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Retirement corpus goals: How to reach Rs.5 crores by 65 with no MF or SIP experience?

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 25, 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 16, 2024Hindi
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Hi sir... GM Like to plan for corpus of my retirement... Am at 56 now,, like to retire by age 65 No exposure to Mutual finds n Sip as of now No knowledge on mfs at all Like to have atleast 5 cr corpus by 65 I have couple of investments in Real estate Right now my monthly earnings from job is around 1 lakh... Can u suggest n advise as how n what amounts to be invested to have above corpus... Thank u

Ans: You are 56 years old and plan to retire by 65. You aim for a retirement corpus of Rs. 5 crores. Your monthly earnings from your job are Rs. 1 lakh. You have investments in real estate but no exposure to mutual funds or SIPs. Let’s create a strategy to achieve your goal.

Building Your Retirement Corpus
Assessing Your Current Situation
Age: 56 years
Retirement Age: 65 years
Current Monthly Earnings: Rs. 1 lakh
Goal: Rs. 5 crores by 65 years
Creating an Investment Plan
Emergency Fund
Set Aside Funds: Keep an emergency fund for unexpected expenses.
Recommended Amount: At least 6 months of expenses in a savings account or liquid fund.
Purpose: Provides financial stability in case of emergencies.
Systematic Investment Plan (SIP)
Start SIPs: Invest monthly in diversified mutual funds.
Monthly Contribution: Allocate a portion of your monthly income towards SIPs.
Benefit: Helps in disciplined investing and rupee cost averaging.
Diversified Portfolio
Mix of Funds: Invest in a mix of equity and debt funds.
Actively Managed Funds: Choose funds managed by experienced professionals.
Growth Potential: Equities offer higher returns over the long term, while debt funds provide stability.
Lump Sum Investments
Initial Investment: Use part of your savings for a lump sum investment.
Diversification: Split the lump sum across various funds to reduce risk.
Insurance Coverage
Health Insurance
Ensure Adequate Coverage: Have a health insurance policy covering major medical expenses.
Premium Allocation: Budget a portion of your income for health insurance premiums.
Life Insurance
Term Insurance: Secure a term plan to cover your family's financial needs.
Premium Budget: Set aside funds for life insurance premiums.
Regular Review and Adjustment
Quarterly Reviews
Performance Monitoring: Review the performance of your investments quarterly.
Necessary Adjustments: Make changes to stay aligned with your financial goals.
Annual Rebalancing
Portfolio Rebalancing: Adjust the allocation between equity and debt to maintain the desired risk level.
Goal Alignment: Ensure your investments align with your financial objectives.
Avoiding Real Estate Investments
Limited Liquidity
Issue: Real estate investments can be illiquid and hard to convert into cash quickly.
Solution: Focus on more liquid investments like mutual funds and SIPs.
Benefits of Regular Funds through a CFP
Expert Guidance
Tailored Strategies: Get investment strategies customized to your needs.
Continuous Monitoring: Regular assessment and adjustment of your portfolio.
Disadvantages of Index Funds
Lower Flexibility
Lack of Active Management: Index funds are passively managed and may not outperform the market.
Benefit of Active Funds: Actively managed funds have the potential for higher returns due to professional management.
Final Insights
To achieve your retirement goal of Rs. 5 crores by age 65:

Start SIPs: Invest a portion of your monthly income in diversified mutual funds.
Maintain Insurance: Ensure you have adequate health and life insurance.
Review Regularly: Monitor and adjust your investments periodically.
Seek Expert Advice: Consult a Certified Financial Planner for tailored guidance.
By following this strategy, you can build a substantial retirement corpus.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Sanjeev

Sanjeev Govila  | Answer  |Ask -

Financial Planner - Answered on Feb 06, 2024

Asked by Anonymous - Sep 22, 2023Hindi
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Hi sir, I am 32 year old earning 42 LPA. I have 20 lakhs invested in stocks, 17 lakhs in mutual funds, 13 lakhs in PF, 3 lakhs in PPF, 2 lakhs in govt. bonds and 12 lakhs in FD. I want to retire by 45 with monthly pension of 2 lakhs post tax growing 7% annually. What should be my corpus amount and how should I invest per month in above instruments to reach it.
Ans: To achieve your retirement goal of a monthly pension of Rs 2 lakhs post-tax, growing at 7% annually, you'll need to calculate the required corpus. For this, I’m unable to let you know your exact corpus amount since I have no information about your current expenses, risk tolerance, life expectancy and other financial goals.

