28-year-old HR Executive seeks advice on building a 50 lakh corpus in 12 years

Ans: You aim to accumulate a corpus of Rs 50 lakhs in the next 12 years. Your current income is Rs 35,000 per month, with expenses of Rs 12,000. You have an equity stock portfolio of Rs 1,25,000 and mutual fund investments of Rs 1,85,000, with a mix of SIPs and lump sum investments. You also plan to increase your SIPs by 10-15% per year. Let’s evaluate your strategy and explore ways to achieve your goal.

Assessing Your Current Investments
Your current investments are spread across both equity stocks and mutual funds. This diversified approach is good for managing risk and capturing growth opportunities.

Equity Stock Portfolio
Stock Investments: You have an equity stock portfolio of Rs 1,25,000. This can be a valuable part of your long-term investment strategy, but it is essential to monitor the stocks regularly. Focus on quality stocks with strong fundamentals.
Mutual Fund Portfolio
Axis Nifty 50 Index Fund: You have a Rs 1,000 SIP in this fund. While index funds are often recommended for their low costs, they may not always outperform actively managed funds, especially in the long term.

ICICI Prudential Value Discovery Fund: A Rs 1,500 SIP in this fund indicates that you are inclined towards value investing. This approach can be beneficial, particularly during market downturns.

HDFC Focused 30: A lump sum investment in this fund shows that you are also interested in concentrated portfolios, which can offer higher returns but come with higher risk.

Nippon India Multi Cap Fund: This lump sum investment diversifies your exposure across large, mid, and small-cap stocks. Multi-cap funds can be advantageous as they offer flexibility to fund managers to move across market caps based on opportunities.

SBI Balanced Advantage Fund: This lump sum investment in a balanced advantage fund offers a blend of equity and debt, providing stability and moderate growth.

Sundram Services Fund: This is another lump sum investment, likely in a sectoral fund focused on the services sector. Sectoral funds can be volatile, so it is crucial to keep an eye on their performance.

Evaluating the Disadvantages of Index Funds
Index funds like the Axis Nifty 50 replicate the performance of a specific index. While they offer low expense ratios, they do not actively seek to outperform the market. They also do not provide downside protection during market corrections. Actively managed funds, on the other hand, have the potential to outperform the index and provide better risk-adjusted returns, especially in volatile markets.

Evaluating the Disadvantages of Direct Funds
Direct funds may offer slightly higher returns due to lower expense ratios, but they require active management and regular monitoring by the investor. Investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) credential can provide professional guidance, helping you choose the right funds based on your goals and risk profile.

Strategic Recommendations for Your Portfolio
Increase SIP Contributions
SIP Growth: Increasing your SIP by 10-15% annually is a wise strategy. It leverages the power of compounding, enabling your investments to grow significantly over time.

Prioritize Active Funds: Given the potential of actively managed funds to outperform the market, consider shifting your SIP from the index fund to a well-performing active fund. This could provide you with better returns in the long run.

Rebalance Your Portfolio
Diversification: Your portfolio is well-diversified, but it’s important to review your sectoral fund allocation. Sectoral funds like the Sundram Services Fund can be more volatile. You may want to reduce exposure to sector-specific funds and allocate more towards diversified equity funds or balanced funds that offer a mix of equity and debt.

Review Lump Sum Investments: Reassess your lump sum investments, especially in multi-cap and sectoral funds. Consider switching to funds that align more closely with your risk tolerance and time horizon.

Achieving the Rs 50 Lakh Corpus Goal
Calculating SIP Requirements
Target Corpus: Rs 50 lakhs in 12 years
Current Portfolio Value: Rs 3,10,000 (equity + mutual funds)
SIP Growth Strategy: Start by increasing your current SIP contributions. As your income grows, continue to increase your SIPs by 10-15% annually.
Assumptions
Expected Return on Investment (ROI): Assuming an average ROI of 12% per annum from your mutual funds and equity investments.

Inflation Adjustment: Consider the impact of inflation on your future purchasing power. A 6-7% inflation rate can erode the real value of your corpus over time.

Regular Monitoring and Adjustments
Annual Review: Conduct an annual review of your portfolio. Adjust your SIPs and asset allocation based on your progress towards the Rs 50 lakh goal and market conditions.

Emergency Fund: Maintain an emergency fund to cover at least 6 months of your expenses. This fund should be kept in a liquid asset, such as a savings account or liquid mutual fund.

The Importance of Financial Discipline
Stick to Your Plan: Financial discipline is key to achieving your long-term goals. Continue to increase your SIPs, avoid unnecessary withdrawals, and remain focused on your Rs 50 lakh target.

Avoid Emotional Decisions: Market volatility can lead to emotional decision-making. Stick to your investment strategy and avoid making hasty changes based on short-term market movements.

Final Insights
You are on the right track towards achieving your financial goal of accumulating Rs 50 lakhs in 12 years. By strategically increasing your SIP contributions, rebalancing your portfolio, and focusing on actively managed funds, you can enhance your chances of reaching your target. Remember to regularly review your investments, stay disciplined, and avoid emotional decisions to ensure your financial success.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in