I am a 40 years old and working with prestigious IT Company as a Project Manager. I don't have any mutual funds now. I have PPF, life insurance, Superannuation funds. I want to achieve 3 crore in next 12 to 15 years. Can you suggest me which funds...

I am a 40 years old and working with prestigious IT Company as a Project Manager. I don't have any mutual funds now. I have PPF, life insurance, Superannuation funds. I want to achieve 3 crore in next 12 to 15 years. Can you suggest me which funds i can create and which online portal is good to create those funds?

Ans: Monthly investment of Rs 55000 is required to achieve a corpus of Rs 3 cr in 15 years!

Funds that can be considered are as under:

HDFC Index Fund – Sensex Plan – Growth

UTI Flexi cap Fund – Growth

Axis ESG Equity fund – Growth

Samco Flexi cap fund – Growth

Motilal Oswal Mid cap Fund - Growth

Nippon India Small Cap Fund – Growth

Ans: At 50, starting with no savings can be daunting. But saving Rs 1 lakh every month is commendable. Achieving Rs 3 crore in 5 years is ambitious. It requires careful planning and the right investment strategy. Let’s explore how mutual funds can help you reach this goal, and address your concerns about SIPs.

Your Financial Goal: Understanding the Challenge
Rs 3 crore in 5 years is a significant target. It’s essential to understand what this goal entails.

High Returns Needed: You need high returns to reach Rs 3 crore in 5 years.
Investment Discipline: Consistent saving and investing are crucial to success.
Why This is Important: Achieving this goal requires understanding the required returns and commitment to regular investing.

Evaluating Your Risk Appetite
At 50, your risk tolerance might be lower than someone younger. But, aiming for Rs 3 crore in 5 years requires exposure to higher returns and, consequently, higher risks.

Assess Your Comfort: How comfortable are you with market ups and downs?
Balancing Act: Finding the right balance between high returns and risk is key.
Why This Matters: Your risk appetite will guide your choice of mutual funds and investment strategies.

Why Mutual Funds?
Mutual funds offer a diverse range of investment options, catering to different risk appetites and financial goals.

Diverse Choices: Equity funds, debt funds, and balanced funds are available.
Professional Management: Managed by experienced fund managers who aim to maximize returns.
Why Mutual Funds Work: They provide access to a broad range of assets and professional management, which is crucial for achieving high returns.

Types of Mutual Funds to Consider
Given your goal and the need for significant growth, here’s a look at different types of mutual funds and their suitability.

1. Equity Mutual Funds
Equity funds invest in stocks and aim for high growth. They are suitable for long-term goals but come with higher volatility.

Growth Potential: Can offer high returns if the market performs well.
Market Risk: More volatile and can fluctuate significantly in the short term.
Why Consider This? They have the potential to deliver the high returns needed for your goal but are riskier.

2. Balanced or Hybrid Funds
Balanced funds invest in both equities and debt. They aim to provide growth with moderate risk.

Balanced Growth: Offers exposure to equities for growth and debt for stability.
Lower Volatility: Less volatile than pure equity funds.
Why Consider This? They offer a balance between risk and return, which might suit your risk tolerance better.

3. Aggressive Hybrid Funds
Aggressive hybrid funds allocate a higher portion to equities but include some debt for cushioning.

Growth with Cushion: Provides higher growth potential with some stability.
Moderate Risk: Balances between aggressive growth and safety.
Why Consider This? They offer a good mix of growth potential and risk management.

Understanding SIPs: Systematic Investment Plans
You mentioned being hesitant about committing to SIPs. Let’s explore why SIPs could be beneficial and address your concerns.

Benefits of SIPs
SIPs allow you to invest a fixed amount in mutual funds regularly, usually monthly. They offer several advantages:

Disciplined Investing: Helps inculcate a habit of regular saving and investing.
Rupee Cost Averaging: Buys more units when prices are low and fewer when high, averaging out the cost.
Compounding Benefits: Regular investments grow significantly over time due to compounding.
Why SIPs are Great: They automate investing, reduce the impact of market volatility, and leverage the power of compounding.

Addressing SIP Concerns
Your hesitation about SIPs is understandable. Here’s why SIPs might still be worth considering:

Flexibility: You can start, stop, or modify SIPs at any time without penalties.
No Lump Sum Commitment: SIPs avoid the risk of investing a large amount at the wrong time.
Market Volatility Management: SIPs smooth out the impact of market volatility over time.
Why You Should Reconsider SIPs: They offer flexibility, lower risk of timing the market, and provide a disciplined approach to investing.

Crafting Your Investment Plan
Given your goal and considerations, let’s craft a plan to help you achieve Rs 3 crore in 5 years. This plan will focus on a mix of mutual funds to balance growth potential and risk.

1. Diversify Your Portfolio
Investing in a mix of funds can help balance risk and returns. Here’s how you can diversify:

Equity Funds: Allocate a significant portion to equity funds for high growth potential.
Balanced Funds: Include balanced funds to moderate risk and provide stability.
Aggressive Hybrid Funds: These can be a good middle ground, offering higher returns with some risk management.
Why Diversification is Key: It reduces risk by spreading your investments across different types of assets.

2. Start with SIPs and Consider Lump Sum Investments
Given the large monthly savings, combining SIPs with occasional lump sum investments could be effective.

SIP Strategy: Start SIPs in equity and balanced funds to build wealth steadily.
Lump Sum Strategy: Invest lump sums when markets dip to take advantage of lower prices.
Why This Combination Works: SIPs provide regular investment discipline, while lump sums can capitalize on market opportunities.

3. Monitor and Adjust Your Portfolio
Regular monitoring and adjusting your portfolio are essential to stay on track.

Review Performance: Check fund performance and rebalance if needed.
Adjust Allocation: Shift more into balanced or debt funds as you approach your goal to reduce risk.
Why This is Important: Markets and fund performances change, so regular review helps keep your investments aligned with your goals.

Managing Risks and Expectations
Investing for high returns comes with risks. Here’s how to manage them and set realistic expectations.

1. Understand Market Volatility
High returns come with higher volatility. Be prepared for market ups and downs.

Stay Invested: Don’t panic and withdraw during market drops.
Long-Term Perspective: Focus on your 5-year goal rather than short-term fluctuations.
Why This Matters: Staying invested through market cycles is crucial to achieving long-term growth.

2. Be Realistic About Returns
While aiming for high returns, it’s essential to set realistic expectations.

Market Performance: Understand that markets can underperform, and returns are not guaranteed.
Diversification Benefits: Diversifying can reduce the impact of poor performance in one area.
Why This is Important: Being realistic helps manage expectations and reduces the stress of investing.

Final Insights
Reaching Rs 3 crore in 5 years is ambitious but achievable with a disciplined approach. Here’s a quick recap of your plan:

Understand Your Goal and Risk: Know that high returns come with high risks. Diversification and disciplined investing are key.

Consider SIPs and Lump Sums: SIPs provide regular investment discipline, while lump sums can capitalize on market opportunities.

Choose the Right Funds: Mix equity, balanced, and aggressive hybrid funds to balance growth and risk.

Monitor and Adjust: Regularly review and adjust your portfolio to stay aligned with your goals.

Stay Invested and Realistic: Understand market volatility and have realistic expectations about returns.

