44-Year-Old With Two Kids Needs Retirement Plan - Is My Current Strategy Enough?

Ans: To create a corpus of 5 to 6 crs in 20 years you would be required to invest Rs 50000 per month for 20 years

Schemes that may be considered are as under in equal proportion;

-  Samco Flexi Cap Fund - Growth

- Axis Esg Equity Fund Regular Growth

- Uti Flexi Cap Fund – growth

- Hdfc Index Fund - Sensex Plan -Growth

To beat FD, you may consider Short term debt funds considering rising interest rate scenario are:

- Aditya Birla Sun Life Short Term Fund - Growth

- L&T Short Term Bond Fund - Growth

Ans: You can not reach to your target of 40 crores plus education corpus of 1.5 cr for 2 children as most of your money is getting invested in fixed income type of instruments, since your goal is still 17 years away you can convert theses fixed income in mutual funds.

Ans: Your fund selection is good

Ans: You are in a strong financial position at 48 years old. With a stable monthly income of Rs 70,000 and expenses of Rs 30,000, you are saving Rs 40,000 each month. Additionally, you have Rs 50 lakh term insurance, which is a good safety net for your family. Your investment in mutual funds is already substantial with Rs 31 lakh in SIPs, and Rs 26 lakh in PPF, which is great for long-term tax savings and risk-free returns.

You are aiming for a corpus of Rs 1.5 crore in the next 10 years, which is ambitious but achievable. Let’s evaluate your portfolio and savings plan to ensure you stay on track for this goal.

Evaluating Your Current SIP Portfolio
You have a diverse mutual fund portfolio with a mix of small cap, flexi cap, bluechip, midcap, and infrastructure funds. This is good for diversifying risks and gaining from different sectors. Let’s break it down:

Quant Small Cap Fund (Rs 5000): Small cap funds are aggressive and offer high growth potential but come with higher risk. This is a good allocation if you are willing to ride market volatility.

Parag Parikh Flexi Cap Fund (Rs 5000): Flexi cap funds are flexible and invest across large, mid, and small caps. Parag Parikh is a good option for long-term growth.

Canara Robeco Bluechip Fund (Rs 5000): Bluechip funds are stable and invest in large companies with strong fundamentals. This is a safer, more stable part of your portfolio.

PGIM India Midcap Opportunities Fund (Rs 5000): Midcap funds offer a balance of growth and risk. They perform well in a growing market and provide higher returns than large caps.

Invesco India Infrastructure Fund (Rs 5000): Sectoral funds like infrastructure funds are risky, as they rely on the performance of a single sector. While infrastructure is a growing sector, this adds concentrated risk to your portfolio.

Suggestions to Improve Portfolio
You have good diversification, but reduce exposure to sector-specific funds like the Invesco India Infrastructure Fund. You may consider switching to a more broad-based equity fund, like a multi-cap or balanced advantage fund, for a more consistent long-term performance.
Target of Rs 1.5 Crore in 10 Years
Let’s analyze how achievable your Rs 1.5 crore goal is. You are currently investing Rs 25,000 per month in SIPs and have a corpus of Rs 31 lakh in mutual funds.

For your SIPs: Assuming a reasonable return of 10-12% per annum, your monthly SIP of Rs 25,000 could grow to approximately Rs 50-60 lakh over the next 10 years.

For your existing mutual fund corpus of Rs 31 lakh: With a similar 10-12% annual growth, this could grow to approximately Rs 80-85 lakh in 10 years.

This brings your total corpus to around Rs 1.3-1.45 crore, which is quite close to your target of Rs 1.5 crore. You are on the right track, but slight adjustments can help ensure you meet or exceed your goal.

How to Adjust for Your Daughter’s Education
You mentioned needing around Rs 10-15 lakh for your daughter’s education in two years. This is a significant withdrawal and will reduce your overall corpus. Let’s plan for this:

Consider using low-risk debt funds or your PPF account to fund her education. These options are safer than withdrawing from equity mutual funds, which could experience volatility in the short term.

If you do need to withdraw from mutual funds, consider withdrawing from your large-cap or bluechip funds, as they are generally more stable.

After withdrawing Rs 10-15 lakh, you can replenish your SIPs to make up for the withdrawn amount. Increasing your SIP contributions by Rs 5000-10,000 per month after your daughter’s education will help bridge the gap and keep you on track for Rs 1.5 crore.

