37-Year-Old Woman Seeks Advice: Can She Achieve a Rs.2 Crore Corpus in 10-20 Years with Her Current Investments?

Ans: Your journey of investing, starting with a modest amount and gradually increasing over the years, is commendable and reflects discipline and commitment. Your current portfolio, consisting of mid-cap, large-cap, and gold savings funds, provides a blend of growth-oriented and defensive assets.

To achieve a corpus of Rs 1 Crore in the next 20 years, it's essential to maintain a balanced approach between growth and stability. While your current funds have their merits, consider diversifying further to potentially enhance returns while managing risk.

Regular reviews with a Certified Financial Planner can help assess your portfolio's alignment with your long-term goals and market conditions. With disciplined investing and periodic reviews, you can navigate the investment landscape with confidence, aiming to reach your financial milestone.

Remember, investing is a journey of patience, resilience, and continuous learning. Embrace this journey with confidence and commitment, and may your investments flourish over the years, paving the way towards achieving your financial aspirations.

Ans: Hello;

Your current portfolio corpus of 31 L will grow into a sum 1.05 Cr after 10 years.

The 20 K sip currently ongoing will lead you to a corpus of 49.34 L thereby leading to shortage of 50 L+ in your planned corpus.

It has 2 solutions;
1. Double the sip amount to 40K which will lead you to a sum of around 1 Cr after the end of 10 years.

2. Top-up the existing 20 K sip by 20% minimum every year to lead you to a corpus of 1 Cr at the end of 10 years.

So lumpsum corpus added with sip corpus will help you achieve your intended target of 2 Cr after 10 years.
(A modest return of 13% is assumed)

My view is you should replace Invesco India Infrastructure fund with Kotak emerging equities fund and Quant small cap fund with Nippon India small cap fund.

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

You may follow us on X at @mars_invest for updates.

Happy Investing!!

Ans: Value funds are a great option for many investors. They invest in undervalued companies with strong potential for future growth. These funds target businesses that may not be performing well now, but have the capacity to grow in the future. This makes them a good choice if you have a long-term horizon and the ability to tolerate volatility.

A key feature of value funds is that they can outperform during certain market phases. However, during other phases, they may underperform compared to other equity funds like growth funds or flexi-cap funds.

Assessing Long-term Returns
Although your current fund may be delivering 30% XIRR, this is not sustainable in the long run. Market conditions fluctuate, and value funds can see significant ups and downs. Historically, the long-term average return for equity funds is between 10-12%. This will vary depending on market cycles, and it’s crucial to consider this when evaluating the performance of your fund.

So, while the current returns look appealing, they should be viewed as part of a larger trend over time. A key insight here is that investing in equity always comes with volatility. Don’t get caught up in short-term gains; instead, focus on the long-term growth potential.

Value Funds vs. Other Equity Funds
Value funds are one part of the equity category, and they have a specific strategy. But compared to growth funds or flexi-cap funds, value funds can be more volatile in the short run.

In growth funds, investments are made in companies expected to grow faster than the market. They can provide better short-term performance during a bullish phase. Flexi-cap funds, on the other hand, balance risk by investing across large, mid, and small-cap companies. This makes them more flexible and diversified.

While value funds have the potential for higher returns, they may also see more volatility. Other equity funds might provide a smoother ride, albeit with possibly lower highs during market rallies.

Active Funds vs. Index Funds
It is worth noting the difference between active value funds and index funds. Index funds are passively managed and follow the market's movement. They don't aim to outperform but to match a particular benchmark. This means they may offer lower returns compared to actively managed funds, where the fund manager picks stocks based on market conditions and strategies.

One of the disadvantages of index funds is that they cannot react to market changes. If a particular sector is underperforming, index funds will still be forced to hold those stocks, while an active fund manager can make adjustments to avoid losses.

So, in your case, actively managed funds, especially in the value space, can provide better returns with professional management.

Direct vs. Regular Funds
If you are investing through direct funds, you might want to consider the benefits of switching to regular funds through a Certified Financial Planner. Direct funds have lower expense ratios, but that comes with fewer insights and advice. A Certified Financial Planner can guide you through market cycles and help rebalance your portfolio.

A good MFD with a CFP credential will actively monitor and suggest changes in your investments based on changing market conditions. This advice and regular tracking help in making better financial decisions compared to direct funds.

Setting Up an STP for Better Risk Management
Systematic Transfer Plans (STPs) can be a smart option for managing risk. If you're experiencing a windfall in returns, an STP allows you to move your money into a safer option gradually.

Instead of pulling out everything and trying to time the market, an STP can help you balance between high-risk and low-risk investments. You can shift from a value fund into something more stable like a balanced fund or debt fund over time.

