64-Year-Old With A Rich Portfolio: How Do I Earn Tax-Friendly Monthly Income?

Ans: Hello;

General Comments:
People always delay retirement planning for later stage but this is not ok.

Because when you are young the investible surplus amount maybe less but you have the biggest resource, time on your side.

A mere 25K monthly sip can achieve 3 Cr in 20+ years

Query Specific Comments:
If you need this corpus in 5 years then you need to make a monthly sip of 3.55 Lacs Minimum to reach 3 Cr corpus in 5 yrs.(modest return of 13% considered).

Focus on improving your earning because then you can earmark larger amounts for investing towards your goals.

Also try to prepay the home loan as early as possible through EPF corpus or some asset sale.

Do not panic if you diligently pre-close the home loan you have ample time to invest and create a comfortable corpus for your goals.

Continue investing in MFs with increasing allocation, PPF to reach your goals.

Happy Investing!!

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

Ans: Hello;

First and foremost buy a good term life cover including riders for critical care and accident benefit.

Ensure that you can top-up the sum assured later when you grow your responsibilities after marriage.

For retirement planning you should consider investing in NPS. If your office provides it well and good but otherwise also you can open NPS account and contribute regularly for financing your retirement. It's an E-E-E type of scheme. Charges are quite low and you can decide to select allocation to the asset classes like equity, corporate debt or sovereign bonds as per your risk tolerance. It allows limited withdrawal before 60.

If you decide to contribute to NPS per month an amount of 20 K, it will grow into a corpus of 6.51 Cr by the time you are 60 years of age.(A modest return of 9% is considered)

For all other goals such as marriage, house, kid's education, car, vacation you can use mutual funds as your mode of investments.

If you do a monthly sip of say 15 K into a pure equity mutual fund then at the end of 5 years you may expect to receive a corpus of 12.72 L considering moderate return of 13%.

Happy Investing!!

You may follow us on X at @mars_invest for updates.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

Ans: PPF scheme tenure is 15 years. After completing 15 years you have the option to renew for a block of 5 years or close and withdraw the entire sum.

Post office or bank both offer same PPF scheme. Their is NO difference. It is your choice. If you have a savings account with the bank then bank maybe convenient for contributions and withdrawals.

Ans: EPS contribution stops at 58. You may delay pension for two years with or without contribution.

Thereafter(60 years) your EPS pension will start.

EPF you can keep on contributing till the time you want.

Ans: Hello Anonymous,
Immunity can be improved in many ways. Listing a few-
1) Doing regular yoga and especially some form of breathwork for 15 minutes can help a lot.
2) Having some vitamin supplements like for Vit D3, B12 etc but this please take guidance of your Dr and then start
3) A healthy diet consisting of fruits, nuts, seeds, salads, soups, green leafy vegetables, fresh juices made of amla, ash gourd etc can help
4) Meditation plays a huge role in reducing stress and hence increasing immunity
5) Having a good deep sleep
6) Regular exercises like walks, cardio can help you stay fit.
All the best!

Ans: Hello Naval,
Have you done all your blood tests recently? Since how long is this happening?
Please go to your gp or a neurologist.

Ans: Hello Anonymous,
You need to give me more information to be able to help you.
Like what is your blood work like? Are you having any vitamin deficiencies? Are you having too much mental stress? Are you having sleep apnea? Why are you not able to sleep?
Are you exercising especially doing yoga and meditation?
Are you eating a healthy diet?
Which Drs have you visited for this issue?

Ans: Hello Anonymous,
In your reports are your D3 and B12 levels ok?
Are you taking any vitamin or magnesium supplements?
Are you doing any kind of exercises especially a cardio workout?
Yes, after 40 the body does undergo changes and fatigue too hence post 40 it becomes even more crucial to take more care of our body. Usually some form of pranayama/breathwork helps a lot to reduce fatigue. Please learn some simple pranayamas' from a good yoga teacher and once you come home do them for 15 minutes and take a shower. Both can help in reducing fatigue and energizing you.
All the best!

Ans: You are 39 years old, married, and the sole breadwinner. Your monthly salary is Rs 1.2 lakh, and you have been investing in mutual funds since 2020. Your investments include a combination of tax-saving mutual funds, small-cap funds, and a sector-specific fund. You have also parked Rs 20 lakh in debt funds and fixed deposits for buying a flat within a year. Additionally, you have Rs 10 lakh in your Provident Fund (PF) and Rs 5 lakh in gratuity.

You have set a goal to accumulate Rs 2 crore by the age of 50. This is an achievable goal, but it will require some adjustments and strategic planning to optimise your savings and investments.

You are also setting aside Rs 15,000 each month towards an emergency fund and savings, while reinvesting some of your bonus into mutual funds. Let's go step-by-step to achieve your goal while ensuring financial security along the way.

Current Investment Strategy
Your investment portfolio includes:

Three tax-saving mutual funds
Small-cap mutual funds
A sector-specific fund
Rs 20 lakh parked in debt funds and fixed deposits for a future property purchase
Your current investment strategy is diversified across equity and debt instruments. This diversification is good, but there is room for improvement in your equity mutual fund selection and tax efficiency.

Analysis of Current Investments
Equity Mutual Funds
Small-Cap and Sector-Specific Funds: Small-cap funds can provide high returns over time but also carry higher risks. Over-exposure to small-cap funds can make your portfolio volatile, especially as you near your retirement goal. A sector-specific fund, while offering focused growth, can also be risky if the sector underperforms.