With assumptions like an 85-year life expectancy and an aggressive risk profile, you might need around Rs 7.75 crore at retirement (age 45). This considers a 7% inflation rate and 13% pre-retirement returns.

Right now, you have Rs 67 lakhs saved, split between equity and debt. However, solely relying on these might only sustain your desired lifestyle till age 60 only. To make sure you have enough until 85, you need to invest an additional monthly investment (SIP) of around Rs 1 Lakh along with your existing investments of Rs. 67 Lakhs. Also, slowly build up an emergency fund equal to 6 months of your expenses.

The response to your query is based on limited information and consulting a financial advisor is highly recommended. He/she can create a personalized plan considering your expenses, risk tolerance, and other goals. There are some free financial calculators (for retirement planning) available on google, you can also refer to the same for the calculation.

..Read more

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 04, 2024

Asked by Anonymous - Aug 23, 2024Hindi
Money
I am 43 years old and want to retire at 53 with a corpus of 10 Cr + 1 cr set aside medical emergency; I have net savings after all expenses per month of 6 lakhs. currently i have SIP of 2 lakhs in diversified equity funds. current house worth 3cr and no loan, term policy of 1.5 cr, no car loans or personal loans. have gold of about 300 gms and I intend to get to 600 gms over next 10 years before i retire. I have a child of 9 years who will be dependent on me so need to leave corpus after my death. current value of MFs and invesments in 50 lakhs. how much do i need to invest over the next 10 years to get to the desired corpus and any other suggestions
Ans: Current Financial Snapshot

Your age: 43 years
Retirement age: 53 years
Desired retirement corpus: Rs 10 crore
Additional medical emergency fund: Rs 1 crore
Net savings per month: Rs 6 lakh
Current SIP investment: Rs 2 lakh in diversified equity funds
House value: Rs 3 crore (no loan)
Term policy: Rs 1.5 crore
Gold: 300 grams (targeting 600 grams before retirement)
Current mutual funds and other investments: Rs 50 lakh
Dependent: 9-year-old child
You have a clear vision for your retirement, and your savings plan is on the right track. Let's evaluate how you can achieve your goals and ensure a comfortable and secure future for your family.

Setting the Right Investment Strategy
Maximising the SIP Investments

Currently, you invest Rs 2 lakh per month in diversified equity funds. This is a strong foundation for wealth accumulation.

Given your target corpus and time horizon, increasing your SIP contribution will be crucial.

You could consider allocating an additional Rs 2 lakh from your monthly savings to SIPs in diversified equity funds.

This step could significantly boost your retirement corpus. Diversified equity funds have the potential to offer high returns over the long term.

By consistently investing Rs 4 lakh per month in diversified equity funds, you increase your chances of reaching your Rs 10 crore target.

Considering the Power of Compounding

Compounding works best when investments are made regularly over a long period.

Your 10-year investment horizon allows you to fully benefit from the compounding effect.

The additional SIPs will not only build your retirement corpus but also create a substantial wealth cushion.

Building a Medical Emergency Fund

The Rs 1 crore medical emergency fund is a wise decision.

It will provide financial security during unforeseen medical crises.

Consider setting aside a portion of your savings in a debt mutual fund or a conservative hybrid fund for this purpose.

Debt funds offer safety and liquidity, which are crucial for emergency funds.

Avoid taking undue risks with this money since it is meant for emergencies.

You might also want to review your health insurance coverage.

Ensure that it is adequate to cover potential medical expenses during and after retirement.

Gold as a Diversification Tool

You currently own 300 grams of gold and plan to reach 600 grams before retirement.

Gold is a good hedge against inflation and market volatility.

However, it's important to balance gold investments with other asset classes.

Gold can provide stability to your portfolio, but it should not dominate it.

Continue your plan to accumulate gold gradually, but ensure that it does not hinder your other investments.

Planning for Your Child’s Future
Educational and Post-Retirement Corpus

Your child, now 9 years old, will likely require significant funds for education in the next few years.

Consider creating a separate investment plan for your child’s higher education.

You could allocate part of your monthly savings to a child education fund, ideally a balanced mutual fund or a child-specific fund.

This ensures that the education expenses are well-covered without dipping into your retirement savings.

Additionally, you might want to earmark a portion of your retirement corpus as an inheritance.

This will ensure your child is financially secure even after your lifetime.

Term Insurance Review

Your current term policy of Rs 1.5 crore is a good start.