This approach can lock in your profits while giving you a more stable future return.

However, an STP is not necessary for everyone. If your goal is long-term, and you can handle market fluctuations, then staying invested in the value fund may be more beneficial. Equity funds reward patience. You should only consider an STP if you're nearing a financial goal or require more liquidity.

Risk Assessment of Value Funds
Every equity fund comes with risk, but value funds can be more volatile. They often invest in companies going through temporary troubles but with strong fundamentals. The risk here is that not all of these companies will recover quickly.

In good times, value funds can outperform the market. But when the economy slows, these funds may underperform. This makes them ideal for long-term investors who are willing to ride out market swings. If you are comfortable with this level of risk, then value funds are still a good option.

The Impact of Volatility
Volatility is a part of investing in value funds. High returns like the 30% XIRR you are seeing now may not last. But even if they drop, the core potential of value funds remains strong. Over a 10 to 15-year period, the return could stabilize around 12% CAGR, which is still healthy.

It is essential to have realistic expectations when investing in these funds. Don't let short-term gains make you overly optimistic or lead you to increase your risk unnecessarily.

Should You Continue Investing in Value Funds?
If your investment horizon is long-term, value funds can still play a crucial role in your portfolio. You should, however, ensure that you are diversified across other fund types to spread your risk. A Certified Financial Planner can help in assessing whether you need to rebalance your investments.

In general, staying invested in value funds is not wrong. They offer great potential for wealth creation but come with volatility. You just need to ensure you’re not overexposed to one fund type.

Final Insights
A 30% XIRR from a value fund is impressive but temporary. Over time, expect returns to normalize around 12% with volatility.

Diversifying across other equity funds can reduce your overall risk. If you’re uncomfortable with the current volatility, consider setting up an STP. But if your goal is long-term, staying invested in the value fund could still yield strong results. Always seek advice from a Certified Financial Planner to ensure you are on the right track.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
Instagram: https://www.instagram.com/holistic_investment_planners/

Ans: Your portfolio value is Rs. 42.02 lakh, which is impressive.

You are investing Rs. 85,000 monthly, which is a significant commitment.

Your SIPs are diversified across categories, including large-cap, mid-cap, and flexi-cap funds.

You have exposure to momentum, thematic, and international funds.

Your plan to increase SIPs by 10% yearly is a positive step.

Assessing Your Corpus Target
Your goal is to accumulate Rs. 5 crores in 7 years.

Equity investments over 7 years may yield good returns due to compounding.

However, achieving Rs. 5 crores depends on consistent returns and SIP increases.

Market fluctuations can impact growth, requiring regular monitoring.

Insights on Fund Allocation
Your portfolio has multiple schemes, which might cause over-diversification.

Too many funds may reduce focus and overlap stock holdings.

Avoid index funds for higher returns. Actively managed funds often outperform.

Direct funds lack personalized advice. Regular plans with Certified Financial Planners add value.

Ensure all funds align with your risk profile and long-term goals.

Suggested Portfolio Changes
Reduce overlapping categories. Focus on fewer, well-performing funds.

Replace underperforming funds with actively managed funds.

Avoid investing in too many thematic or sector-specific funds.

Increase allocation to mid-cap and flexi-cap funds for higher growth potential.

Review international exposure. It should be limited to 10-15% of your portfolio.

Enhancing Investment Strategy
Stick to equity funds for long-term wealth creation.

Avoid debt funds unless needed for short-term goals or stability.

Rebalance your portfolio yearly to align with your goals.

Include funds with consistent performance across market cycles.

Monitor taxation. Plan redemptions to optimise tax impact.

The Disadvantages of Index Funds
Index funds track the market passively.

They cannot outperform the market or take advantage of opportunities.

Actively managed funds are better for high returns over the long term.

Index funds lack professional intervention during volatile phases.

Importance of Regular Plans
Regular plans provide expert guidance from Certified Financial Planners.

Direct funds may seem cost-effective but lack personalised insights.

Regular plans ensure disciplined investing and strategic reviews.

Setting Up a Review Plan
Review your portfolio performance annually.

Assess returns, diversification, and risk-adjusted performance.

Make adjustments based on market conditions and personal financial changes.

Tax Considerations for Mutual Funds
Equity mutual funds have new tax rules.

LTCG above Rs. 1.25 lakh is taxed at 12.5%.

STCG is taxed at 20%.

Plan withdrawals to minimise tax impact.

Final Insights
Your goal is achievable with disciplined investing and portfolio optimisation.

Avoid over-diversification and focus on fewer, high-performing funds.

Stay committed to SIP increases to accelerate corpus growth.

Consult a Certified Financial Planner for annual reviews and strategic adjustments.

A focused and well-managed portfolio will help you achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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