ELSS vs. PPF for Tax Savings
For tax-saving purposes, you are considering either ELSS or PPF. Both have their pros and cons:

ELSS (Equity Linked Savings Scheme): ELSS funds have the shortest lock-in period of three years among tax-saving instruments. They offer market-linked returns, which tend to be higher than PPF over the long term. You can expect returns in the range of 10-12% from ELSS.

Advantages:

Short lock-in period (3 years).
Higher returns than traditional tax-saving instruments.
Disadvantages:

Subject to market risk.
Taxed under long-term capital gains (LTCG) beyond Rs 1 lakh per year.
PPF (Public Provident Fund): PPF offers a fixed return and is backed by the government. It is a safer option, with a lock-in period of 15 years but allows partial withdrawals after 7 years. PPF is a good option if you want guaranteed, risk-free returns.

Advantages:

Guaranteed returns (7-8% currently).
Tax-free interest.
Good for risk-averse investors.
Disadvantages:

Longer lock-in period.
Lower returns compared to equity-based investments.
Recommendation for Tax Savings
Given your current exposure to equity mutual funds, it would be wise to add some allocation to ELSS. You already have Rs 26 lakh in PPF, which provides safety. A mix of PPF for guaranteed returns and ELSS for higher growth would create a balanced approach.

Strategy for Wealth Creation
To reach your target of Rs 1.5 crore, consider these steps:

Increase SIPs Gradually: After your daughter’s education, aim to increase your SIPs by Rs 5000-10,000 per month. This will help boost your corpus to Rs 1.5 crore or more.

Diversify into Balanced Funds: Add a balanced advantage fund or hybrid fund for stability and moderate growth. These funds reduce risk and still offer reasonable returns.

Continue PPF Contributions: Continue contributing to PPF for risk-free, tax-free returns. This will complement your equity portfolio.

Final Insights
You are well on your way to reaching your goal of Rs 1.5 crore. Your current investments are on the right track, but small adjustments like reducing exposure to sector funds, increasing SIP contributions after your daughter’s education, and balancing tax-saving investments between ELSS and PPF can further optimize your strategy.

Stay committed to your SIPs, and regularly review your portfolio with a certified financial planner to ensure you remain on course.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: First of all, it’s truly admirable that you are planning for your son’s financial security well in advance. Your goals of building a sizeable corpus for your son, without him having to worry about his future, are heartfelt and achievable with proper planning.

Your combined salary of Rs. 2.4 lakh per month and monthly expenses of Rs. 1 lakh give you a comfortable margin for savings. The fact that you are focused on using your Rs. 60 lakh life savings for your son’s future and keeping the agricultural land for your retirement shows that you are clear about your objectives.

However, there are a few things to reassess in your current plan, particularly regarding your fund selection and the potential risks involved.

Reassessing Index Fund Investments
While it may seem that investing in index funds like the ICICI Prudential Nifty 50 Index Fund Direct Growth can give you exposure to the top companies in the country, this approach has certain limitations.

Disadvantages of Index Funds:

Lack of Flexibility: Index funds are passively managed and follow the market index. They cannot adapt quickly during market downturns. So, when markets fall, the fund's value can drop significantly.

No Outperformance: Index funds only aim to replicate the market performance. They don’t strive to beat the market, which can limit the potential for higher returns over time, especially over a long horizon of 25 years. In contrast, actively managed funds can outperform during bullish markets and provide better returns.

No Cushion in Bear Markets: Actively managed funds can cushion market falls by allocating resources into safer stocks or sectors when the market sentiment turns negative. Index funds, on the other hand, have to follow the index, regardless of the market situation.

Assessing Direct Funds
Direct plans of mutual funds usually have lower expense ratios than regular plans, which can translate to slightly better returns. However, there are some disadvantages, especially for long-term and large goals like the one you have for your son.

Disadvantages of Direct Funds:

No Professional Guidance: Direct plans leave you on your own to decide where and how much to invest. While this may seem cost-effective, over 25 years, professional guidance from a Certified Financial Planner (CFP) can be invaluable, especially in dealing with changing market conditions or rebalancing your portfolio.

Difficulties in Managing Portfolio: With multiple direct funds, it can become overwhelming to manage and track the performance of each one. A Certified Financial Planner can help you rebalance your portfolio periodically, ensure proper diversification, and adjust investments based on life changes or market conditions.

Potential to Miss Out on Opportunities: A qualified financial planner can identify growth opportunities, new funds, or even better-performing funds, which may be missed when managing investments independently.

Active Funds as a Preferred Choice
To build a big corpus over a long period of 25 years, actively managed mutual funds tend to perform better than index funds due to the expertise of fund managers in stock selection and timing the market cycles. Here’s why:

Better Returns Potential: Active funds, especially those with a strong track record, aim to outperform the market. Over a long period, this outperformance can result in significantly larger corpus compared to index funds.