However, given your retirement goals and the need to leave a corpus for your child, you might want to review the sum assured.

Increasing your term insurance coverage might be beneficial.

It ensures that your child is financially protected in case of any eventuality.

A higher cover can replace your income and support your family’s future needs.

Ensuring a Comfortable Retirement
Inflation-Adjusted Withdrawal Strategy

After retirement, you will need to withdraw from your investments to cover your living expenses.

The Systematic Withdrawal Plan (SWP) is a popular option for retirees.

SWP allows you to withdraw a fixed amount regularly while your remaining investment continues to grow.

However, it’s important to consider inflation.

Your annual expenses of Rs 10 lakh today could be much higher in 10 years due to inflation.

You should plan to withdraw an inflation-adjusted amount to maintain your lifestyle post-retirement.

You could consider investing a portion of your corpus in a conservative hybrid fund or a debt fund for SWP.

These funds offer stability and generate a regular income stream.

Evaluating Additional Investment Options
Avoiding Over-Reliance on Equity

While equity funds are essential for growth, it's wise not to rely solely on them.

You might consider diversifying your portfolio with other asset classes like debt funds and hybrid funds.

This ensures that your portfolio is balanced and not overly exposed to market risks.

Diversification can protect your corpus from market volatility, especially as you approach retirement.

Role of Actively Managed Funds

Actively managed funds can outperform index funds, especially in the Indian market.

These funds are managed by experienced fund managers who make decisions based on market conditions.

This can provide you with an edge, especially in volatile markets.

You may already have some investments in direct mutual funds.

However, it's worth considering the benefits of regular funds.

Regular funds come with the advantage of professional advice from a Certified Financial Planner (CFP).

A CFP can help you align your investments with your retirement goals.

The cost of regular funds is justified by the personalised guidance and expertise you receive.

Balancing Risk and Return
Gradual Shift to Lower Risk Investments

As you approach retirement, gradually shifting some of your investments from equity to lower-risk assets is prudent.

This strategy helps protect your corpus from market downturns as you near retirement.

You might consider moving a portion of your equity investments into debt funds or conservative hybrid funds.

This transition can be done gradually over the next 5-7 years.

By the time you retire, your portfolio will be more stable and less exposed to market risks.

Reviewing Your Financial Plan Regularly

Regular review of your financial plan is crucial to stay on track.

Changes in market conditions, personal circumstances, or goals may require adjustments to your investment strategy.

It’s advisable to review your portfolio annually with a CFP.

A CFP can help you make necessary changes and ensure you are on the right path to achieving your retirement goals.

Final Insights
Your financial situation and clear retirement goals are commendable. By increasing your SIP investments, diversifying your portfolio, and considering inflation-adjusted withdrawals, you are well on your way to achieving a secure retirement.

Protecting your child’s future and maintaining a balance between equity and debt will provide stability to your financial plan. Regular reviews with a CFP will ensure that you stay on course and make informed decisions as you move closer to retirement.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

..Read more

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Ravi

Ravi Mittal  |431 Answers  |Ask -

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Asked by Anonymous - Nov 22, 2024Hindi
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A bit long story I'm 21 student preparing for medical competative entrance exam for past 3 years (21-24).2 year ago this phase I was in a long distance relationship for 4 months with a girl I met in my class .But it didn't last long due to the problems created due to distance as she couldn't understand myself and I couldn't understand herself.so there was a misunderstanding and I couldn't hold on as I was in heavy pressure by exams and financial problems.so I couldn't handle and I felt like too early and broke up with her by losing my mind.she was completely disappointed as I didn't speak to her for more than an year due to one more year preparation.i missed her very much but I didnt tell her.I missed govt seat in border mark and the same year she got into a relationship with another guy in her class.i don't blame her. But I feel like my entire life is shattered and I couldn't move on from that girl till now.I couldn't concentrate on my career too.im kind of person who is always confident in all aspects but I have totally lost my mind .I can see that in an danger situation as age is running and family pressure, everyone of my classmates are far ahead of me I couldn't withstand this situation and couldn't make proper decision in any aspect. Mam please help me out.
Ans: Dear Anonymous,
I understand your concerns. The first step is to focus on moving on; she has, and you should too. Prioritize your career, your family, and your future. Next, what has happened to your career progress has already happened. It's unfortunate, but there's no way to change that. But give yourself a second chance; work harder and achieve greater things than you even imagined before. Trust me, you are not the only person who is standing in a situation like this. Many have, and many more will. But the ones who have passed this time will give you the same advice that I did.

