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Am I on the right track to leave 20Cr for my children in 15 years?

Ramalingam Kalirajan |10881 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 14, 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 jasbir on Aug 13, 2024Hindi

Dear Sir, I aman Army Veteran of 64 years snd wife aged 61. I have a monthly pension of Rs 1,8lakh pm. I have following investments. FDs 1.2 Cr @ 8pc SCSS 30 lakh @7.8pc Gold ETF 6 lakh PPF Rs 22 lakh. Rs12500 pm. Maturing in Mar 28. Equity Rs 1.5 cr. Investment through self study. MF HDFC multy cap Rs 29 lakh. Monthly contribution Rs 10K. MIRAE ASSETS Emerging Blue Chip Rs 23 Lakh. Monthly contribution Rs 12500 pm ICICI Pru bluechip Pru blue chip Rs 33 lakh. Monthly contribution Rs 50K Bandhan Multi Cap Rs 23 lakh. Monthly contribution Rs 15K. Frankin Temp Rs 1.2 lakh. No monthly contribution All MF direct schemes. I have a house to live. Choldren Son 34 married and settled. Daughter 28. Working good package. Responsibilty. Only daughter marriage House Hold expenditure Rs 50K. Covere for medical by ECHS. I have only one goal to leave a corpus of Rs20Cr or more for my children in the next 15 years. Please advise any changes in the investment. Thank you Jasbir Singh

Ans: Dear Mr. Jasbir Singh,

First, I must commend you for your disciplined approach to financial planning and your desire to secure a substantial corpus for your children. At 64 years old, with a stable pension of Rs. 1.8 lakh per month and various well-placed investments, you are in a strong financial position. Your investments are diversified across fixed deposits (FDs), Senior Citizens' Savings Scheme (SCSS), gold ETFs, Public Provident Fund (PPF), equities, and mutual funds.

Your primary goal is to leave a corpus of Rs. 20 crore or more for your children in the next 15 years. With your current financial standing, you have laid a solid foundation to achieve this.

Evaluating Your Existing Portfolio
1. Fixed Deposits (FDs)

You have Rs. 1.2 crore in FDs earning 8% interest. This provides stable, risk-free returns and liquidity, which is essential for your age. However, FDs generally offer lower returns compared to other investment options. Given your long-term horizon, consider the opportunity cost of keeping a large portion of your portfolio in FDs.
2. Senior Citizens’ Savings Scheme (SCSS)

SCSS is a safe investment with a reasonable interest rate of 7.8%, offering quarterly interest payouts. This is a good option for generating regular income, especially given the tax benefits. Keep this investment as it aligns with your risk profile and cash flow needs.
3. Gold ETFs

You have Rs. 6 lakh in gold ETFs, which provide a hedge against inflation and economic uncertainties. This is a good long-term investment, but the returns are generally moderate. Since your portfolio is diversified, maintaining this small allocation to gold is beneficial.
4. Public Provident Fund (PPF)

Your PPF investment of Rs. 22 lakh, with a monthly contribution of Rs. 12,500, will mature in March 2028. PPF is a safe and tax-efficient investment, and you should continue it as part of your retirement planning. Given the current interest rates, PPF offers attractive long-term returns.
5. Equities

You have Rs. 1.5 crore in equities, which you manage through self-study. Equities are vital for long-term growth, and your involvement shows that you are well-versed in market dynamics. However, regular portfolio review and rebalancing are crucial to mitigate risks.
6. Mutual Funds

Your mutual fund portfolio is diversified across different funds, with a significant investment in large-cap and multi-cap funds. The monthly SIP contributions demonstrate a disciplined investment approach.
Suggested Adjustments to Achieve Your Goal
1. Rebalance Your Portfolio

Increase Equity Exposure: Considering your long-term goal of Rs. 20 crore, increasing your equity exposure could enhance your portfolio’s growth potential. You might consider reallocating some funds from FDs to equities or equity mutual funds, as they typically offer higher returns over the long term.

Diversify Equity Investments: While you have a strong base in large-cap and multi-cap funds, consider adding mid-cap and small-cap funds for potentially higher returns, though they come with increased risk.

Monitor and Rebalance Regularly: Review your portfolio at least annually to ensure it remains aligned with your goals. Adjust your asset allocation based on market conditions and your risk tolerance.

2. Optimize Your Tax Efficiency

Maximize Tax Benefits: Continue maximizing tax-saving opportunities through your PPF and SCSS investments. Consider tax-efficient mutual funds under the long-term capital gains tax regime, especially for equity investments held for over a year.

Minimize Tax Liabilities: Given your high pension, you might be in a higher tax bracket. Efficient tax planning, including timing the sale of investments to optimize tax impact, is crucial.

3. Estate Planning and Wealth Transfer

Create a Will: Ensure you have a clear and legally sound will in place to avoid any legal complications for your heirs. Specify how your assets should be distributed among your children.

Trust Planning: Consider setting up a trust if you want to manage the distribution of your wealth after your demise. This can provide more control over how and when your children receive the inheritance.

Nomination and Documentation: Ensure that all your investments have proper nominations. Keep your financial documents and information organized and accessible to your family.

4. Increase SIP Contributions

Gradually Increase SIPs: As your pension and existing investments provide stability, consider gradually increasing your SIP contributions. This will help you take advantage of the power of compounding over the next 15 years.

Focus on Growth-Oriented Funds: Since you are aiming for a Rs. 20 crore corpus, growth-oriented mutual funds with a good track record should be your focus. Regularly review the performance of your current SIPs and adjust if necessary.

5. Review Your Risk Tolerance

Risk Assessment: As you age, your risk tolerance may decrease. Periodically assess your risk tolerance and adjust your equity exposure accordingly. A balanced approach that considers both growth and preservation of capital is essential.

Health Coverage: Although you are covered by ECHS, consider having additional health insurance to cover any unexpected medical expenses not covered under ECHS. This will protect your corpus from being depleted due to medical emergencies.

Final Insights
You are in a commendable financial position with a clear vision for your family's future. By making strategic adjustments to your portfolio, optimizing tax efficiency, and ensuring proper estate planning, you are well on your way to achieving your goal of leaving a substantial corpus for your children.

Keep in mind the importance of regular portfolio reviews and adjustments. The financial landscape can change, and staying informed will help you navigate your investment journey successfully.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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