Hello Sir, I am 44 years old and running 11k SIP in different mutual funds for last 2 years. Previously also I invested but was not regular. I need around 70 lacs at the age of 55 years. Please suggest.

Ans: You are already investing Rs 11,000 per month in different mutual funds, which is a good start. However, given your goal of Rs 70 lakhs by age 55 (which is 11 years from now), we need to assess whether your current strategy will suffice or if adjustments are necessary.

The Importance of Consistency
Regularity is the key to compounding. Since you mentioned earlier investments weren't regular, it’s crucial to stick with your current strategy. The power of compounding grows significantly with consistency over time.

Three factors influence your final corpus:

Investment Amount: Currently Rs 11,000 per month.

Investment Horizon: 11 years remaining.

Expected Rate of Return: Typically, equity mutual funds have delivered 10-12% over the long term.

You may need to increase your monthly SIP to meet your target. Based on the power of compounding, investing systematically with proper asset allocation will help you reach your goal.

Review Your Asset Allocation
Given your long-term goal, equity exposure is ideal. Ensure that the bulk of your portfolio remains in equity mutual funds, as they have historically provided higher returns than debt instruments over longer periods. But also consider a balanced approach to minimize risks.

Key points to evaluate:

Risk Appetite: How comfortable are you with market volatility? While equities have potential for higher returns, they can be volatile in the short term. You might consider diversifying into hybrid or balanced funds if you're uncomfortable with 100% equity exposure.

Time Horizon: You have 11 years, which allows you to take a slightly higher risk in the initial years and reduce risk as you approach the goal.

Adjusting Your Monthly SIP
Rs 11,000 per month may not be sufficient to reach your Rs 70 lakh target. A rough assessment suggests you may need to increase your SIP amount.

Review Your Current SIP: Check if your existing SIPs are in equity mutual funds with good long-term performance. If not, consider switching to better-performing funds.

Gradually Increase Your SIP: With each year, aim to increase your SIP by 10-15%. This strategy takes advantage of your growing income and the power of compounding.

Tax Implications
Be aware of the tax on mutual fund returns:

Equity Mutual Funds: Gains beyond Rs 1.25 lakh annually are taxed at 12.5%. Short-term gains are taxed at 20% if held for less than one year.

Debt Mutual Funds: Gains are taxed according to your income tax slab. Long-term and short-term gains are treated similarly in debt funds.

Thus, it's essential to plan your withdrawals strategically to minimize taxes.

Rebalancing the Portfolio
As you approach the age of 55, start shifting some of your funds to safer instruments. Around 3-4 years before your goal, move a portion of your equity portfolio into debt funds to safeguard your returns from market volatility.

Equity to Debt Transition: By reducing equity exposure gradually, you can lock in the gains while reducing risks closer to your target.
Benefits of Regular Plans Over Direct Funds
If you are investing directly in mutual funds without the guidance of a Certified Financial Planner (CFP), you may miss out on personalized advice that could optimize your portfolio. While direct funds may have lower expense ratios, regular funds offer professional advice that could help you maximize returns, balance risks, and make timely changes based on market conditions.

Stay Focused on Actively Managed Funds
Avoid index funds or ETFs. Actively managed funds tend to outperform index funds during volatile markets because skilled fund managers can adapt to market conditions. Actively managed funds have consistently delivered superior returns by identifying opportunities and mitigating risks.

Index funds simply mirror a particular index, and while they come with lower costs, they may not offer the growth potential you need to meet your Rs 70 lakh goal.

Liquidity and Emergency Fund
Ensure that you have a liquid fund or a contingency reserve for emergencies. This way, you won’t need to withdraw from your SIPs or mutual funds prematurely. A good rule of thumb is to keep 6-12 months' worth of expenses in an easily accessible form, like a liquid or ultra-short-term debt fund.

Avoiding Insurance-Based Investment Products
Since you didn’t mention holding any insurance-linked investments like ULIPs or LIC policies, I won’t recommend any changes. However, always avoid mixing insurance with investments. Stick to pure term insurance for protection, and keep your investment and insurance needs separate for better returns and lower costs.

Final Insights
To reach your target of Rs 70 lakhs by age 55, consider these points:

Increase your SIP amount gradually to keep pace with inflation and income growth.

Stay focused on equity mutual funds for their long-term growth potential.

Maintain portfolio discipline and avoid impulsive changes due to market fluctuations.

Work with a Certified Financial Planner (CFP) to review and optimize your investments annually.

With these strategies, you're well on your way to achieving your goal.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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