consulting a Certified Financial Planner

A Certified Financial Planner (CFP) can provide personalized advice tailored to your specific needs. They can help you navigate complex financial decisions and ensure you are on track to meet your goals. Regular consultations with a CFP will help in fine-tuning your financial plan.

13. Benefits of Actively Managed Funds

Actively managed funds, with the guidance of a Mutual Fund Distributor (MFD) and CFP, offer professional management and the potential for higher returns compared to direct funds. They can adapt to market conditions and provide better risk management.

14. Avoiding Index Funds

Index funds, while low-cost, often mirror the market and may not provide the same growth potential as actively managed funds. Active fund managers can outperform the market, offering better returns, especially in the Indian market where active management can capitalize on market inefficiencies.

15. Regular Funds Over Direct Funds

Investing through regular funds with an MFD and CFP provides the benefit of professional advice and regular portfolio reviews. While direct funds have lower expense ratios, they lack the personalized guidance that can optimize your investment strategy and ensure alignment with your financial goals.

16. Regular Savings and Expense Management

Maintain a disciplined approach to saving and managing expenses. Track your spending and identify areas where you can cut back. Redirect these savings towards your investment goals.

17. Long-Term Focus and Patience

Achieving Rs 20 crores in 10 years requires a long-term focus and patience. Market fluctuations are normal, and staying invested through ups and downs is crucial. Avoid making impulsive decisions based on short-term market movements.

18. Diversification Across Asset Classes

Diversify your investments across different asset classes, including equity, debt, and gold. This reduces risk and enhances the potential for returns. Each asset class performs differently under various market conditions, providing stability to your portfolio.

19. Tracking Progress and Making Adjustments

Regularly track your financial progress. Use financial planning tools and software to monitor your investments and net worth. Make adjustments based on changes in your financial situation, goals, and market conditions.

20. Staying Informed and Educated

Stay informed about financial markets and investment opportunities. Educate yourself about different investment options and strategies. Knowledge empowers you to make better financial decisions and stay on track to achieve your goals.

Conclusion

Your goal of retiring by 40 with Rs 20 crores is challenging yet achievable with disciplined planning and execution. Focus on increasing your SIP contributions, managing your debt effectively, and staying diversified. Regular reviews and consultations with a Certified Financial Planner will ensure you stay on track. By following this comprehensive plan, you can achieve financial freedom and secure a prosperous future for your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Your dedication and focus towards your family’s secure future is truly commendable. Let’s create a clear and actionable plan to help you meet your goals smoothly.

Current Financial Position
Age: You are 44 years old; your wife is 43 years.

Monthly Net Income: Rs. 3.40 lakhs (includes Rs. 15,000 in rental income).

Loans:

Personal Loan: Rs. 6 lakhs; EMI Rs. 26,000; 24 months left.

Home Loan: Rs. 28 lakhs; EMI Rs. 50,000; 4 years left.

Car Loan: Rs. 10 lakhs; EMI Rs. 40,000; 2 years left.

Assets & Investments:

Provident Fund: Rs. 35 lakhs.

NPS: Rs. 3.5 lakhs.

Mutual Funds: Rs. 3 lakhs.

Gold: Rs. 15 lakhs.

Term Insurance: Rs. 1.5 crores.

Insurance policy maturity in 7 years: Rs. 25 lakhs.

Fixed Assets: Rs. 2 crores.

Sukanya Samriddhi Scheme: Rs. 8.5 lakhs.

Family:

Daughter: 12 years old, in 7th grade.

Son: 4 years old.

Your Key Financial Goals
Retirement corpus of Rs. 2 crores in the next 10 years.

Secure both children’s education.

Daughter’s marriage: Rs. 50 lakhs.

Build a house worth Rs. 3 crores in 5 years for an additional rental income of Rs. 60,000.

Loan Management
Prioritize closing your personal and car loans first. These have higher interest rates than your home loan.

Your car loan has 2 years left and personal loan 2 years as well. If you get any surplus income, direct it towards these.

After these are cleared, you can focus on prepaying your home loan faster if needed.

Reducing your EMI burden will improve your monthly cash flow significantly.

