Hello Sir, I'm 44 years of age and want to plan for creating a corpus of 5 Cr by age of 60. I have 40L lying in savings which I'm thinking to invest lumpsum in MFs and start with Monthly SIP as well apart from this. At 60 I'm looking to start a SWP, in regards to this could you please suggest which MFs should I invest in to achieve this goal and how should I diversify SIP and lumpsum investments? Thank you!

Ans: At age 44, you have a clear goal of creating a corpus of Rs. 5 crore by the time you turn 60. With Rs. 40 lakh available for lumpsum investment and plans to start a SIP, you are on the right path. Achieving this goal in 16 years requires a strategic mix of investments, combining both equity and debt for growth and stability.

Let’s break down how you can achieve this goal.

 

Lumpsum Investment Strategy

Since you have Rs. 40 lakh for a lumpsum investment, it’s crucial to diversify it effectively. A balanced approach between equity and debt will help you manage risk while still aiming for high returns.

Equity-Oriented Funds: Equity funds should form a significant portion of your lumpsum. They offer higher growth potential over the long term. You can consider funds that invest in a mix of large-cap, mid-cap, and flexi-cap stocks. These funds give exposure to both stability and growth.

Debt-Oriented Funds: Allocating a portion to debt-oriented funds will provide stability to your portfolio. These funds are less volatile and will act as a cushion in case of market downturns. A mix of corporate bond funds, dynamic bond funds, and short-duration funds could work well here.

Hybrid Funds: To strike a balance between equity and debt, hybrid funds can be a good option. These funds offer a blend of both asset classes, providing moderate risk with decent returns.

Suggested Allocation:

60%-70% in equity-oriented funds
20%-30% in debt-oriented funds
10%-20% in hybrid funds
This allocation will give you growth while managing risk.

 

Systematic Investment Plan (SIP) Strategy

Starting a SIP alongside your lumpsum investment will help you continue building your corpus steadily. SIPs allow you to invest monthly and take advantage of rupee cost averaging.

Focus on Equity Funds: Since you have a long-term horizon of 16 years, equity funds should dominate your SIP portfolio. Equity mutual funds historically offer higher returns over the long term. You can choose a combination of large-cap, mid-cap, and flexi-cap funds for diversification.

Diversify Across Sectors: Consider diversifying across different sectors such as technology, healthcare, and consumption. This reduces the risk associated with any one sector underperforming.

Debt Allocation in SIP: While equity will drive growth, a small allocation to debt in your SIP will provide stability. This becomes more important as you near retirement.

Suggested SIP Allocation:

70%-80% in equity funds
10%-20% in sector-specific funds
10%-20% in debt funds
The SIP amount you choose should depend on how much additional savings you can comfortably invest each month. As you increase your savings, you can also increase your SIP contribution.

 

SWP Planning for Retirement

At age 60, when you plan to start a Systematic Withdrawal Plan (SWP), your strategy should shift to preserving the corpus while generating regular income. The goal is to ensure your Rs. 5 crore corpus continues to grow, even as you withdraw monthly amounts.

Balanced Funds for SWP: A balanced or hybrid fund is ideal for SWP. It provides regular income while the remaining corpus stays invested and grows. The equity portion will drive growth, while the debt portion ensures stability for regular withdrawals.

Moderate Withdrawal Rate: To ensure your corpus lasts through your retirement, consider withdrawing around 5% to 6% annually. For example, if you have Rs. 5 crore, you can safely withdraw Rs. 20-25 lakh per year, or Rs. 1.6-2 lakh per month.

Rebalancing Post-Retirement: After starting the SWP, regularly review your portfolio. As your needs evolve, you may need to adjust your withdrawal rate or shift more funds into debt for greater security.

 

The Importance of Actively Managed Funds

You’ve chosen to invest in mutual funds, and that’s a wise decision. Actively managed funds have distinct advantages over index funds, especially for long-term goals like retirement.

Flexibility: Fund managers of actively managed funds can shift investments based on market conditions. This can protect your investments during downturns.

Higher Returns: Actively managed funds have the potential to outperform the market. While index funds merely track the market, actively managed funds aim to beat it, which can be crucial when you have a target corpus in mind.

Risk Management: Active fund managers can limit exposure to high-risk sectors when needed, helping protect your corpus from extreme volatility.

 

Regular Funds vs Direct Funds

While direct funds come with lower expense ratios, regular funds offer key benefits that are often overlooked. Investing through a Certified Financial Planner (CFP) can give you the advantage of professional advice and ongoing portfolio management.

Professional Guidance: A CFP can help you adjust your portfolio as your financial situation and goals change. With direct funds, you won’t have this personalized support.

Continuous Monitoring: Regular funds come with built-in portfolio monitoring. A financial expert will make necessary adjustments, so you don’t have to actively manage your investments.

Focus on Long-Term Strategy: Having a professional manage your investments ensures that your long-term goals, like building a retirement corpus, are consistently prioritized.

 

Taxation Rules for Mutual Funds

It’s important to be aware of the taxation rules that apply to your mutual fund investments, especially when you are looking at both lumpsum and SIP investments.

Equity Funds: Long-term capital gains (LTCG) from equity mutual funds are taxed at 12.5% for gains above Rs. 1.25 lakh annually. Short-term capital gains (STCG) are taxed at 20%.

Debt Funds: For debt mutual funds, both LTCG and STCG are taxed according to your income tax slab. This can have a significant impact on your returns, so it’s essential to factor this into your withdrawal strategy.

By keeping track of these tax rules, you can minimize your tax burden and maximize your returns.

 

Final Insights

At 44, you have a great opportunity to build a Rs. 5 crore corpus by 60. Your plan to invest Rs. 40 lakh lumpsum and start a SIP is a smart move. Here’s a summary of what you should focus on:

Invest the Rs. 40 lakh in a diversified portfolio with a mix of equity, debt, and hybrid funds.

Start a SIP with a focus on equity funds, with some allocation to debt for stability.

When you reach 60, switch to an SWP strategy with a balanced fund and a moderate withdrawal rate of 5%-6%.

Actively managed funds offer flexibility, risk management, and higher return potential, making them a better choice over index funds.

Consider using regular funds through a Certified Financial Planner for ongoing portfolio management and adjustments.

By following this strategy and regularly reviewing your investments, you can achieve your goal of building a Rs. 5 crore corpus and enjoy a secure retirement.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment