27 Year Old with ₹18 Lakh Fixed Deposit - Enough?

Hello sir, I am 27. I have around 18lakhs Fixed deposit, around 7lakhs investment so far in mutual fund. Monthly 20000 sip. Around 3 lakhs in PF account. Two LIC Jeevan labh policies worth 42k and 19k yearly premium. Is this enough for my age ? Please guide me if I need to make any changes or continue with the current savings plan

Ans: You have built a strong financial base at 27.

Your Rs. 18 lakh in fixed deposits ensures liquidity.

Your Rs. 7 lakh in mutual funds shows your focus on wealth creation.

Rs. 20,000 SIP per month is a disciplined approach.

Rs. 3 lakh in PF adds long-term stability.

LIC Jeevan Labh policies need assessment for better returns.

Let’s analyse if this structure aligns with your future goals.

Strengths in Your Financial Plan
You are saving and investing early, which compounds your wealth.

Your mutual fund investment brings potential for higher returns.

Your SIP ensures regular and systematic wealth creation.

Fixed deposits provide stability and emergency backup.

PF helps in long-term retirement security.

You have a well-diversified portfolio across different assets.

Areas That Need Improvement
1. Fixed Deposit Allocation
Rs. 18 lakh in FD is too high for your age.

FD gives low returns and does not beat inflation.

Keep only 6-9 months of expenses in FD for emergencies.

Move the rest to high-growth assets like mutual funds.

2. LIC Jeevan Labh Policies
These are traditional plans with low returns.

Insurance and investment should be separate.

Surrender the policies and reinvest in mutual funds.

Buy a term insurance plan for better coverage at a lower cost.

3. SIP Allocation
Rs. 20,000 SIP is good, but can be increased.

Consider diversifying across small-cap, mid-cap, and flexi-cap funds.

Avoid index funds as they lack flexibility and underperform in bear markets.

Choose actively managed mutual funds through a Certified Financial Planner.

4. Retirement Planning
Start planning for retirement early.

Increase your SIP to at least 30-40% of your income.

Consider NPS for additional retirement benefits.

Regularly review your retirement corpus goals.

5. Tax Efficiency
Maximise tax benefits under Section 80C and 80D.

Use ELSS mutual funds for tax savings.

Invest in PPF for long-term tax-free returns.

Ensure your insurance is only for risk cover, not investment.

6. Emergency Fund
Emergency funds should be easily accessible.

Keep 6-9 months of expenses in liquid assets.

FD is an option, but consider liquid funds for better returns.

Avoid using long-term investments for emergencies.

7. Increasing Investment Rate
Aim to increase SIP by 10-15% yearly.

Use annual bonuses and increments for lump sum investments.

Review your portfolio every year.

Avoid direct stock trading unless you have expertise.

Risk Management
Ensure you have a term insurance plan.

Maintain adequate health insurance beyond employer coverage.

Personal accident and critical illness cover are essential.

Keep your nominee details updated for all investments.

Debt Management
Avoid unnecessary loans or credit card debt.

If you have any loans, clear high-interest ones first.

Use SIPs instead of FDs for wealth creation.

Do not invest in fixed-return plans with long lock-in periods.

Optimising Mutual Fund Strategy
Stick to equity mutual funds for long-term goals.

Increase allocation in small-cap and mid-cap funds.

Avoid direct mutual funds and invest through a Certified Financial Planner.

Regularly track fund performance and switch if needed.

Do not panic during market corrections; SIPs work best long-term.

Wealth Creation Strategy for the Next 10 Years
Increase SIPs as your salary grows.

Keep reviewing financial goals every year.

Rebalance your portfolio to maintain proper asset allocation.

Stay invested in equity for the long term.

Avoid unnecessary withdrawals from mutual funds.

Insurance Planning
Your LIC policies should be surrendered for better returns.

Buy a pure term plan for financial security.

Ensure you have health insurance with a Rs. 10-15 lakh cover.

Do not mix insurance with investment.

Avoid Common Investment Mistakes
Do not keep excess funds in FD.

Avoid insurance plans that mix investment.

Increase SIPs instead of relying on one-time investments.

Stay away from risky derivatives and intraday trading.

Do not fall for high-return guaranteed plans.

Finally
Your financial journey is on the right track.

Reduce FD allocation and increase equity exposure.

Exit LIC Jeevan Labh and reinvest wisely.

Increase SIPs annually for better compounding.

Focus on term insurance and health insurance.

Stay disciplined and patient for long-term wealth creation.

Keep reviewing and refining your financial plan.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

Ans: First off, you're doing a great job with your savings and investments. Building a secure financial future takes dedication, and you're on the right track. Let's dive deeper into your current financial situation and see how you can achieve your goal of Rs. 1.5 crore by the age of 55.

Understanding Your Current Financial Scenario
You’re currently investing Rs. 25,000 per month in various SIPs. Your existing fund value is Rs. 35 lakhs, which is impressive. You also have an insurance policy maturing next year worth Rs. 6 lakhs. Your EPF savings are around Rs. 8-9 lakhs with a monthly deduction of Rs. 1,800.

Let's break down how these investments are contributing to your goal and assess if any adjustments are needed.

Evaluating Your SIP Investments
SIP investments are a great way to build wealth over time. Consistent monthly investments benefit from rupee cost averaging and compounding. Your Rs. 25,000 SIPs will significantly contribute to your corpus. However, it’s essential to ensure these funds are diversified across different categories like large-cap, mid-cap, and small-cap funds. Diversification reduces risk and can enhance returns.

SIP investments take advantage of the market's volatility. By investing a fixed amount regularly, you buy more units when prices are low and fewer units when prices are high. Over time, this strategy averages out the cost of your investments and reduces the impact of market fluctuations.

Power of Mutual Funds
Mutual funds are powerful financial tools that pool money from many investors to invest in securities like stocks, bonds, and other assets. They are managed by professional fund managers who aim to achieve the fund's investment objectives.

Diversification: One of the most significant advantages of mutual funds is diversification. By investing in a mutual fund, you gain exposure to a wide range of securities, which reduces the risk associated with investing in a single security. Diversification helps in balancing the portfolio and minimizes the impact of poor performance by any single security.

Professional Management: Mutual funds are managed by experienced professionals who analyze market trends, conduct research, and make informed investment decisions on behalf of investors. This expertise can lead to better returns and efficient portfolio management.

Accessibility: Mutual funds offer a variety of schemes to suit different investment goals, risk appetites, and time horizons. Whether you are looking for growth, income, or stability, there is a mutual fund that matches your needs.

Liquidity: Mutual funds provide liquidity, allowing you to redeem your units at the current net asset value (NAV) whenever you need funds. This flexibility makes mutual funds a convenient investment option.

Tax Benefits: Certain mutual funds, like Equity-Linked Savings Schemes (ELSS), offer tax benefits under Section 80C of the Income Tax Act. This dual benefit of investment and tax savings makes mutual funds attractive for tax planning.

Insurance Policy Maturing Next Year
You have an insurance policy maturing next year worth Rs. 6 lakhs. Upon maturity, consider reinvesting this amount wisely. Since your aim is to build a corpus for the future, parking this amount in equity mutual funds can be beneficial. Equities typically provide higher returns over the long term compared to other instruments.

It’s important to separate insurance and investment needs. Insurance policies that combine investment with protection often have higher costs and lower returns compared to pure investment products like mutual funds. Instead of opting for investment-cum-insurance policies, it’s better to invest in pure term insurance for adequate coverage and invest the rest in mutual funds for growth.

Investment-cum-insurance policies often come with high fees and complex structures that can eat into your returns. Moreover, the investment component of these policies usually underperforms compared to standalone investment products. Therefore, it’s advisable to avoid these hybrid products and keep your insurance and investment needs separate.

