Hi I am male 36 years earning Rs 90000 a month working in a government organisation. My monthly expenses are Rs 50000. I am investing in following mutual funds and Provident Fund :-
Axis Bluechip Fund - Rs 1000 monthly and current value Rs 70000
Axis Mid cap Fund - Rs 1500 monthly and current value Rs 60000
Nippon India Flexi Cap Fund - Rs 1100 monthly and current value Rs 40000
SBI Nifty SMALL cap index fund - Rs 2000 monthly and current value - Rs 29000
Provident Fund - Rs 20000 monthly and current value - Rs 10 Lakhs
Sukanya Smridhi Yojna for my 4 years old daughter - Rs 2500 monthly and current value Rs 118000
I have my wife, 4 years old and mother who are financially dependent on me. I have own house. No loan EMIs are going on. I wish to retire in next 10 years. Is it possible?
Ans: At 36 years old, earning Rs 90,000 per month, and investing in mutual funds and the Provident Fund, you're building a solid foundation. With a manageable monthly expense of Rs 50,000, you are saving around Rs 40,000 per month. This surplus gives you a good start towards achieving your retirement goals.
Your current investments include:
Axis Bluechip Fund: Rs 1,000 monthly SIP, with a current value of Rs 70,000.
Axis Mid Cap Fund: Rs 1,500 monthly SIP, with a current value of Rs 60,000.
Nippon India Flexi Cap Fund: Rs 1,100 monthly SIP, with a current value of Rs 40,000.
SBI Nifty Small Cap Index Fund: Rs 2,000 monthly SIP, with a current value of Rs 29,000.
Provident Fund: Rs 20,000 monthly contribution, current value Rs 10 lakh.
Sukanya Samriddhi Yojana: Rs 2,500 monthly contribution for your daughter, current value Rs 1.18 lakh.
It is commendable that you are consistently investing in mutual funds and secured schemes like the Provident Fund and Sukanya Samriddhi Yojana for your daughter. These diversified investments provide stability and growth.
Now, you have set a target to retire in the next 10 years. Let’s assess the feasibility of that goal.
Assessing Your Retirement Timeline
With a 10-year timeline for retirement, you need to ensure that your investments can generate sufficient wealth to cover your post-retirement expenses. You need to account for the following factors:
Inflation: Prices will rise over time, and your expenses will likely increase. Even if your current monthly expense is Rs 50,000, it could double in 10 years due to inflation.
Post-Retirement Monthly Income: After retiring, you will need a regular income to meet your living expenses, cover healthcare, and support your family.
Longevity: You should plan for a retirement period that could last 30 years or more. This means your retirement corpus must last for a long time.
Existing Dependents: You have a wife, a 4-year-old daughter, and a mother who are financially dependent on you. This adds additional responsibility and expense post-retirement.
Given these factors, retiring in 10 years is possible if you carefully plan and optimize your investments.
Recommended Asset Allocation for Retirement
A balanced investment strategy is essential for achieving your goal of early retirement. Here’s a step-by-step approach to structure your investments:
Equity Mutual Funds: Continue investing in equity mutual funds for long-term growth. However, I would recommend focusing on a mix of large-cap, mid-cap, and flexi-cap funds.
Actively Managed Funds Over Index Funds: You currently have an investment in an index fund (SBI Nifty Small Cap Index Fund). Index funds tend to provide market-level returns, which may not be sufficient to meet your retirement goals. Actively managed funds offer the potential for better returns because fund managers can take advantage of market opportunities.
By switching from index funds to actively managed funds, you give yourself a higher probability of generating alpha (returns above the market average).
Provident Fund: Continue contributing to the Provident Fund, as it provides a secure, guaranteed return and will serve as a safe portion of your retirement corpus. The EPF also gives you tax-free returns, which are crucial for long-term security.
Increase SIPs Gradually: As your income grows or expenses reduce, try to increase your SIPs. A regular increase of 5% to 10% in SIP contributions can significantly enhance your retirement corpus over time.
Debt Funds for Stability: While equity funds are important for growth, debt mutual funds provide stability and regular returns. As you approach retirement, start allocating a portion of your savings to debt mutual funds. They will offer a regular income stream, while also reducing risk.
Debt funds are also tax-efficient as compared to traditional fixed deposits, especially for long-term capital gains.
Role of Sukanya Samriddhi Yojana
The Sukanya Samriddhi Yojana (SSY) for your daughter is a great way to secure her future education. However, you should continue monitoring the progress of the SSY account and ensure that you’re on track to meet her future education needs.
The SSY will also give you tax benefits under Section 80C, making it an efficient investment option from both a financial and tax-saving perspective.
This is a long-term investment, and the current contributions look sufficient for your daughter’s needs. You can gradually increase your contributions as your income grows.
Why Direct Mutual Funds May Not Be Ideal
It is important to be aware of the distinction between direct funds and regular funds. Direct funds come with lower expense ratios but require hands-on management. If you opt for direct funds, you must actively monitor and adjust your portfolio.
However, investing through a Certified Financial Planner (CFP) via regular funds ensures professional advice. Your investments will be periodically reviewed and rebalanced to meet your goals. Although regular funds have a slightly higher expense ratio, they come with valuable services that can help you stay on track for retirement.
Thus, it’s better to invest through a CFP who can guide you in adjusting your portfolio as per market trends and your financial goals.
Consider Your Emergency Fund
It’s essential to maintain an emergency fund that can cover 6 to 12 months of living expenses. Given your current expenses of Rs 50,000 per month, aim to set aside around Rs 3-6 lakh in a highly liquid and safe investment, such as a liquid fund or a short-term debt fund.
This emergency fund will act as a buffer during unforeseen circumstances and help you avoid dipping into your long-term investments.
Final Insights
To retire in 10 years, you will need a substantial retirement corpus. This requires careful planning and disciplined investments. Here’s what you should do:
Continue investing in mutual funds, but shift focus towards actively managed funds.
Increase your SIP contributions as your income grows. You are currently saving Rs 40,000 per month, but try to save and invest more if possible.
Maintain a healthy balance between equity and debt investments. While equities will give you growth, debt will provide stability.
Keep contributing to Sukanya Samriddhi Yojana for your daughter’s future.
Avoid direct mutual funds unless you can actively manage the portfolio. Regular funds with a CFP offer better guidance.
Don’t forget to maintain an emergency fund.
With these strategies in place, you have a good chance of achieving your retirement goal in 10 years. But it’s important to continuously review and adjust your plan as you move closer to retirement.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
