Hi Im 29years old, and I have baby who is 1.4y old. My monthly in hand salary is 70k post deductions. Ive personal loan EMI Which is around 16.5k per month and this will be completed by next year April. And Im doing SIP of 6k per month started since starting of this year. Also every month Im paying SSY of 2k for my daughter. Currently I do not have separate savings other than above mentioned, so To have emergency fund Ive started RD(To have atleast 2 lakh) of 10k every month doing it for last 4 months.
Im staying in rented house which is around 11k per month. I would like to build a corpus of 2CR by the time my daughter reaches 18. How would I achieve that considering above mentioned.
Thanks in advance.
Ans: Your monthly in-hand salary is Rs 70,000.
You have a personal loan EMI of Rs 16,500, which will be completed by next April.
You are currently doing a SIP of Rs 6,000 per month.
You are paying Rs 2,000 every month towards the Sukanya Samriddhi Yojana (SSY) for your daughter.
You have started an RD of Rs 10,000 per month to build an emergency fund of Rs 2 lakh.
You are staying in a rented house with a monthly rent of Rs 11,000.
These commitments reflect your efforts to balance immediate obligations and long-term goals.
Establishing an Emergency Fund
An emergency fund is critical.
You’ve already started an RD to build an emergency fund of Rs 2 lakh. This is a good move. Continue this RD until you reach your target of Rs 2 lakh.
Ideally, an emergency fund should cover 6 to 12 months of your expenses.
Once you achieve this target, you can divert the RD amount into investments that align with your long-term goals.
Debt Management and Savings Allocation
Your personal loan will be cleared by next April.
This will free up Rs 16,500 per month.
After clearing the loan, it’s essential to allocate this freed-up amount effectively.
You can redirect this amount into SIPs and other investment options to meet your long-term goals.
By doing this, you’ll be optimizing your cash flow without stretching your finances too thin.
Investing for Your Daughter’s Future
Your goal is to build a corpus of Rs 2 crore by the time your daughter turns 18.
To achieve this, you need to invest systematically and consistently.
Given your current SIP of Rs 6,000 per month, let’s assess how you can expand this over time.
Enhancing Your SIP Strategy
Once your personal loan is cleared, you can increase your SIP contributions.
Allocating the entire Rs 16,500 towards SIPs can significantly boost your investment corpus over time.
Here’s how you can structure your investments:
Increase SIP Contributions: Gradually increase your SIP amount as your financial situation improves. By next year, you can raise your SIP contribution from Rs 6,000 to Rs 22,500 (adding the loan EMI amount).
Diversify Investments: Consider investing in a mix of large-cap, mid-cap, and small-cap mutual funds. These funds offer growth potential and can help you achieve your long-term goals. Avoid direct funds and index funds. Actively managed funds through an MFD with a CFP credential are better. They provide professional management and expertise.
Review Annually: Regularly review your SIPs and adjust them according to your financial growth and goals. If possible, increase your SIP amount by 10-15% each year to account for inflation and enhance returns.
Sukanya Samriddhi Yojana (SSY) Contribution
You are currently contributing Rs 2,000 per month to the SSY for your daughter.
This is a great initiative.
The SSY offers a higher interest rate and tax benefits under Section 80C.
Continue contributing to this scheme as it will form a secure part of your daughter’s future corpus.
Building the Rs 2 Crore Corpus
To achieve your goal of Rs 2 crore by the time your daughter reaches 18, you’ll need to adopt a disciplined investment approach.
Here’s how you can proceed:
Step 1: Increase SIP Contributions: After April, increase your SIP to Rs 22,500 per month (including the loan EMI amount). Over time, this increased contribution will compound significantly.
Step 2: Diversify Portfolio: Invest in a mix of growth-oriented mutual funds. This includes large-cap, mid-cap, and small-cap funds. These funds can provide the necessary growth to reach your Rs 2 crore target.
Step 3: Annual Top-Up: Increase your SIP amount annually by 10-15% to stay ahead of inflation and boost returns. For example, increasing your SIP by Rs 2,000 every year can make a huge difference.
Step 4: Monitor and Adjust: Regularly review your investments. Rebalance your portfolio as needed. You might need to shift to more conservative options as you get closer to your goal.
Addressing the Rent vs. Buy Dilemma
Currently, you are staying in a rented house with a monthly rent of Rs 11,000.
You might be wondering whether to buy a house or continue renting.
Let’s look at the key points:
Renting vs. Buying: Renting gives you flexibility and doesn’t lock you into a long-term financial commitment. Buying a house involves a huge upfront cost, including the down payment and home loan EMI.
Interest vs. Investment: If you were to buy a house, the EMI you pay could be similar to what you could invest. Over time, SIP investments could potentially grow more than the appreciation in property value.
Liquidity Considerations: Investments in mutual funds are liquid and can be accessed in times of need. Real estate is not as liquid and may take time to sell if you need funds.
Given your current situation and goals, it may be more prudent to continue renting and invest your surplus funds in SIPs to achieve your Rs 2 crore target.
Saving for Down Payment While Investing
If you decide to buy a house in the future, you’ll need to save for the down payment. Here’s how you can approach this:
Separate Savings: Create a separate savings plan for your down payment. This can be done through a recurring deposit (RD) or a short-term debt mutual fund.
Balance Investments: Continue your SIPs while saving for the down payment. You can split your surplus funds between SIPs and your down payment savings.
Goal Alignment: Ensure that your investment and down payment goals are aligned with your overall financial plan. This will help you avoid stretching your finances too thin.
Final Insights
You are on the right path with your current investments and financial planning.
By increasing your SIP contributions and maintaining a disciplined approach, you can achieve your goal of Rs 2 crore by the time your daughter turns 18.
Remember, staying invested in mutual funds over the long term can yield significant returns, potentially surpassing the appreciation of real estate.
Real estate should not be your primary investment goal. It locks up capital and doesn’t offer the flexibility or growth potential of mutual funds.
Continue your SIPs, increase contributions over time, and regularly review your investments to ensure they align with your goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in