Flexibility in Stock Selection: Fund managers can pick and choose stocks that are expected to outperform based on market conditions, industry trends, or specific company performance, which is crucial for long-term wealth creation.

Tactical Rebalancing: Active funds adjust their allocations depending on market cycles and economic changes, which can reduce downside risk and enhance returns.

Evaluating Your Fund Selection
Let’s now evaluate the current funds you’ve chosen for your son’s corpus and retirement goals.

1. Parag Parikh Flexi Cap Fund
Suitability: This fund provides exposure to both domestic and international markets, giving you good diversification. It’s an actively managed fund, and flexi-cap funds can adjust between large, mid, and small-cap stocks based on market conditions.

Risk & Return: The fund can offer strong returns over the long term but has higher volatility than pure large-cap funds. Given your 25-year horizon, this volatility can be managed.

2. Nippon India Small Cap Fund
Suitability: Small-cap funds have the potential for high growth but are also very volatile. Over a 25-year period, these funds can generate strong returns, but they come with the risk of significant fluctuations in the short term.

Risk & Return: Small-cap funds are best suited for aggressive investors with a long-term horizon, like you. However, consider limiting the allocation to small-cap funds due to their high-risk nature.

3. ICICI Value Discovery Fund
Suitability: This fund follows a value-investing approach, which aims to pick undervalued stocks with strong long-term growth potential. This can be a good complement to your portfolio.

Risk & Return: It’s a well-diversified fund that balances risk and reward, and can be part of your portfolio for stable, long-term growth.

4. Quant Midcap Fund
Suitability: Mid-cap funds strike a balance between risk and return. They have more growth potential than large-caps but are less risky than small-caps.

Risk & Return: Over 25 years, mid-cap funds can be a strong contributor to wealth creation. However, like small-cap funds, they are subject to short-term volatility.

Suggested Portfolio Strategy
Given your plan to secure your son’s financial future, you need a well-diversified portfolio that balances growth and risk. Here’s a more balanced approach to your investment strategy:

Recommended Portfolio:

Large-Cap and Flexi-Cap Funds (40%): These funds will provide stability and steady returns over the long term. While large-cap funds focus on blue-chip stocks, flexi-cap funds provide flexibility across all market capitalizations.

Mid-Cap Funds (30%): These funds are ideal for long-term growth and will help boost the overall corpus. However, keep the allocation to a moderate level to balance the risk.

Small-Cap Funds (20%): Small-cap funds can offer explosive growth potential over 25 years but are risky in the short term. Keep this allocation limited to avoid exposing the entire corpus to high risk.

Balanced or Hybrid Funds (10%): To add some stability to your portfolio, consider adding balanced funds that invest in both equity and debt. This will help protect against extreme volatility while providing moderate growth.

SIPs for Long-Term Growth
Since you are also planning to continue with Systematic Investment Plans (SIPs) for the next 25 years, you are on the right track. SIPs will help in averaging the purchase price of units and reduce the risk of investing lump sums at market peaks.

Benefits of SIP:

Rupee Cost Averaging: SIPs ensure you are investing across market cycles, averaging out the purchase price over time.

Disciplined Investment: Regular investments over 25 years will help you accumulate a significant corpus without the emotional burden of market timing.

Retirement Planning for You and Your Wife
Although your focus is currently on securing your son’s financial future, it’s also essential to review your retirement planning. While you have an agricultural land worth Rs. 1 crore, relying entirely on it for retirement could be risky due to market and valuation changes in the future.

Consider diversifying your retirement savings into liquid assets like mutual funds and other safer instruments. A combination of equity and debt mutual funds for retirement can provide stability and growth over time.

Final Insights
You have taken excellent steps toward ensuring financial security for your disabled son. Your decision to invest a significant amount for long-term growth is well thought out. However, it’s crucial to reassess the reliance on index and direct funds and opt for actively managed funds through a certified financial planner. By diversifying your portfolio with a mix of large-cap, mid-cap, and small-cap funds, you can strike a balance between risk and return.

Additionally, continuing SIPs for 25 years is a sound strategy for long-term wealth accumulation. Keep your focus on disciplined investing, and consider adding some hybrid or balanced funds to manage volatility.

Lastly, review your retirement planning and ensure you have adequate liquid assets aside from the agricultural land. This will give you peace of mind, knowing that both your son's future and your retirement are secure.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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