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I am 39 male. I have a current corpus as follows. MF 15L, PF 23L, PPF 5L, company share 7L, NPS 8 lakhs (10k per month), 60L stock trading earning 2% per month, loan outstanding 15L, earning 3L per month and adding 50k per month into trading capital.
I have a home of 1 crore and one kid . I continue 36k per month MF SIP, 28k per month MF, 40kvhome loan emi.
After 7 years all these will accumulate to these numbers
PF 75 lkhs
Company share 40lakgs
MF 80 lakhs
EL & gratuity 15 lakhs
LIC 35 lakhs
I want to retire at 45 and wishing and confident to accumulate 7 crores in total. These are my plans for retirement.
1. Planning to do a MF SWP for 60k per month or 5% per anum from a corpus of 1.5 Cr. Will that 1.5 crore grow and last beating inflation till the rest of my life?
2. I wish to put these amounts in MF .50lakhs for emergency fund, 50lakhs kids education and marriage.
3. Will keep on trading with the remaining 4-5 crores cautiously till I attain 60 years of age.
Is there any suggestions on asset allocation, or any other way of putting funds now and after retirement?
Ans: Planning for retirement is a significant financial decision, especially when aiming to retire early. You have a clear vision for your financial future, and your detailed plan shows that you have given it a lot of thought. Let's evaluate your current situation and future plans, and provide suggestions to help you achieve your retirement goals by age 45.
Current Financial Snapshot
You have a diverse portfolio with various investments. Your assets and monthly contributions are:
Mutual Funds: Rs 15 lakhs
Provident Fund (PF): Rs 23 lakhs
Public Provident Fund (PPF): Rs 5 lakhs
Company Shares: Rs 7 lakhs
National Pension System (NPS): Rs 8 lakhs (contributing Rs 10,000 monthly)
Stock Trading: Rs 60 lakhs, earning 2% monthly
Loan Outstanding: Rs 15 lakhs
Monthly Earnings: Rs 3 lakhs
Monthly SIP in Mutual Funds: Rs 36,000
Additional Monthly Mutual Fund Investment: Rs 28,000
Monthly Home Loan EMI: Rs 40,000
Your home is valued at Rs 1 crore, and you have one child.
Future Projections
In seven years, you expect your investments to grow as follows:
PF: Rs 75 lakhs
Company Shares: Rs 40 lakhs
Mutual Funds: Rs 80 lakhs
Employee Provident Fund (EPF) and Gratuity: Rs 15 lakhs
LIC: Rs 35 lakhs
You aim to accumulate a total corpus of Rs 7 crores by the age of 45.
Retirement Income Strategy
You plan to implement a Mutual Fund Systematic Withdrawal Plan (SWP) for Rs 60,000 per month or 5% per annum from a corpus of Rs 1.5 crores.
Assessing the SWP Plan
Using a SWP for a steady income is a popular strategy. However, the sustainability of this plan depends on the growth of your corpus and inflation.
Growth and Longevity: If your mutual fund investments grow at a rate higher than your withdrawal rate (5%), your corpus can sustain and even grow over time. However, this requires choosing actively managed funds with a good track record of beating inflation and market returns.
Inflation Impact: Over the years, inflation can erode the purchasing power of your withdrawals. Ensure your investments are in funds that consistently outperform inflation.
Asset Allocation for Safety and Growth
Diversifying your investments is crucial to managing risk and ensuring growth. Let's assess your proposed allocations:
Emergency Fund (Rs 50 lakhs): Having a substantial emergency fund is wise. Ensure this is kept in a highly liquid, low-risk investment, such as a money market fund or a high-interest savings account.
Child’s Education and Marriage (Rs 50 lakhs): Investing this amount in mutual funds for long-term goals is prudent. Consider equity-oriented funds with a history of good performance.
Trading Strategy
Continuing with stock trading cautiously till 60 years of age can be lucrative. However, trading involves significant risk.
Risk Management: Ensure you have a robust risk management strategy. Never risk more than you can afford to lose, and maintain a diversified trading portfolio.
Consistent Earnings: Achieving a consistent 2% monthly return is ambitious. Regularly review and adjust your trading strategies based on market conditions.
Recommendations for Asset Allocation
Diversify Investments: Diversify between equity, debt, and hybrid funds to balance risk and return.
Regular Review: Regularly review and adjust your portfolio to align with market conditions and life changes.
Professional Guidance: Consider periodic consultations with a Certified Financial Planner to ensure your strategy remains sound and aligned with your goals.
Conclusion
Your detailed planning and disciplined approach are commendable. With a focus on maintaining diversified investments and managing risks, you are well-positioned to achieve your retirement goals. Your proactive planning for an emergency fund and child’s education ensures financial security for unforeseen events and important milestones.
Final Thoughts
Stay Informed: Keep abreast of market trends and economic changes.
Be Flexible: Be ready to adjust your strategies as needed.
Prioritize Security: Ensure your investments align with your risk tolerance and long-term goals.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in