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Can I reach my 1.5 crore retirement goal with my 70k monthly income?

Ramalingam Kalirajan |7101 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Sep 26, 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

Question by Milind on Sep 26, 2024Hindi

I am 48 year old having monthly income 70k. My montly expenses is about 30k. I have 50L term insurance and following SIP 1. Quant small cap fund - 5000/- 2. Parag parik flexi cap find - 5000/- 3. CR bluechip fund -5000/ 4. PGIM India midcap oppotunities fund - 5000/- 5. Invesco India infrastructure fund - 5000/- whether this fund is good for wealth creation of 1.5 Cr in next 10 years I have one daughter and my daughter is in 11 th now. for study some corpus will be used in mutual fund. I am expecting about 10-15 L after 2 years currently i have 31 L corpus in mutual fund and 26 L in PPF. Whether i go for ELSS fund or PPF for tax rebate? Also suggest if any changes in saving or mutual fund to raise the corpus of about 1.5CR after retirement life.

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

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