Retirement Planning
You aim to build a retirement corpus of Rs. 2 crores in 10 years. This is a solid and achievable target if you stay disciplined.

You already have Rs. 35 lakhs in PF and Rs. 3.5 lakhs in NPS. These are good foundations.

Continue your regular contributions to PF and NPS.

Start systematic investments in mutual funds to supplement these. Invest every month without fail.

Equity mutual funds have the potential to give better returns over the long term than traditional fixed deposits.

Avoid index funds. They only track the index, and may not adapt to market changes. Actively managed mutual funds, with expert fund managers, can outperform and adjust to market conditions.

Choose funds managed by reputed fund managers with a consistent record.

Avoid direct mutual funds. Regular mutual funds offer expert advice, help you stay disciplined, and provide guidance. A Certified Financial Planner can help you select and monitor these funds for the best results.

Mutual funds can be selected based on your risk profile and financial goals.

Children’s Education & Marriage Planning
Education costs can be substantial. Start investing separately for both children’s education.

Use child-focused mutual funds or balanced funds to plan for this. They balance risk and returns well.

For your daughter’s marriage, you have around 10-15 years. You already have Rs. 8.5 lakhs in Sukanya Samriddhi Scheme. Keep investing in it regularly for safety and decent returns.

For the additional Rs. 50 lakhs needed for her marriage, you can create a separate mutual fund portfolio in your wife’s name. This will keep it separate from your retirement funds.

Monitor and review these funds every year to ensure you stay on track.

House Construction Plan
You plan to build a house worth Rs. 3 crores in 5 years.

Since this will also bring in Rs. 60,000 monthly rent, it can be a useful asset. But building a house of this size can impact your other financial goals.

Ensure you do not compromise your retirement or children’s education plans for this. It is important to balance these big goals.

Consider saving a good portion of your monthly surplus for the house construction.

Avoid taking large loans again for the house as you already have a home loan.

If required, stagger the house construction or phase it based on the funds available.

Insurance & Protection
You already have a term insurance cover of Rs. 1.5 crores. This is good. Make sure it is sufficient for your family’s needs if something happens to you.

Your wife should also have a term insurance plan. This will ensure both of you are covered.

Avoid investment-linked insurance plans like ULIPs or endowment plans. They mix insurance and investment but give poor returns.

Surrender any existing ULIP or endowment policies you have. Reinvest the surrender value in mutual funds. This will grow better and give you liquidity.

Managing the Insurance Policy Maturing in 7 Years
You have an insurance policy maturing in 7 years with Rs. 25 lakhs.

Once it matures, reinvest the proceeds in mutual funds for long-term growth.

Avoid buying new insurance-cum-investment products. Keep insurance and investment separate for better results.

Regular Monitoring & Review
Your financial situation and goals may change with time.

Review your investments every year. Check if your goals are on track.

Adjust your investment amount or fund choices as required.

A Certified Financial Planner can help you review and rebalance your portfolio when needed.

Tax Planning
Be aware of taxes when you sell your mutual fund investments.

For equity mutual funds, long-term capital gains above Rs. 1.25 lakhs are taxed at 12.5%. Short-term capital gains are taxed at 20%.

For debt mutual funds, both long-term and short-term gains are taxed as per your income tax slab.

Plan your redemptions smartly to minimise tax.

Use tax-saving investment options like ELSS funds or PPF to reduce tax liability.

Building a Financial Buffer
Keep an emergency fund of at least 6 months of expenses.

This will help you manage sudden expenses or income changes.

Your rental income of Rs. 15,000 is a good start. When you build the new house and get the extra Rs. 60,000 rent, direct some of it to your emergency fund.

Securing Your Family’s Future
For your wife, ensure her insurance coverage and investments are also properly managed.

Teach your children the basics of money management as they grow. This will help them in the future.

Finally
You are on the right track with your savings and planning. Clearing your high-interest loans first will free up more of your monthly income.

Focus on disciplined investments in mutual funds and keep insurance separate. A Certified Financial Planner can guide you at every step to help you stay on course.

Stay consistent, review regularly, and you will achieve your goals smoothly.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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