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Milind

Milind Vadjikar  |682 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Nov 22, 2024

Asked by Anonymous - Nov 13, 2024Hindi
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Sir, I am 40yrs old. Having monthly takehome salary of 1.1 lakh and rental income of 36000. My investment are 2 flats worth of 1cr. 4 plots in Bhubaneswar worth of 2crs. EPF balance 50 lakh, LIC policies worth of 16 lakhs, NPS worth of 10 lakhs. My monthly saving commitments are - EPF (employee+employer) 28000 NPS 15000 MF 7500 Gold scheme 5000 Financial burden - HL emi of 24000 Monthly expanses 50000 I would like to retire at 50. Please advise for retirement plan with life expectancy of 80yrs.
Ans: Hello;

The value of your investments after 10 years;

A. EPF Corpus+Contribution: 1.6 Cr
B. NPS Corpus+Contribution: 53 L
C. MF(sip) + Gold(sip): 25 L
D. Real estate (land): 3.26 Cr

So sum of A, C & D gives us a corpus of 5.11 Cr

Since you will withdraw NPS before 60 age 80% of corpus will go into annuity while 20% will be available to you.

So you may expect monthly income of around 21 K from annuity(42.4 L).

Balance 10.6 L get added to 5.11L taking your total corpus to ~ 5.2 Cr.

If you invest 5 Cr in a conservative hybrid debt fund and do a SWP at the rate of 3%, you may expect a monthly income of around 1.1 L(post-tax).

Add your monthly rental income of 36 K(No growth factored) and annuity income of 21 K to this and you have total monthly income of 1.67 L after 10 years.

Your current monthly expenses of 50 K after 10 years would be around 90 K and 1.6 L after 20 years.

Considering return of around 7-7.5% from the conservative hybrid debt fund you will still generate inflation adjusted return at 3% SWP after 80 years of age.

Assumptions:
Inflation rate-6%
Return from EPF-8%
Return from NPS-9%
Return from MF-10%
Return from gold-7%
Return from Land-5%
Annuity rate-6%

The spare flat is not considered in this because it will continue to yield you rental income in retirement.

Since real estate(land) returns may fluctuate over 10 years suggest to increase MF sip(6X) as a back-up, also in this case you may decide to retain & invest in NPS upto 60 age.

Of course MF returns are also not assured but you are improving the odds by backing two appreciable assets(RE & equity) over long-term.

Happy Investing;
X: @mars_invest

...Read more

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 22, 2024

Money
My age 62, male, getting rental income Rs. 90k nett. Already subscribing 12.5k in PPF for the past 2 1/2 years. No other investments. My target is 5 crores in 10 years. I already have Mediclaim Rs.50 lakhs for me & wife . Please advice me what to do.
Ans: Your current financial foundation is strong and shows promise:

A rental income of Rs. 90,000 per month provides consistent and predictable cash flow. This stability can serve as the backbone for your investment strategy.

PPF contributions of Rs. 12,500 per month for 2.5 years reflect disciplined saving. However, its returns may be insufficient to achieve a high-growth target like Rs. 5 crores in 10 years.

A robust Mediclaim policy of Rs. 50 lakhs for you and your wife ensures adequate health coverage. This safeguard allows you to focus on wealth-building without worrying about medical emergencies.

Despite these positive factors, achieving Rs. 5 crores in 10 years requires a carefully crafted and growth-oriented strategy.

Defining and Prioritising Your Financial Goals
Achieving Rs. 5 crores is ambitious yet achievable with a focused approach:

Define this target as your primary financial goal over the next decade.

Break it into manageable milestones: for example, Rs. 50 lakhs every 1-2 years in cumulative investments and growth.

Prioritise high-return investments that align with your risk tolerance and financial capacity.

Optimising Existing PPF Contributions
While PPF is a secure investment, its growth potential is limited:

Returns: PPF currently offers an interest rate of approximately 7-7.5%, which barely outpaces inflation.

Contribution Review: Consider capping your PPF contributions at Rs. 1.5 lakh annually (to utilise the Section 80C benefit). This ensures that excess funds are redirected to higher-return investments.

PPF can serve as a low-risk component of your portfolio but should not dominate your investment strategy.

Building a Diversified Investment Portfolio
A diversified portfolio will provide a balance of risk and reward. Include the following components:

1. Equity Mutual Funds for Growth
Equity mutual funds are essential for achieving high returns over the long term:

Large-Cap Funds: These invest in established companies and offer stability with moderate growth. They are ideal for a portion of your portfolio to reduce risk.

