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40-Year-Old Aims for 10 Cr in 10 Years: Good ETF Plan or Time for a Change?

Ramalingam

Ramalingam Kalirajan  |7209 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 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 - Sep 15, 2024Hindi
Money

Sir, I am 40 years old and planning to invest my money in following smart beta ETF. Investment in Each ETF will be 10K/month and in Gold ETF will be 50 K/month making a total of 1.4 Lac/month 1)MIDSMALL 2) SMALLCAP 3) NV20IETF 4)ALPHA 5) MOM30IETF 6) ALPL30IETF 7)PHARMABEES 8)ICICB22 9)ALPHAETF 10)GOLDBEES. Also I have kept aside a corpus of Rs 50 lacs to invest in said ETF as and when there is a suitable correction in market in a phase wise manner. Kindly suggest if I should continue to invest as planned or make any changes in terms of number of ETF /investment amount. My goals is achieve a corpus of at least 10 Cr in 10 years.

Ans: Your plan to invest Rs 1.4 lakh per month into various smart beta ETFs, including gold, shows a thoughtful approach towards long-term wealth building. It reflects your ambition to achieve a Rs 10 crore corpus in the next 10 years. Let's break down and evaluate this strategy in terms of asset allocation, risk diversification, and alignment with your financial goals.

Portfolio Diversification
Your current portfolio is highly ETF-centric, which includes allocations to mid-cap, small-cap, pharma, and gold ETFs, among others. While smart beta ETFs offer an innovative approach to investment, it's crucial to assess whether this level of concentration is ideal for your goal of corpus creation.

Overconcentration on ETFs: While ETFs offer cost efficiency and diversification, relying heavily on them could expose you to higher volatility, especially in small- and mid-cap spaces. Consider balancing it with actively managed funds, as they can add a layer of expertise, especially in unpredictable market conditions.

Gold Allocation: Investing Rs 50,000 per month in Gold ETFs, about 35% of your total monthly investment, is quite significant. Although gold acts as a hedge, it tends to perform well only in specific scenarios, such as during economic uncertainties. Maintaining a lower allocation to gold, around 10-15%, would reduce the risk of opportunity loss from other high-growth assets.

Smart Beta ETFs: Advantages and Limitations
You are already aware of the benefits of smart beta ETFs, but they also come with some limitations. Here’s an analysis:

Benefits of Smart Beta ETFs: These ETFs attempt to outperform traditional index funds by focusing on factors like momentum, value, and low volatility. They offer transparency and lower fees compared to actively managed funds.

Limitations: Smart beta ETFs can sometimes lag in changing market conditions. Unlike actively managed funds, they do not adjust quickly to market trends. This can be a limitation in times of market correction or when there's a downturn in a particular sector.

Since your plan focuses on ETFs, I would suggest supplementing this with some actively managed funds to make your portfolio more adaptable to changes in the market.

Disadvantages of Index Funds
Index funds, while popular for passive investing, have inherent drawbacks in certain contexts:

Limited Growth Potential: Index funds generally track the market. This can limit the potential for significant outperformance during high-growth phases. Over-reliance on them can cap your upside.

Less Flexibility: Unlike actively managed funds, index funds do not have the flexibility to react to market changes. This rigidity can work against you in a dynamic market, especially when pursuing long-term growth targets like yours.

Thus, while ETFs are cost-effective, introducing more actively managed funds could boost performance over time.

Corpus of Rs 50 Lakh for Market Corrections
Your approach of keeping Rs 50 lakh aside for investing during market corrections is prudent. Here are a few suggestions to optimise the deployment of this corpus:

Phased Investments: Avoid timing the market too aggressively. Consider deploying the Rs 50 lakh corpus through a Systematic Transfer Plan (STP) over 6-12 months, especially during volatile phases. This approach reduces the risk of investing all at once at a market peak.

Diversified Deployment: Distribute the Rs 50 lakh across equity and debt funds. This will allow for growth opportunities while ensuring some stability. High exposure to equity ETFs alone may not serve the purpose during downturns.

Opportunities Beyond ETFs: A part of this corpus can be allocated towards actively managed mutual funds with proven track records. Funds focusing on large-cap and multi-cap categories could help enhance stability during corrections.

