How can I reach my goal of 2 crores by 50?

Hi Gurus I'm 39, married and no kids, sole breadwinner in the family. My salary is 1.2 lakh per month and investing in mutual funds (since 2020) through SIP as below and step up investment 10-15% every year. Current corpus stands at 14 lakh. I have 10lakh in my PF account and I get another 5 lakh from gratuity. Mirae Asset tax saver fund 5k Parag parikh tax saver 3k Quant elss 3k Canara robecco small cap 5k SBI small cap 5k Tata digital India fund 5k I have parked 20 lakhs in debt fund and FD which I'm planning to use it to buy a flat within a year. Every month I keep aside 15k towards savings and emergency fund. I move it to debt fund, FD and I invest small portion of my bonus in existing MFs as lumpsum. My goal is to accumulate 2 CR by the time I turn 50 and need suggestions and plans to achieve the same.

Ans: Hello;

Your current MF corpus of 14 L may grow into a sum of 33 L, after 11 years.

Your current monthly SIP of 26 K will need to be topped up by 15% each year upto 11 years.

If you just want to do 10% yearly top-up then the monthly sip amount will be required to be increased to 33 K.(Consider existing funds or good large and midcap type mutual fund for additional sip)

After 11 years this top-up sip may yield you a sum of 1.41 Cr.

Assuming PF corpus to grow at a modest rate of 7.75% into a sum of 22.73 L.

Since your bonus lumpsum additions amounts are not known, they are not factored into the above working.

Adding all these amounts with 5 L gratuity gives you a comprehensive corpus of 2 Cr+ by the time you complete 50 years.

A modest return of 13% is considered from pure equity funds for the calculation.

Happy Investing!!

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

Ans: You are 39 years old, married, and the sole breadwinner. Your monthly salary is Rs 1.2 lakh, and you have been investing in mutual funds since 2020. Your investments include a combination of tax-saving mutual funds, small-cap funds, and a sector-specific fund. You have also parked Rs 20 lakh in debt funds and fixed deposits for buying a flat within a year. Additionally, you have Rs 10 lakh in your Provident Fund (PF) and Rs 5 lakh in gratuity.

You have set a goal to accumulate Rs 2 crore by the age of 50. This is an achievable goal, but it will require some adjustments and strategic planning to optimise your savings and investments.

You are also setting aside Rs 15,000 each month towards an emergency fund and savings, while reinvesting some of your bonus into mutual funds. Let's go step-by-step to achieve your goal while ensuring financial security along the way.

Current Investment Strategy
Your investment portfolio includes:

Three tax-saving mutual funds
Small-cap mutual funds
A sector-specific fund
Rs 20 lakh parked in debt funds and fixed deposits for a future property purchase
Your current investment strategy is diversified across equity and debt instruments. This diversification is good, but there is room for improvement in your equity mutual fund selection and tax efficiency.

Analysis of Current Investments
Equity Mutual Funds
Small-Cap and Sector-Specific Funds: Small-cap funds can provide high returns over time but also carry higher risks. Over-exposure to small-cap funds can make your portfolio volatile, especially as you near your retirement goal. A sector-specific fund, while offering focused growth, can also be risky if the sector underperforms.

Tax-Saving Funds: While tax-saving mutual funds (ELSS) provide tax benefits, there may be an overlap in the holdings of your ELSS funds. Additionally, ELSS funds have a 3-year lock-in period, which reduces liquidity.

Debt Funds and FDs
You have wisely parked Rs 20 lakh in debt funds and fixed deposits, which ensures stability and liquidity for your property purchase. However, investing large amounts in fixed deposits may not be the most tax-efficient strategy in the long run due to the high tax on interest income.

Suggestions for Achieving Your Rs 2 Crore Goal
To accumulate Rs 2 crore by the age of 50, you need a more optimised approach. Here are the steps:

1. Review and Adjust Your Equity Allocation
Increase Mid-Cap and Flexi-Cap Exposure: As you are still 11 years away from your goal, consider shifting a portion of your investments from small-cap and sector-specific funds to more balanced options like mid-cap and flexi-cap funds. These funds offer a balance between risk and return, providing more stability than small-cap funds while still offering high growth potential.

