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40 Years Old, 13,000 SIP, 36,000 EMI: How to Build a 5 Crore Corpus?

Ramalingam Kalirajan |9227 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Oct 21, 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 20, 2024Hindi

Sir I am 40 years of age. At present i have 13000 monthly Sip with 10c/o top up every year. However i also pay 36000 as emi. If i want to make 5 cr corpus what should should i do. My net salary is 75 k

Ans: At 40 years of age, your goal of building a Rs 5 crore corpus is achievable with disciplined planning. Currently, your monthly SIP is Rs 13,000 with a 10% annual top-up, and you also pay Rs 36,000 as EMI. With a net salary of Rs 75,000, we can plan a strategy to help you reach your goal.

Let’s break it down step by step to ensure a 360-degree solution to your financial journey.

Step 1: Analyze Your Current Investments
Your monthly SIP of Rs 13,000 is a great start. The 10% annual top-up is also a smart strategy because it increases your contributions over time, allowing for higher corpus growth. However, we need to assess whether this will be enough to reach your target of Rs 5 crore.

Equity Mutual Funds: Continue investing in actively managed equity mutual funds, as they tend to offer higher returns over the long term. Equity can help you grow your wealth faster, especially with a goal like Rs 5 crore.

Debt Mutual Funds: Ensure that a small portion of your SIP also goes into debt mutual funds to provide stability to your portfolio.

Expected Returns: With a balanced portfolio of equity and debt mutual funds, you can expect a return of around 9-10% annually over the long term.

Increase Your SIP: Based on your goal and current salary, you will need to increase your monthly SIP contributions steadily as your income grows.

Step 2: EMI Consideration and Debt Management
Your EMI of Rs 36,000 consumes a significant part of your income. Let’s assess how to balance debt repayment and investments for wealth creation.

Pay Off High-Interest Debt: If your EMI is for high-interest loans, consider paying them off faster. High-interest debt can reduce your ability to invest more towards your Rs 5 crore goal.

Continue with the EMI: If your EMI is for an affordable loan like a home loan with low interest, then continue with it, but make sure it doesn’t hinder your investment contributions.

Debt-Free Future: Aim to become debt-free in the next 5-7 years. Once your EMI is cleared, you can channel the Rs 36,000 towards SIPs, significantly increasing your investment amount.

Step 3: Maximize Your SIP for Wealth Creation
Let’s calculate how much SIP you will need to achieve your Rs 5 crore goal.

Monthly SIP Amount: Considering a return of 9-10% per year, to reach Rs 5 crore in the next 20 years, you may need to invest approximately Rs 50,000 per month.

Incremental Growth: With a 10% annual increase in your SIP, your contributions will gradually rise, helping you build wealth faster.

Additional Income: Once your EMI is paid off, the extra Rs 36,000 can be added to your SIPs, boosting your corpus. This will allow you to increase your monthly investments without straining your current lifestyle.

Step 4: Build an Emergency Fund
Before we focus on aggressive wealth creation, ensure you have a solid emergency fund in place.

Emergency Fund Size: This fund should cover 6-12 months of your household expenses, including EMI payments. Keeping this fund in a liquid mutual fund or fixed deposit will ensure it’s easily accessible during emergencies.

Family Security: This fund will provide a financial cushion for your family in case of job loss or any other unforeseen event.

Step 5: Protect Your Family with Adequate Insurance
As you are working to create wealth, it is equally important to secure your family’s future. Let’s focus on insurance to protect your family in case something happens to you.

Term Insurance: Purchase a term insurance plan that offers coverage of at least 15-20 times your annual income. A term insurance plan provides a large cover at a low premium, ensuring your family is financially secure if you’re not around.

Health Insurance: It’s also crucial to have comprehensive health insurance for yourself and your family. Health emergencies can drain your finances quickly, so a good health policy will cover medical expenses without affecting your savings.

Step 6: Smart Tax Planning
Your investments in mutual funds can also help you save taxes. Here’s how:

Equity Linked Savings Scheme (ELSS): Consider allocating a portion of your SIP towards ELSS mutual funds. ELSS allows you to save tax under Section 80C, up to Rs 1.5 lakh annually, while also giving you exposure to equity for wealth creation.

Capital Gains Tax: Be mindful of taxation on mutual funds. Long-term capital gains (LTCG) above Rs 1.25 lakh from equity mutual funds are taxed at 12.5%, while short-term gains (STCG) are taxed at 20%. For debt funds, both long-term and short-term gains are taxed as per your income tax slab.

Step 7: Regular Review and Portfolio Rebalancing
Investing is not a one-time activity. To ensure that you stay on track to achieve Rs 5 crore, it’s important to review your portfolio regularly.

Annual Review: At least once a year, review your investments to ensure they are performing as expected. If necessary, rebalance your portfolio by adjusting the equity and debt allocation based on market conditions and your financial goals.

Increase Investments: As your salary increases, make sure to increase your SIP contributions. This will allow your corpus to grow faster.

Stay Consistent: The key to wealth creation is consistency. Stay committed to your SIPs and avoid withdrawing your investments unless absolutely necessary.

Step 8: Avoid Low-Yield Investments
While focusing on wealth creation, avoid investing in low-yield products like ULIPs or endowment policies. These products often offer lower returns and have higher fees, which can hinder your goal of reaching Rs 5 crore.

Stick to Mutual Funds: Mutual funds, particularly actively managed equity mutual funds, have the potential to provide higher returns over the long term. Focus on these for better growth.
Final Insights
At 40, you have a solid foundation for reaching Rs 5 crore by starting with your SIP of Rs 13,000 and gradually increasing it over time. To accelerate your wealth creation, aim to increase your SIP contributions as your income grows and your EMI burden reduces. Secure your family’s future with term insurance and health insurance, and build an emergency fund for financial stability. Regularly review your investments and focus on tax efficiency through ELSS and other mutual funds. With discipline and a strategic approach, you can confidently reach your Rs 5 crore goal.

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.

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