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How can a 28-year-old earning 18 LPA achieve a 1 Cr target in 10 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

Asked by Anonymous - Jul 23, 2024Hindi

I am in early stage of my career. I am 28 years old. My current salary in 18LPA. currently I have 1.5L in MF. 6.5L in PPF and 1L in NPS. I have taken a 2bhk where I invested most of my savings and current emi is of 30k. I have savings of 2L. I need your help to achieve Target of 1Cr in next 10 years or less. How should I plan my expenses.

Ans: You've done well to think about your financial future at 28. Your current salary and savings show that you’re on the right track. Your goal of Rs. 1 crore in 10 years is ambitious but achievable with the right strategy.

Understanding Your Current Financial Position
Income: You earn Rs. 18 lakhs per annum. This gives you a strong base to build your wealth.

Savings: You have Rs. 1.5 lakhs in mutual funds, Rs. 6.5 lakhs in PPF, and Rs. 1 lakh in NPS. You also have Rs. 2 lakhs in savings. This totals to Rs. 11.5 lakhs.

EMI: Your current EMI for the 2BHK is Rs. 30,000. This is a significant commitment and must be managed carefully.

Evaluating Your Current Investments
Mutual Funds: You’ve started investing in mutual funds. This is a good decision. Actively managed funds can offer better returns than index funds. Professional fund managers can identify and capitalize on market opportunities, helping your money grow faster.

PPF: Your PPF investment is safe and tax-efficient. It’s a long-term commitment, and the returns are guaranteed but may not beat inflation in the long run.

NPS: NPS is a good choice for retirement planning. It offers tax benefits, but the returns are market-linked. However, you should balance it with other investments for more flexibility.

Savings: You have Rs. 2 lakhs in savings. This is a good emergency fund but can be optimized.

Setting Up a Clear Investment Strategy
Focus on Growth Investments: To reach Rs. 1 crore, you need investments that offer higher returns. Actively managed mutual funds should be a key part of your strategy. These funds can outperform the market, especially over the long term.

Avoid Index Funds: Index funds merely track the market. They don’t have the potential to outperform like actively managed funds. The returns are usually average, and you miss out on the expertise of fund managers who can adapt to market changes.

Regular Funds Over Direct Funds: Direct funds have lower costs but require active management by you. Regular funds, managed by professionals, ensure your investments are aligned with your financial goals without you having to track every market movement.

SIP for Consistent Growth: Start a Systematic Investment Plan (SIP) in mutual funds. SIPs help you invest regularly, regardless of market conditions. This reduces risk and helps your money grow steadily over time.

Balancing EMI and Investments
Managing EMI Stress: Your Rs. 30,000 EMI is a significant part of your monthly income. Ensure that it doesn’t affect your ability to invest. Prioritize your EMI payments, but also make sure you’re setting aside money for investments.

Increase Savings: Try to increase your savings by reducing unnecessary expenses. The more you save, the more you can invest.

Avoid Additional Loans: Don’t take on additional loans unless absolutely necessary. Your focus should be on building your corpus, not increasing debt.

Optimizing Your Savings
Emergency Fund: Your Rs. 2 lakhs savings is a good start for an emergency fund. This should cover 3-6 months of expenses. Keep this in a liquid fund or savings account for easy access.

Maximize Tax Benefits: Use Section 80C and other tax-saving options to reduce your tax liability. This frees up more money for investments.

Review and Adjust: Regularly review your savings and expenses. Adjust your budget to ensure you’re saving and investing as much as possible.

Building a Robust Investment Portfolio
Diversify Your Portfolio: Don’t rely on a single type of investment. A mix of equities, debt, and fixed income can balance risk and return.

Equity for Growth: Equities offer the best potential for high returns. Actively managed mutual funds in the equity space should be a large part of your portfolio.

Debt for Stability: Debt funds or fixed-income instruments provide stability. They’re less risky and offer regular income. Use them to balance the volatility of equities.

Avoid Real Estate as an Investment: Real estate is illiquid and requires large capital. It’s better to focus on financial instruments that offer liquidity and regular returns.

Planning for Future Needs
Retirement Planning: Your NPS is a good start for retirement. Consider increasing your contributions as your income grows. Also, explore other retirement-focused mutual funds that offer flexibility.

Health and Life Insurance: Ensure you have adequate health and life insurance. This protects you and your family from financial strain in case of emergencies.

Child Planning: If you plan to have children, factor in the costs of education and upbringing. Start a separate fund for this goal to ensure you’re prepared when the time comes.

Staying Disciplined and Focused
Regular Monitoring: Track your investments regularly. This ensures they’re performing as expected and aligned with your goals.

Avoid Emotional Decisions: Don’t let market fluctuations dictate your investment decisions. Stay focused on your long-term goals.

Seek Professional Advice: Regular consultations with a Certified Financial Planner will help keep your plan on track. They can provide insights and adjustments as needed.

Final Insights
Your goal of Rs. 1 crore in 10 years is achievable with disciplined planning and smart investing. Focus on growth investments, manage your EMI effectively, and regularly review your progress. By diversifying your portfolio and maximizing your savings, you can build a solid financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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