Reduce Sector-Specific Fund Exposure: Sector funds can be volatile. Consider reallocating your investment in this fund to more diversified equity funds like flexi-cap or large-cap funds. These funds are less volatile and provide more stable returns over time.

2. Reassess Your Tax-Saving Funds
Optimise ELSS Investments: You already have multiple ELSS funds, which may result in overlapping holdings and lower diversification. You could consolidate your ELSS investments into one or two well-performing funds. This will simplify your portfolio and improve returns while still offering tax benefits.

Consider the Lock-in: Keep in mind the 3-year lock-in period of ELSS funds. If liquidity is a concern, consider reducing your ELSS exposure once you’ve maximised your Section 80C limit.

3. Focus on Regular Funds over Direct Funds
Investing through a certified financial planner (CFP) in regular funds is better than investing in direct funds by yourself. A CFP can provide ongoing advice, portfolio rebalancing, and support during market fluctuations, which is crucial for reaching your Rs 2 crore goal.

4. Build a Strong Emergency Fund
You are already setting aside Rs 15,000 per month towards savings and your emergency fund. Aim to build a fund that covers at least 6 to 12 months' worth of expenses. Given your Rs 50,000 monthly expense, this would mean an emergency fund of Rs 3 lakh to Rs 6 lakh.

Continue to park this money in debt funds or fixed deposits for easy liquidity. This will safeguard you from any unforeseen expenses while ensuring that your long-term investments remain untouched.

5. Bonus Investment Strategy
You are already investing your bonus into mutual funds as a lump sum. This is a good practice, but consider utilising this money strategically:

Top-Up Your Existing SIPs: Rather than investing the entire bonus in one go, you could use it to top up your SIPs in your existing mutual funds. This will average your investment cost and reduce market timing risks.

Boost Equity Allocation: If your risk appetite allows, allocate more of your bonus towards equity mutual funds. This can provide higher returns in the long run, contributing significantly to your Rs 2 crore goal.

6. Step-Up Your SIPs Annually
You have mentioned that you step up your SIPs by 10-15% every year. Continue with this approach, as it aligns well with your growing income and inflation. This will accelerate your wealth accumulation and keep your goal on track.

For instance, a 10-15% increase in SIP amounts every year can make a significant difference to your final corpus. By increasing your SIPs, you will also take advantage of compounding and market growth.

7. Debt Fund Considerations
You have Rs 20 lakh in debt funds and fixed deposits. Once you buy your flat, this money will likely be reduced. However, after the purchase, you should maintain a portion of your savings in debt funds as part of your overall asset allocation.

Debt funds provide stability and reduce risk, which is essential as you approach your retirement goal. A balanced portfolio of equity and debt is necessary for sustainable growth.

8. Retirement Planning
To achieve Rs 2 crore by the time you turn 50, you need a mix of aggressive growth in the early years and risk mitigation in the later years.

Increase Equity Exposure for Now: As you have 11 years until retirement, continue focusing on equity funds for growth. However, once you are within 5 years of your retirement goal, gradually shift a portion of your equity investments to debt funds to protect your capital.

Avoid Real Estate Investments: Since you are planning to buy a flat within a year, avoid additional investments in real estate. Real estate is illiquid and may not provide returns aligned with your retirement timeline.

Maximise Provident Fund Contributions: You already have Rs 10 lakh in your PF, and this will continue growing with your monthly contributions. Provident Fund provides a safe and stable return and should remain a core part of your retirement corpus.

9. Tax Efficiency
As your investments grow, consider tax efficiency:

Tax on Equity Mutual Funds: Long-term capital gains (LTCG) on equity mutual funds above Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%. Be mindful of these taxes when planning withdrawals.