EPF Contributions and Savings
Your EPF contributions of Rs. 1,800 per month, coupled with existing savings of Rs. 8-9 lakhs, add another layer of security. EPF is a safe investment with decent returns, especially useful for retirement. However, relying solely on EPF may not be enough. It’s crucial to complement it with other investments to reach your desired corpus.

EPF offers the advantage of compound interest and tax benefits, making it a vital component of your retirement planning. However, the returns from EPF are relatively lower compared to equity investments. Therefore, balancing your portfolio with equity mutual funds can help achieve higher growth.

Assessing the Gap
Let’s assess if your current investments are sufficient to achieve your goal of Rs. 1.5 crore in the next 8 years.

Assuming an average return of 12% per annum from your SIPs, we can estimate the future value. However, returns are subject to market fluctuations and cannot be guaranteed.

Similarly, EPF typically offers an 8-9% return. Considering these returns, let’s see if your current strategy will help you reach your goal or if adjustments are needed.

Adjustments and Recommendations
To ensure you achieve your goal of Rs. 1.5 crore by age 55, consider the following recommendations:

Increase Your SIP Amount: If possible, try to increase your monthly SIPs. Even a small increase can significantly impact your corpus due to the power of compounding. Aim to gradually increase your SIP amount every year.

Reinvest Maturing Insurance Policy: Reinvest the Rs. 6 lakhs from your maturing insurance policy into diversified equity mutual funds. This will give a substantial boost to your corpus.

Diversify Your Investments: Ensure your SIPs are spread across various mutual funds categories. Diversification minimizes risks and can potentially increase returns.

Monitor and Review: Regularly monitor your investments and review their performance. Make adjustments if necessary to stay on track with your goals.

Importance of Actively Managed Funds
Since you’re focusing on mutual funds, it's crucial to highlight the benefits of actively managed funds over index funds.

Actively managed funds have a professional fund manager making decisions to outperform the market. They can adapt to market conditions and potentially offer higher returns compared to index funds which simply track the market.

Investing through a Certified Financial Planner (CFP) can provide personalized advice and help you choose the best funds suited to your financial goals.

Disadvantages of Direct Funds
Direct mutual funds have lower expense ratios compared to regular funds, but they might not always be the best choice for everyone. Direct funds require a more hands-on approach and a good understanding of the market. If you lack the time or expertise, this can be challenging.

Regular funds, on the other hand, come with the guidance of a Certified Financial Planner (CFP). They provide expert advice, helping you navigate through market complexities and ensuring your investments are aligned with your goals.

Building a Strong Financial Foundation
While focusing on your investment goals, don’t forget other aspects of financial planning. Here are a few additional tips:

Emergency Fund: Ensure you have an emergency fund equivalent to 6-12 months of expenses. This provides a safety net for unexpected situations.

Health Insurance: Adequate health insurance is crucial. Medical emergencies can derail your financial plans if not adequately covered.

Review Life Insurance: Assess your life insurance needs and ensure you have sufficient coverage to protect your family’s financial future.

Retirement Planning: Beyond your goal of Rs. 1.5 crore, continue planning for retirement. Consider other retirement-specific investment options and strategies.

Regular Financial Check-ups
Regularly reviewing your financial plan is essential. Market conditions, personal circumstances, and financial goals can change over time. Schedule periodic check-ups with a Certified Financial Planner (CFP) to ensure your investments are on track and make necessary adjustments.

Final Insights
Achieving a corpus of Rs. 1.5 crore by the age of 55 is a commendable goal. Your current investments and savings provide a strong foundation. By increasing your SIP amounts, reinvesting wisely, and diversifying your investments, you can enhance your chances of reaching this goal.

Remember, consistency, discipline, and regular reviews are key to successful financial planning. You’re already doing great, and with a few strategic adjustments, you’ll be well on your way to achieving your financial aspirations.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in