Investing requires patience, discipline, and a well-thought-out strategy. Following this plan will put you on a path to achieving your goal of Rs 3 crore in 5 years.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Advice Needed: Transitioning Back to India & Financial Planning Hello, I’m currently in the process of transitioning back to India after spending the last 15 years abroad. My family includes my wife (early 30s) and our 1-year-old baby. We are staying with my parents for now but are planning to move into a larger, more comfortable residence, either by buying or renting. I’d love to hear some perspectives on my financial situation, as I’m trying to figure out the best course of action in this new chapter. Here’s a quick summary of where I stand: 1. Cash Savings: We’re consolidating assets from both India and abroad, and will have about ₹4 crore in liquid funds. 2. Retirement Savings: I have a PPF-equivalent account of around ₹70 lakhs, which I can only access at age 65. I’m hoping the modest returns from this will be sufficient for my retirement. 3. Inherited Assets: I’ve inherited ancestral properties valued around ₹30 crore. I’m not planning to liquidate these assets or touch them for at least the next 10 years. 4. Career: I work in IT and expect a salary of about ₹1.3 lakh per month (after tax) in India. My wife is in the early stages of her career, so we’re still deciding whether she will work here or possibly start her own small business. Given all of this, here’s where I’m at: * Investment options: I’m considering investing the ₹4 crore in commercial real estate to generate passive income. I’ve seen a couple of properties with rental guarantees of ₹1.5 lakh per month, with a 5% annual increase. * Housing preference: My family prefers to live in a gated community, so I’m not really inclined to invest in residential property for passive income. * Housing decision: Should I buy an apartment or villa now, betting on my career certainty here, or focus on creating more financial freedom first before making career moves in India? In my heart, I feel that achieving financial independence should be my first priority before diving into career opportunities or starting a business here. What would you do in my situation? I'd love to hear your thoughts or any advice you can offer!

Ans: Hi,

Welcome back to India and Congratulations on taking this big decision to move back to India.

Before I start my response to your queries, just want you to know we share a couple of things in common. I was abroad for a considerable time and returned back to India and I was also in the IT field at that time, before I moved ship to Personal Finance and Financial Planning. So I can relate to some of your concerns, queries and thought process in that regard.

This may be a bit long but hopefully its helpful.
Your current Financial summary -
Cash/Liquid funds - INR 4 Crores
PPF equivalent - INR 70 Lakhs available at age 65
Inherited properties - valued at INR 30 crores no plan to liquidate as of now
Salary/Income - INR 1.3 lakhs per month in hand

As a few critical data points are not mentioned but with few indicators in queries, I will make some assumptions for the same - Age 37 years, Location for housing/work - Metro/2nd tier city.

Lets get a couple of things kept aside for this discussion -
PPF equivalent - INR 70 lakhs > for retirement can grow to an amount between INR 2 Crores (@4% returns) to INR 4.5 Crores (@7% returns), will cover this again when I mention Retirement below.
Inherited Properties - as there is no plan for liquidation, excluding this completely.

Decisions to be made -
1. Investment Options
2. Housing Buy/Rent
3. Financial freedom/independence

Lets go through each of these and I will add more for your consideration as they will have a weightage on all future decisions.

1. Investment Options
A> Commercial real estate with investment on INR 4 Crores and return of INR 1.5 lakhs per month
Pros -
Regular month income
Commercial Real Estate asset

Cons -
Return on Investment is 4.5% before reducing charges for maintenance, may be below 4% net in hand
Rental Income is taxable (added to other incomes and taxed as per slab rate) expect highest tax rate of 30% as total income will exceed INR 30 lakhs (Salary + rent)
All available funds will be deployed

Note - Commercial real estate appreciation is primarily based on location. Capital gains on Commercial real estate attract tax at 20% as of now.

B> Lets consider an alternative approach assuming investment is for a long term which is usually for real estate assets e.g. 20 years
Invest INR 4 Crores in Mutual funds.
A well diversified portfolio can generate 12% returns over the long term. The Corpus after 20 years will be over INR 38 Crores.

But considering your requirement for a monthly income from this investment, lets do another approach. Split your Investment.
Invest INR 2 Crores in a well diversified Mutual Funds portfolio expecting a 12% return - Corpus at the end of 20 years = INR 19+ crores
For regular income, Invest INR 2 Crores in Balanced Advantage mutual funds and considering a modest return of 10% (last 10 years data will show higher returns). Keep investment for 1 year before withdrawing to attract Long term Capital Gains tax (tax efficient approach). After 1 year you can receive INR 1.5 lakhs per month (increasing at 5% annually) for the next 20 years.

Pros -
Investment generates higher rate of return, Corpus growing/compounding at 12% return
Regular month income
Investment returns are more tax efficient
Flexibility to deploy all or partial funds towards building a corpus
Corpus can be liquidated in future much faster and easily than Real estate

Cons -
No real estate asset

Recommendation - Approach B is recommended as this will provide liquidity and appreciation towards wealth creation. This will also provide availability of funds for a new venture as and when required if that becomes a viable option in the future.