Multi-Cap or Flexi-Cap Funds: These provide exposure to companies of all sizes, offering growth and diversification.

Sectoral and Thematic Funds: Avoid these unless you have a high risk tolerance and understand market dynamics.

ELSS Funds: These not only provide tax savings under Section 80C but also deliver market-linked returns.

Why Avoid Index Funds?

Index funds may offer simplicity and lower expense ratios, but they lack flexibility. They cannot adapt to market conditions or capitalise on outperforming sectors. Actively managed funds, on the other hand, have the potential to outperform the market, especially in a developing economy like India.

Start with a Systematic Investment Plan (SIP) in selected funds to build wealth steadily.

2. Debt Mutual Funds for Stability
Debt funds add stability to your portfolio and reduce overall risk:

Choose funds with low credit risk and moderate duration to ensure safety and predictable returns.

Debt funds are suitable for short- to medium-term goals or as a fallback during market corrections.

Taxation Note: Both LTCG and STCG on debt funds are taxed as per your income tax slab. This should be factored into your planning.

3. Balanced Advantage Funds
Balanced advantage funds (BAFs) dynamically allocate assets between equity and debt. They:

Provide exposure to equity while minimising downside risk.

Offer a suitable option for someone nearing retirement but seeking growth.

4. Gold Investments for Diversification
Allocate a small portion (5-10%) of your portfolio to gold:

Gold serves as a hedge against inflation and currency depreciation.

Choose gold ETFs or sovereign gold bonds for ease of liquidity and better returns.

Emergency Fund Creation
Having an emergency fund is non-negotiable:

Maintain at least 6-12 months of expenses in liquid investments like liquid mutual funds or high-interest savings accounts.

This ensures liquidity for unforeseen events without disturbing your long-term investments.

Focus on Retirement Planning
At 62, balancing growth and safety becomes critical:

Estimate your monthly retirement expenses, considering inflation over the next 10-15 years.

Your target of Rs. 5 crores should primarily serve as your retirement corpus.

Allocate assets thoughtfully:

60-70% in equity funds for growth.
30-40% in debt funds for stability.
Periodically rebalance your portfolio to maintain this allocation.

Strategic Tax Planning
Tax efficiency can significantly impact your returns:

Continue using Section 80C to its full potential, including ELSS funds and PPF.

Consider the National Pension System (NPS) for an additional Rs. 50,000 deduction under Section 80CCD(1B).

Be mindful of the new taxation rules for mutual funds:

Equity Mutual Funds: LTCG above Rs. 1.25 lakh is taxed at 12.5%; STCG at 20%.
Debt Funds: LTCG and STCG are taxed as per your income slab.
Consult a Certified Financial Planner to optimise your tax strategy.

Regular Portfolio Monitoring and Rebalancing
Investing is not a one-time activity:

Review your portfolio every six months or annually to track performance.

Rebalance your asset allocation periodically to align with your financial goals and risk appetite.

Stay committed to SIPs even during market downturns, as this ensures cost-averaging.

Additional Suggestions
Avoid Over-Reliance on PPF
While PPF is safe, it is not sufficient for wealth creation. Shift excess contributions to equity-based investments for better returns.

Avoid Direct Stocks
Direct equity investing requires time, expertise, and constant monitoring. It carries higher risk and may lead to losses without proper research. Instead, rely on equity mutual funds managed by professionals.

Avoid Mixing Insurance and Investments
Do not invest in ULIPs or endowment plans, as they offer suboptimal returns. Stick to pure insurance products for protection and mutual funds for growth.

The Role of a Certified Financial Planner
To achieve Rs. 5 crores, a well-crafted financial plan is essential. A Certified Financial Planner (CFP) can:

Analyse your current investments and recommend improvements.

Design a customised strategy tailored to your income, expenses, and goals.

Provide periodic reviews to ensure you stay on track.

Finally
Achieving Rs. 5 crores in 10 years is a realistic goal if you adopt a disciplined and diversified approach.

Optimise your PPF contributions and channel excess funds into higher-growth investments.

Build a diversified portfolio with equity and debt mutual funds.

Include a small allocation to gold and maintain an emergency fund.

Stay consistent with your SIPs and review your investments regularly.

Work with a Certified Financial Planner to create a personalised roadmap.

By following these steps, you can secure your financial future and meet your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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