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Ramalingam Kalirajan |4128 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 08, 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

Question by hemant on Jun 07, 2024Hindi

Hello Sir, I am 35 Yr old, investing in PPFF-10K, Axis Small cap 6K, Mirae large cap- 10k, Hdfc multicap - 5k, nippon small cap - 10k Quant ELSS - 5OK lumsum i want 1.5cr in 6-7 years of my business setup, so how much do I need to save or add on to sip or any other mode of investment to be made so i can achieve this. thanks - Hemant Singh

Ans: Dear Hemant Singh,

Thank you for sharing your investment goals and portfolio details. Your determination to build a significant corpus for your business setup is commendable. At 35, you have a reasonable time frame of 6-7 years to achieve your target. Let’s assess your current investments and devise a strategy to reach your goal of Rs 1.5 crore.

Current Investment Portfolio
Your current SIP investments are as follows:

PPFF: Rs 10,000
Axis Small Cap: Rs 6,000
Mirae Large Cap: Rs 10,000
HDFC Multicap: Rs 5,000
Nippon Small Cap: Rs 10,000
Quant ELSS: Rs 50,000 (lumpsum)
Let's calculate the potential future value of these investments over the next 6-7 years.

Estimating Future Value of SIP Investments
To estimate the future value, we assume an average annual return of 12% for your mutual fund investments. This rate is based on historical performance but can vary.

Calculations for SIP Investments
We use the future value of SIP formula:

A = P × [(1 + r)^n - 1] / r × (1 + r)

Where:

A = Future Value
P = Monthly SIP amount
r = Monthly rate of return (12% annual return / 12 months = 1% = 0.01)
n = Total number of months
Let's calculate for each SIP:

PPFF: Rs 10,000 per month
P = 10,000, r = 0.01, n = 84

A = 10,000 × [(1 + 0.01)^84 - 1] / 0.01 × (1 + 0.01)

A ≈ 10,000 × 118.41 × 1.01

A ≈ 11,92,125

Axis Small Cap: Rs 6,000 per month
P = 6,000, r = 0.01, n = 84

A = 6,000 × [(1 + 0.01)^84 - 1] / 0.01 × (1 + 0.01)

A ≈ 6,000 × 118.41 × 1.01

A ≈ 7,15,275

Mirae Large Cap: Rs 10,000 per month
P = 10,000, r = 0.01, n = 84

A = 10,000 × [(1 + 0.01)^84 - 1] / 0.01 × (1 + 0.01)

A ≈ 10,000 × 118.41 × 1.01

A ≈ 11,92,125

HDFC Multicap: Rs 5,000 per month
P = 5,000, r = 0.01, n = 84

A = 5,000 × [(1 + 0.01)^84 - 1] / 0.01 × (1 + 0.01)

A ≈ 5,000 × 118.41 × 1.01

A ≈ 5,96,063

Nippon Small Cap: Rs 10,000 per month
P = 10,000, r = 0.01, n = 84

A = 10,000 × [(1 + 0.01)^84 - 1] / 0.01 × (1 + 0.01)

A ≈ 10,000 × 118.41 × 1.01

A ≈ 11,92,125

Total Future Value of SIPs
Adding up the future values of all your SIPs:

11,92,125 + 7,15,275 + 11,92,125 + 5,96,063 + 11,92,125 = 48,87,713

Estimating Future Value of Lumpsum Investment
Assuming an average annual return of 12% for your lumpsum investment:

A = P × (1 + r)^n

Where:

A = Future Value
P = Principal amount (lumpsum)
r = Annual rate of return
n = Number of years
P = 50,000, r = 0.12, n = 6.5

A = 50,000 × (1 + 0.12)^6.5

A ≈ 50,000 × 2.01

A ≈ 1,00,500

Combining SIP and Lumpsum Investments
Total Future Value = SIP Future Value + Lumpsum Future Value

Total Future Value = 48,87,713 + 1,00,500 = 49,88,213

Gap Analysis
You aim to accumulate Rs 1.5 crore in 6-7 years. Based on current investments, you would accumulate approximately Rs 49,88,213.

Gap = 1,50,00,000 - 49,88,213 = 1,00,11,787

Additional Investments Needed
To calculate the additional monthly SIP needed to bridge this gap, we use the future value of SIP formula:

A = P × [(1 + r)^n - 1] / r × (1 + r)

Where:

A = 1,00,11,787
r = 0.01
n = 84
Rearranging to solve for P:

P = A / {[(1 + r)^n - 1] / r × (1 + r)}

P = 1,00,11,787 / {[(1 + 0.01)^84 - 1] / 0.01 × (1 + 0.01)}

P ≈ 1,00,11,787 / (118.41 × 1.01)

P ≈ 84,700

Investment Strategy
To achieve your target, consider increasing your SIP by Rs 84,700 per month. This might seem substantial, so here are a few strategies to help:

Review and Adjust Portfolio
Regularly review your portfolio to ensure it aligns with your goals. Consider reallocating funds to higher-performing mutual funds, if needed.

Increase Contributions Gradually
If increasing your SIP by Rs 84,700 at once is challenging, consider doing it gradually. Incremental increases can help you adjust your budget over time.

Explore Additional Investment Avenues
While mutual funds are excellent, consider diversifying into other investment options like bonds or gold ETFs to balance risk.

Stay Disciplined and Consistent
Consistent contributions and disciplined investing are key to achieving your goals. Avoid withdrawing funds prematurely to allow compounding to work its magic.

Seek Professional Guidance
Working with a Certified Financial Planner (CFP) can provide personalized advice tailored to your financial situation and goals. A CFP can help optimize your investment strategy, manage risks, and ensure you are on track to achieve your business setup target.

Final Insights
Your proactive approach and disciplined investment strategy are commendable. By increasing your monthly SIP contributions and regularly reviewing your portfolio, you can bridge the gap and achieve your goal of Rs 1.5 crore in 6-7 years. Stay committed to your financial plan, and consider seeking professional guidance to maximize your investment potential.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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