2. Housing Buy/Rent
If you plan to stay in India for long and settle down (not clearly indicated considering career options), you can consider buying a house property. But if the work location is not what you believe to be the place where you would like to settle down, then start with a Rental option and over time reconsider location for buying option.

Buying Property
Pros -
Asset is generated
Stability of residence if/when self occupied
Some amount of tax deductions/exemptions can be claimed if Loan is taken

Cons -
A large amount of funds required/blocked for full payment / partial payment (with loan)
EMI on Loan reduces income/funds in hand
EMI is much higher than rent
Locked to the property, change will be expensive

Renting Property
Pros -
Capital is not deployed immediately
Rent can be claimed for tax benefits
Provide opportunity to consider long term housing decision
Difference between EMI and Rent can be Invested to generate a good corpus
Flexibility to move jobs across locations

Cons
No Asset is generated
Rent is an expense
No sense of ownership in the house you stay

So in summary, the decision is more individual and how you perceive the house property as an asset. For flexibility to settle down in your career in India I can recommend to start with a Rental option and I am sure in a few years you will know where and what to buy (if at all) towards your house property. Also Location is again critical towards budget and type of housing to consider.

3. Financial freedom/independence
This is probably more important than we realize. With time if we accumulate debt through loans, and expenses, this is one goal which takes a back seat.
Assuming you have worked on the above 2 goals and finalized your options/approach for them, I would strongly recommend you plan your monthly expenses and cash in/outflows to understand what amount you have in hand that can be considered towards savings for the future.
With a long road ahead in your work life (another 20+ years), Asset allocation needs to be considered when planning to deploy your savings. Equity based investment can provide health returns for investments that are for more than 7 years and a well diversified Mutual Fund portfolio can achieve this. For requirements within 5-7 years do consider debt products to park your money and earn modest returns giving priority to liquidity and safety.

Few very important points are not mentioned but I would like to highlight and you should start considering them immediately.

1. Life Insurance - Buy a Term Life plan for yourself and once your wife starts earning, for her too. The amount needs to be calculated and my final recommendation (last para below) will cover this. Start with INR 50 lakhs and keep adding based on the Financial plan.

2. Health Insurance - Buy a good coverage for Family (even though you may have some with your employer). Recommend to go upto 1 Crore (and there are multiple options Base cover + Top-up covers for this).

3. Emergency Funds - Keep aside at least 6-9 months of expenses as emergency funds in a safe and liquid investment e.g. Fixed Deposits.

4. Your child's education - Within another 1.5 years schooling (pre-primary) will start and the education expenses are not as easily managed now. They will require a plan as they escalate very quickly as the child moves towards higher levels of education. Education inflation is in the range of 12% ~ 15% on average. So depending on what your decide for the school/education institute, this becomes a considerable amount and if unplanned may erode your corpus very quickly.

5. Though you have mentioned Retirement briefly, the PPF-equivalent amount will not be sufficient for retirement. Retirement typically at 60 years of age demands a corpus to cover the next 20-25 years of lifespan. Considering inflation may be just getting covered by the modest returns on your INR 70 lakhs fund, you are definitely short on the retirement side.

As you can see we have not considered the inherited property in this discussion, it can have a considerable impact towards your over financial plan.

Though I have provided some responses to your individual queries, this will still need a more comprehensive Financial Planning.
Hence I strongly recommend you approach a Certified Financial Planner and go through the process to arrive at a Financial plan which will be in sync with your Life plan. A CFP will take into account all aspects of your personal preferences and guide you towards various options and alternatives you can consider. The comprehensive Financial plan will include/cover all aspects of Investment management, Risk management (life and health Insurance), Retirement planning and Tax management - a tax efficient approach towards your requirements. Please remember just as Life is ever changing and evolving for each of us, so will your Financial plan require the changes and evolution to stay relevant for you, and this is where a CFP will add the most value when you have a long association. A CFP will plan and re-plan your goals and its requirements over the years and provide options and recommend the amounts and product categories to consider for each of them.

Best wishes for you to settle down and hope the above has provided a start towards it.

Thanks & Regards
Janak Patel
Certified Financial Planner.