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

Ramalingam

Ramalingam Kalirajan  |6995 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 12, 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
Meenakshi Question by Meenakshi on Jul 13, 2024Hindi
Money

Hello sir ,I am 37 years old female I am investing in mutual fund since 2023 Total value approx.2 lakh SBI contra-5000 Edelweiss balanced advantage fund -2000 Mirae asset ELSS tax saver-2000 Parag pareikh flexi cap direct growth-3000 Quant small cap -5500 Bhandhan ELSS tax saver-2500 Some investment in PPF- 8lkh Ssy-6 lkh Please advice is this a right way to achieve goal of corpus 2 crore in 10-20 years or need more investment or any changes in investment Please advice

Ans: You are off to a good start by investing in mutual funds and other secure instruments like PPF and SSY. Your goal is to achieve a corpus of Rs. 2 crores within 10-20 years. This is an achievable target with the right strategy, discipline, and possibly some adjustments to your current investment plan.

Evaluating Your Existing Mutual Fund Portfolio
SBI Contra Fund
A contra fund invests in undervalued stocks, following a contrarian approach. These funds can deliver high returns over the long term but can be volatile. Given your long-term horizon, it’s a good addition to your portfolio, especially if you have a high-risk appetite.

Edelweiss Balanced Advantage Fund
Balanced advantage funds dynamically allocate between equity and debt based on market conditions. This fund offers stability and is suitable for conservative investors. It’s a good choice for reducing the overall risk in your portfolio.

Mirae Asset ELSS Tax Saver
ELSS funds provide tax benefits under Section 80C and have a three-year lock-in period. These funds are equity-oriented, offering growth potential. Investing in ELSS is a smart way to save taxes while building wealth.

Parag Parikh Flexi Cap Fund
Flexi-cap funds invest across large, mid, and small-cap stocks. This fund is versatile, providing diversification across different market capitalizations. It’s a strong growth-oriented fund that can help you achieve your long-term goals.

Quant Small Cap Fund
Small-cap funds invest in smaller companies with high growth potential. While these funds can be volatile, they offer significant returns over time. However, it’s crucial to monitor them closely, especially if market conditions change.

Bandhan ELSS Tax Saver Fund
Like the Mirae Asset ELSS fund, this fund also provides tax benefits while offering growth through equity investments. Having two ELSS funds can be redundant unless you are utilizing them fully for tax savings under Section 80C.

Review of Your Non-Mutual Fund Investments
Public Provident Fund (PPF)
Your investment in PPF is sound. It provides safety, guaranteed returns, and tax benefits. However, the returns are fixed and may not keep pace with inflation over the long term. It’s good for preserving capital but not for aggressive growth.

Sukanya Samriddhi Yojana (SSY)
SSY is a government-backed savings scheme for the girl child, offering a high-interest rate with tax benefits. It’s an excellent investment for long-term security and is well-suited for goals related to your daughter’s future.

Assessing Your Investment Strategy
Current Investment Amounts
You are currently investing around Rs. 19,000 per month in mutual funds. To achieve a corpus of Rs. 2 crores in 10-20 years, it’s essential to evaluate whether this amount, along with your existing investments, will be sufficient.

Required Corpus Calculation
Without going into specific calculations, a rough estimate suggests that you may need to invest more than your current amount, especially if your goal is closer to 10 years. If your horizon is 20 years, your current investments, coupled with regular increases, might be sufficient.

Need for Additional Investment
If you can increase your monthly SIP amount, it would significantly enhance your chances of reaching your Rs. 2 crore target within 10 years. Given your current investments and the potential growth of your funds, consider gradually increasing your SIPs by 10-15% annually.

Suggested Adjustments and Diversification
Portfolio Diversification
Your portfolio is diversified across different types of funds, which is good. However, the allocation could be fine-tuned for better balance:

Increase Allocation to Large-Cap Funds: Large-cap funds provide stability and consistent returns. Consider adding a large-cap fund to your portfolio or increasing allocation if you already have one.

Reduce Redundancy in ELSS Funds: Since you have two ELSS funds, you might want to consolidate into one, unless both are serving a specific tax-saving purpose.

Monitor Small-Cap Exposure: While small-cap funds offer high growth, they also come with higher risk. Ensure you are comfortable with the volatility and consider balancing this with more stable investments.

Consider Adding a Multi-Cap Fund: Multi-cap funds offer diversification across large, mid, and small-cap stocks. They balance risk and return effectively, making them a good option for long-term growth.

Regular Review and Rebalancing
Review your portfolio at least once a year to ensure it remains aligned with your goals. Rebalance if necessary, to maintain the desired asset allocation.

The Disadvantages of Direct Funds
You are currently investing in direct funds, which have a lower expense ratio. However, direct funds require active monitoring and decision-making. If you prefer a more hands-off approach, investing through a Certified Financial Planner (CFP) with a Mutual Fund Distributor (MFD) credential can offer professional guidance, regular reviews, and portfolio adjustments. This ensures that your investments remain on track with your financial goals.

Final Insights
You are on the right path with your current investments. Your diversified portfolio of mutual funds, combined with safe investments like PPF and SSY, offers a good mix of growth and stability. However, to reach your Rs. 2 crore target in 10-20 years, consider increasing your monthly SIPs and possibly reallocating some investments for better balance.

Regularly reviewing your portfolio and making necessary adjustments will help you stay on track to achieve your financial goals. With disciplined investing and strategic planning, you can build a robust corpus for your future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Sir I have following investments Hdfc mid cap opportunities fund-direct Growth 4000 Hdfc top 100 direct growth5000 Reliance gold savings fund 1000 I want to.have corpus of Rs 10000000 in next 20 years from this investment. My current corpus is 1000000 approx. I am investing in mutual funds from last 11 years. I started with 1000 initially and increases the investment gradually. Do I need to change any fund or I am investing in right funds.
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.

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I am 49 years old and doing MF since 2009 staring with small amount 2000/- pm. Last year i shuffle the portfolio last year. I have following investment in mutual fund 1. parag parik Flexi cap fund - reg gr 5000/- 2. Canara robeco bluechief equity fund gr 5000/- 3. Invesco india infra structure fund 5000/- 4. Quant small cap fund 5000/- 5. PGIM midcap oppotunies fund gr 5000/- I want to create corpus of 2 cr in next 10 years Currently my portfolio value is around 31 L.
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/

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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