Risk Analysis and Asset Allocation
Your current allocation leans heavily toward equities, with a substantial focus on mid-cap, small-cap, and sector-specific ETFs like pharma. While this has a high growth potential, it increases your portfolio’s risk profile. Here are some observations and recommendations:

Sector-Specific Risk: Allocating to sector-specific funds like pharma ETFs adds concentration risk. The performance of such sectors can be cyclical, and being too heavily invested in one sector may limit your ability to recover during downturns.

Volatility of Small and Mid-Cap Funds: Small-cap and mid-cap ETFs are known for their volatility. They can offer high returns but can also lead to significant drawdowns. Diversifying your exposure into some large-cap actively managed funds would be advisable.

Gold Exposure: While gold serves as a good hedge, an allocation of 35% is on the higher side. Reducing it to about 10-15% would allow you to allocate more to equity, where you can achieve better long-term returns.

The Importance of Actively Managed Funds
Better Flexibility and Expert Management: Actively managed funds offer professional expertise in stock selection and market timing, which can enhance returns, especially during volatile markets.

Dynamic Strategy: Unlike passive ETFs, actively managed funds can adapt quickly to market conditions. In a volatile or corrective market, this agility can help protect your portfolio while still allowing for significant growth.

Historical Outperformance: Many actively managed funds have outperformed passive strategies over long time periods, especially in the Indian market. These funds can provide higher returns, particularly in equity-heavy portfolios.

Recommendations for Asset Reallocation
To achieve your goal of Rs 10 crore in 10 years, you may need to rethink your allocation and mix it with more actively managed funds:

Lower Gold Allocation: Reduce your gold ETF contribution from Rs 50,000 to Rs 20,000 per month. This allows you to invest the remaining Rs 30,000 into growth-focused mutual funds.

Balance Sector Exposure: Consider reducing sector-specific ETFs like pharma. Reallocate part of it to more diversified funds, focusing on large- or flexi-cap categories.

Increase Actively Managed Exposure: Introduce actively managed large-cap or multi-cap mutual funds into your portfolio. These funds can provide more stability and still offer growth over the long term.

Maintain the Rs 50 Lakh Corpus for Corrections: Continue with your plan to deploy the Rs 50 lakh corpus in phases during market corrections. However, consider a more diversified allocation across equity and debt funds.

Final Insights
You have an ambitious goal of reaching Rs 10 crore in 10 years, and your dedication is evident. However, a more balanced portfolio, with exposure to both ETFs and actively managed funds, will help you navigate market volatility and maximise your returns.

Balanced Allocation: Reassess your allocation to sector-specific and small-cap ETFs, as they can be volatile.

Gold: Reduce your monthly gold allocation and direct more towards equities.

Phased Deployment: Continue with phased deployment of your Rs 50 lakh corpus during market corrections.

Active Funds: Introduce actively managed funds for better market adaptability and potentially higher long-term returns.

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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Ramalingam

Ramalingam Kalirajan  |7209 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 14, 2024

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I am 34 years old. I started investing in a SIP of 250000 per month from Nov 2023. Will be investing for 15 years to create a corpus of 30cr at 21% XIRR I am investing in 11 funds equally Hdfc mid cap Quant mid cap Motilal oswal mid cap Tata nifty midcap 150 momentum 50 index fund Quant small cap Sbi nifty small cap 250 index Hdfc large and mid cap Icici large and mid cap Quant flexi cap Parag parikh flexi cap Sbi energy opportunities fund Please suggest If I should consider any changes.
Ans: That's a very impressive start to your investment journey! A monthly SIP of Rs. 2,50,000 for 15 years shows great commitment. Let's discuss your portfolio and your ambitious target corpus:

1. Large Investment, Great Potential!

Disciplined Approach! Investing such a significant amount consistently shows discipline. This is a key factor for wealth creation.

Diversified Portfolio: Your portfolio has a mix of Mid Cap, Small Cap, Large & Mid Cap, Flexi Cap, and a Sectoral Fund (Energy). Actively managed funds like these have fund managers who try to outperform the market by picking stocks they believe will grow.

Sectoral funds focus on specific industries, amplifying the risk associated with economic fluctuations and sector-specific challenges. Their narrow investment mandate exposes investors to higher volatility and concentration risk.

Additionally, sectoral funds lack diversification, making them vulnerable to adverse market conditions within the targeted sector. Timing the entry and exit points becomes crucial due to the cyclical nature of industries, increasing the complexity of investment decisions.