Tax on Debt Funds and FDs: Interest income from fixed deposits is taxed as per your income slab, which is less tax-efficient than equity investments. You can reduce your tax burden by keeping longer-term investments in equity funds and shorter-term savings in debt funds.

Final Insights
With proper planning, accumulating Rs 2 crore by the age of 50 is within your reach. You are already on the right track with a balanced approach to savings and investments. However, minor adjustments in your mutual fund selection, better tax efficiency, and maintaining a strong emergency fund can further optimise your strategy.

Your commitment to stepping up your investments and regularly reviewing your portfolio will help you stay on track. Be consistent with your SIPs and disciplined in maintaining your long-term focus.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: You are earning Rs. 125,000 from your salary and Rs. 40,000 from other sources, which gives you a total monthly income of Rs. 165,000. With all your loans cleared, you’re now planning to take a home loan of Rs. 1 crore with an EMI of Rs. 100,000. You also have upcoming commitments related to your children's education in two years.

You have Rs. 2 lakhs invested in mutual funds (MFs) across various schemes. Your goal is to pre-close your home loan and create a retirement corpus of Rs. 1 crore by age 60.

At 47, you have a 13-year window before retirement. To meet these goals, we need to take a 360-degree approach. Let’s evaluate your current investments, income, and future commitments, and suggest steps that align with your goals.

Key Points to Consider
Your home loan EMI of Rs. 100,000 per month will significantly impact your cash flow.

Children’s education costs are expected in two years, adding further financial responsibility.

You have 13 years to create wealth before retirement.

These commitments demand a balanced approach between managing EMIs, future expenses, and growing your wealth for retirement.

Assessing Your Current Mutual Fund Investments
Your mutual fund portfolio of Rs. 2 lakhs is diversified across various categories. Here’s an analysis of your current portfolio:

Mid-Cap and Small-Cap Funds
You have a notable exposure to mid-cap and small-cap funds. These funds offer high growth potential but come with higher volatility. Since you have a long-term horizon, this is fine. However, you need to ensure you don’t over-expose yourself to these funds. Mid- and small-cap funds can be highly volatile, especially in the short term.

A balanced portfolio would reduce the risk of short-term market swings while keeping the potential for long-term growth intact.

PSU and Sectoral Funds
You are also invested in PSU and infrastructure funds. Sector-specific funds can be risky as their performance is tied to the particular sector’s growth. Such funds may not perform consistently across market cycles. You could consider reducing your exposure to sectoral funds and reallocating to diversified equity funds.

Diversified equity funds can reduce the sector-specific risks while providing similar growth potential over the long term.

Index Funds: A Suboptimal Choice
You have invested in index funds, which simply replicate market indices. While these funds come with lower expense ratios, they lack flexibility. Index funds do not outperform the market, as they are designed to mirror it. In contrast, actively managed funds are managed by professional fund managers. These managers aim to outperform the market and make tactical decisions based on market conditions.

Given your goals, actively managed funds are a better choice for wealth creation. They can provide better returns over time compared to passive index funds.

Direct Funds vs Regular Funds
You’ve also invested in direct plans, which may seem attractive because of their lower expense ratios. However, direct funds don’t come with the guidance and professional advice you get from regular funds through a Certified Financial Planner (CFP). A CFP can help you regularly review and rebalance your portfolio based on market conditions, helping you avoid costly mistakes.

Investing in regular plans through a CFP can provide the much-needed personalized advice and periodic portfolio reviews to ensure your investments stay on track to meet your goals.

Creating Additional Wealth to Pre-Close Home Loan
Your goal of pre-closing the home loan is achievable with the right strategy. Let’s look at some key points:

1. Increase Your SIP Investments
You should increase your Systematic Investment Plan (SIP) contributions. You are currently investing Rs. 2 lakhs across different funds. To meet your goal of creating additional wealth to pre-close your loan and retire with Rs. 1 crore, you need to boost your monthly SIPs. Consider increasing your SIPs by 10-15% every year.