Tax-Saving Funds: While tax-saving mutual funds (ELSS) provide tax benefits, there may be an overlap in the holdings of your ELSS funds. Additionally, ELSS funds have a 3-year lock-in period, which reduces liquidity.

Debt Funds and FDs
You have wisely parked Rs 20 lakh in debt funds and fixed deposits, which ensures stability and liquidity for your property purchase. However, investing large amounts in fixed deposits may not be the most tax-efficient strategy in the long run due to the high tax on interest income.

Suggestions for Achieving Your Rs 2 Crore Goal
To accumulate Rs 2 crore by the age of 50, you need a more optimised approach. Here are the steps:

1. Review and Adjust Your Equity Allocation
Increase Mid-Cap and Flexi-Cap Exposure: As you are still 11 years away from your goal, consider shifting a portion of your investments from small-cap and sector-specific funds to more balanced options like mid-cap and flexi-cap funds. These funds offer a balance between risk and return, providing more stability than small-cap funds while still offering high growth potential.

Reduce Sector-Specific Fund Exposure: Sector funds can be volatile. Consider reallocating your investment in this fund to more diversified equity funds like flexi-cap or large-cap funds. These funds are less volatile and provide more stable returns over time.

2. Reassess Your Tax-Saving Funds
Optimise ELSS Investments: You already have multiple ELSS funds, which may result in overlapping holdings and lower diversification. You could consolidate your ELSS investments into one or two well-performing funds. This will simplify your portfolio and improve returns while still offering tax benefits.

Consider the Lock-in: Keep in mind the 3-year lock-in period of ELSS funds. If liquidity is a concern, consider reducing your ELSS exposure once you’ve maximised your Section 80C limit.

3. Focus on Regular Funds over Direct Funds
Investing through a certified financial planner (CFP) in regular funds is better than investing in direct funds by yourself. A CFP can provide ongoing advice, portfolio rebalancing, and support during market fluctuations, which is crucial for reaching your Rs 2 crore goal.

4. Build a Strong Emergency Fund
You are already setting aside Rs 15,000 per month towards savings and your emergency fund. Aim to build a fund that covers at least 6 to 12 months' worth of expenses. Given your Rs 50,000 monthly expense, this would mean an emergency fund of Rs 3 lakh to Rs 6 lakh.

Continue to park this money in debt funds or fixed deposits for easy liquidity. This will safeguard you from any unforeseen expenses while ensuring that your long-term investments remain untouched.

5. Bonus Investment Strategy
You are already investing your bonus into mutual funds as a lump sum. This is a good practice, but consider utilising this money strategically:

Top-Up Your Existing SIPs: Rather than investing the entire bonus in one go, you could use it to top up your SIPs in your existing mutual funds. This will average your investment cost and reduce market timing risks.

Boost Equity Allocation: If your risk appetite allows, allocate more of your bonus towards equity mutual funds. This can provide higher returns in the long run, contributing significantly to your Rs 2 crore goal.

6. Step-Up Your SIPs Annually
You have mentioned that you step up your SIPs by 10-15% every year. Continue with this approach, as it aligns well with your growing income and inflation. This will accelerate your wealth accumulation and keep your goal on track.

For instance, a 10-15% increase in SIP amounts every year can make a significant difference to your final corpus. By increasing your SIPs, you will also take advantage of compounding and market growth.

7. Debt Fund Considerations
You have Rs 20 lakh in debt funds and fixed deposits. Once you buy your flat, this money will likely be reduced. However, after the purchase, you should maintain a portion of your savings in debt funds as part of your overall asset allocation.

Debt funds provide stability and reduce risk, which is essential as you approach your retirement goal. A balanced portfolio of equity and debt is necessary for sustainable growth.

8. Retirement Planning
To achieve Rs 2 crore by the time you turn 50, you need a mix of aggressive growth in the early years and risk mitigation in the later years.

Increase Equity Exposure for Now: As you have 11 years until retirement, continue focusing on equity funds for growth. However, once you are within 5 years of your retirement goal, gradually shift a portion of your equity investments to debt funds to protect your capital.

Avoid Real Estate Investments: Since you are planning to buy a flat within a year, avoid additional investments in real estate. Real estate is illiquid and may not provide returns aligned with your retirement timeline.

Maximise Provident Fund Contributions: You already have Rs 10 lakh in your PF, and this will continue growing with your monthly contributions. Provident Fund provides a safe and stable return and should remain a core part of your retirement corpus.

9. Tax Efficiency
As your investments grow, consider tax efficiency:

Tax on Equity Mutual Funds: Long-term capital gains (LTCG) on equity mutual funds above Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%. Be mindful of these taxes when planning withdrawals.

Tax on Debt Funds and FDs: Interest income from fixed deposits is taxed as per your income slab, which is less tax-efficient than equity investments. You can reduce your tax burden by keeping longer-term investments in equity funds and shorter-term savings in debt funds.

Final Insights
With proper planning, accumulating Rs 2 crore by the age of 50 is within your reach. You are already on the right track with a balanced approach to savings and investments. However, minor adjustments in your mutual fund selection, better tax efficiency, and maintaining a strong emergency fund can further optimise your strategy.

Your commitment to stepping up your investments and regularly reviewing your portfolio will help you stay on track. Be consistent with your SIPs and disciplined in maintaining your long-term focus.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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