Overall, while sectoral funds offer potential for higher returns during sector upswings, they entail heightened risk and may not suit investors seeking broad-based diversification and stability in their portfolios.

Direct funds lack personalized advice and ongoing support, requiring investors to navigate the complexities of the market independently. They may lead to suboptimal investment decisions due to the absence of professional guidance.

In contrast, regular funds, accessed through a Mutual Fund Distributor (MFD) with Certified Financial Planner (CFP) support, offer tailored advice aligned with individual financial goals. MFDs provide valuable insights, portfolio rebalancing, and assistance during market fluctuations, enhancing investor confidence and decision-making.

Regular funds also often provide additional services such as goal planning, tax optimization, and periodic reviews, ensuring a holistic approach to wealth management.

2. Reaching Your Target:

Ambitious Goal! Targeting a Rs. 30 crore corpus in 15 years with a 21% XIRR (internal rate of return) is highly ambitious. Historically, Equity has delivered good returns, but there are no guarantees.

Market Performance Matters! Market fluctuations can significantly impact your final corpus. A 21% XIRR might be difficult to achieve consistently over 15 years.

3. Let's Analyze Your Portfolio:

Multiple Mid Cap Funds: Having three Mid Cap Funds might lead to overlapping holdings. Consider merging some for better diversification.

Actively Managed vs. Index Funds: While actively managed funds have the potential for higher returns, they also come with higher fees. A small allocation to an Index Fund could provide broader market exposure.

4. Seek Professional Guidance:

Role of a CFP: A Certified Financial Planner (CFP) can analyze your risk tolerance, investment goals, and assess your portfolio.

Personalized Strategy: A CFP can recommend an optimized portfolio allocation that balances risk and reward to potentially maximize your returns and reach your goals.

Remember, reaching your financial goals requires a well-defined strategy, discipline, and realistic expectations of market returns. Consulting a CFP can help you create a personalized plan and increase your chances of success.

Here's the key takeaway: You've made a fantastic start! Consider consulting a CFP to fine-tune your portfolio and potentially reach your long-term goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Dear Doctor, I work as a corporate lawyer in Delhi. I’ve been considering undergoing a cosmetic procedure for my skin for some time now, but I’m feeling a bit overwhelmed by the number of surgeons available. I want to ensure that I choose someone who is experienced, as this is a big decision for me. Could you advise what I should look for when selecting a plastic-aesthetic surgeon? Are there any specific red flags I should be aware of when researching potential surgeons? I want to make sure I’m in safe hands. I’m 40 years old.
Ans: This is a beautiful question.
Before I dwell on your question, there are a few points which are very important for the patient to know.
1. You should roughly know what result you wish to have.
2. Never think of a perfect result. There is no such result.
3. You must think in terms of improvement and if you are sble to achieve more than 90% approx, it can be considred good.
4. Dont compare your results with any celebrity's result. There body structure is different, they have probably taken better care till now and importantly, the result you see on a public platform is after make up and not the real result. Some times it may be a photoshopped image
5. Let your doctor know if you have any medical history and addictions.
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7. Try and see some results of the doctors work (Remember, too good a result may not be the true result). Realistic result is what you should want to look at and believe.
8. Don't fall for less budget! its obvious a meticulous job needs more surgical time. This means that the doctor may charge more. Seniority also adds to the cost.
What I mean, there is a price to be paid for a good job.(whether medical or anywhere).
Now coming to the Plastic surgeon's choice.
1. Research well, but dont fall prey to only advertisement. Small and big centers, both advertise,
2. Dont fall for glamour. You are going to a surgeon. A plastic surgeon's clinic is clean but not lavish generally. At least I believe that the person coming is not a client, but a patient. A patient - Doctor relationship is more pure than a client-Professional relationship.
3. Talk and discuss with the doctor. A too busy doctor may not always be the best doctor for you. Plastic surgery is about thinking, planning and execution. A doctor who thinks aloud about your problem ( especially if ut us face, nose, breast etc) is applying his/ her knowledge for your betterment, because every oerson is different.
4. Check the resilts? Look for genuinity.
5. Be wary of arrogant, loud and boisterous people. There is a difference between confidence and fambloyence.
6. Doctors who are attached to reputed hospitals are generally good in their work.
7. A doctor who can talk about probable complications is also a doctor worth trusting.
I hope I am able to do justice to this difficult question. All the best. You can write again if you need any other clarifications.
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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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