For example, if you start with an additional Rs. 20,000 per month and increase it annually, your portfolio will grow significantly over time.

2. Focus on Balanced Funds
Since you have high exposure to mid-cap and small-cap funds, you should consider adding balanced advantage funds to your portfolio. These funds dynamically shift between equity and debt depending on market conditions. This will provide some stability to your portfolio, especially as you approach retirement.

Balanced funds help mitigate risks and offer consistent returns over the long term.

3. Prioritize Equity-Oriented Funds
Given your long-term horizon, equity-oriented mutual funds should remain your primary investment. They offer the highest potential for growth over a 13-year period. However, you need to diversify across large-cap, multi-cap, and flexi-cap funds. These funds are less volatile than mid-cap and small-cap funds but still provide good returns.

By maintaining a diversified equity portfolio, you can benefit from market growth while keeping your risk profile balanced.

4. Reduce Sectoral Fund Exposure
Consider reducing your exposure to sectoral funds like PSU and infrastructure funds. Instead, reallocate those investments to diversified equity funds or large-cap funds. These funds provide more consistent returns and are less risky compared to sectoral funds.

A well-diversified portfolio will perform better across different market conditions.

Planning for Your Children’s Education
Education expenses for your children are a significant commitment in the next two years. You need to start setting aside funds specifically for this goal. Here’s what you can do:

1. Create a Dedicated Fund for Education
Set up a separate SIP for your children’s education. You could invest in hybrid funds or debt-oriented funds to build a corpus for this goal. Since this is a short-term goal, it’s better to focus on funds with lower risk.

By setting aside a specific amount every month, you can ensure that your children’s education is taken care of without impacting your other financial goals.

2. Use Debt Funds for Short-Term Needs
For short-term commitments like education, consider debt mutual funds. These funds are less volatile and can offer better returns than traditional fixed deposits. Additionally, debt funds are more tax-efficient compared to FDs, as they benefit from indexation if held for more than three years.

Debt funds are an ideal option to save for upcoming educational expenses.

Creating a Rs. 1 Crore Retirement Corpus
Your goal is to create Rs. 1 crore by the time you retire at 60. Here’s a strategy to achieve this:

1. Increase Equity Exposure Gradually
You are currently 47 years old, and with 13 years left to retirement, you should maintain a high equity exposure for the next 7-10 years. Gradually increase your equity investments in a mix of large-cap and multi-cap funds. These funds provide growth potential with a more stable risk profile.

Over time, you can start reducing your equity exposure as you approach retirement.

2. Keep Reinvesting Dividends
If your funds offer dividend options, ensure that you reinvest dividends. Reinvesting helps compound your returns and grow your wealth faster. Compounding can significantly boost your corpus over time.

3. Tax-Efficient Investments
Keep in mind the tax implications of your investments. Equity mutual funds are taxed differently based on the holding period:

Long-term capital gains (LTCG) above Rs. 1.25 lakh are taxed at 12.5%.

Short-term capital gains (STCG) are taxed at 20%.

When planning withdrawals during retirement, it’s essential to manage taxes efficiently to maximize your returns.

Managing Your Home Loan
Paying a home loan EMI of Rs. 100,000 per month will be a significant expense. Here’s how you can manage it:

1. Increase EMIs When Possible
Whenever you get a salary hike or an increase in your other income, try to increase your EMI payments. This will help you reduce the loan tenure and save on interest costs.

2. Use Bonuses and Windfalls
If you receive any bonuses, incentives, or windfalls, consider using a part of these to make pre-payments on your home loan. Pre-paying can help you clear the loan faster, reducing the interest burden.

Final Insights
At 47, your focus should be on balancing between your short-term and long-term financial goals. While the home loan will consume a significant portion of your income, you can still build wealth by strategically increasing your investments.

By adjusting your mutual fund portfolio, increasing your SIPs, and focusing on tax-efficient investments, you can achieve your goal of pre-closing your home loan and creating a Rs. 1 crore retirement corpus.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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