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37 year old with 4.5 crores in assets wants to retire at 45. How much corpus is needed?

Ramalingam

Ramalingam Kalirajan  |6528 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 11, 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
Asked by Anonymous - Sep 11, 2024Hindi
Money

Hello Sir, my age is 37 and I am currently employed in the private sector with a monthly salary of 1.75 lakhs. I would like to provide a summary of my financial situation and seek advice on how much corpus I would require to comfortably retire at the age of 45. Current Financial Overview: Real Estate: 3.5 crores (includes 3 houses and a plot) Stocks: 7.5 lakhs Mutual Funds: 13.5 lakhs Corporate Bonds: 2 lakhs Employees' Provident Fund (EPF): 21.5 lakhs Public Provident Fund (PPF): 8.5 lakhs (investing since 2013) PPF (Wife’s Name): 1.5 lakhs (invested this year, continue to invest the same amount each year) Gold: 20 lakhs Home Loan: 23 lakhs (balance with LIC), Planning to close within 1 year time-frame. Systematic Investment Plan (SIP): Investing 30,000 monthly (recently started, 3 months ago) Term Insurance: 1 crore (premium of approximately 35,000 annually) Health Insurance: Company-provided (7.5 lakhs limit) National Pension System (NPS): Investing 50,000 annually (started this year) Monthly Expenses: 50,000 (including child’s fees and other expenditures, excluding investments) & Investing 50K in Gold every month. Family Details: I have a 6-year-old son and am expecting a new baby in October 2024. My wife is a homemaker. Could you please provide guidance on how much corpus I would need to retire comfortably at 45, considering my current financial situation and future goals? Thank you for your assistance.

Ans: You've outlined a comprehensive overview of your financial landscape, which provides a solid foundation for planning your retirement. With a goal to retire at 45, you have eight years to build and secure a sufficient corpus to ensure a comfortable retirement for you and your family.

Key Financial Assets and Liabilities
Real Estate: Rs 3.5 crore
Stocks: Rs 7.5 lakhs
Mutual Funds: Rs 13.5 lakhs
Corporate Bonds: Rs 2 lakhs
EPF: Rs 21.5 lakhs
PPF: Rs 8.5 lakhs (self), Rs 1.5 lakhs (wife)
Gold: Rs 20 lakhs
Home Loan: Rs 23 lakhs (planning to close in 1 year)
SIP: Rs 30,000 per month (recently started)
NPS: Rs 50,000 annually (started this year)
Insurance: Term insurance of Rs 1 crore, company-provided health insurance of Rs 7.5 lakhs
Monthly Expenses: Rs 50,000 (excluding investments)
Evaluating Your Retirement Corpus Needs
To determine the corpus required for retirement at 45, we need to consider several factors, including your expected expenses during retirement, inflation, and the number of years you plan to be retired.

1. Estimate Post-Retirement Expenses:
Current Monthly Expenses: Rs 50,000 (excluding investments)

Inflation Adjustment: Assuming an average inflation rate of 6%, your current monthly expenses will likely increase by the time you retire.

Post-Retirement Monthly Expenses: Assuming you maintain a similar lifestyle, and considering inflation, your monthly expenses could rise to approximately Rs 80,000 by the time you retire.

Yearly Expenses: Rs 80,000 x 12 = Rs 9.6 lakhs annually at retirement age.

2. Determine the Number of Years in Retirement:
Retirement Age: 45 years
Life Expectancy: Assuming you plan up to 85 years, you'll need to plan for 40 years of retirement.
3. Estimate Required Corpus:
Corpus Required: The corpus needed to sustain your lifestyle for 40 years considering inflation, and safe withdrawal rates.
Assumptions:
Post-retirement, you could adopt a safe withdrawal rate of 4% annually.
Expected returns on the retirement corpus post-retirement could be around 7%.
Using these assumptions, the corpus required to sustain annual expenses of Rs 9.6 lakhs for 40 years with a 4% withdrawal rate can be calculated.

4. Corpus Calculation:
Given the complexities of long-term retirement planning, a simplified method to estimate the corpus is:

Corpus Calculation Formula:
Annual Expenses at Retirement Age (Rs 9.6 lakhs) x 25 = Rs 2.4 crores
This formula is based on the 4% rule, which suggests that if you withdraw 4% of your corpus annually, your savings should last for 30-40 years.

However, considering the uncertainties and potential changes in your lifestyle, a more conservative approach would be to plan for a corpus of around Rs 3-4 crores. This takes into account potential healthcare costs, lifestyle changes, and other unforeseen expenses.

Current Asset Evaluation and Future Planning
Now, let’s break down how your current assets can contribute towards building the required corpus and what additional steps are necessary.

1. Real Estate: Rs 3.5 Crores
Real estate is a significant part of your net worth. However, liquidity is an issue with real estate.
You might want to consider whether you plan to keep these properties for rental income, sell them closer to retirement, or downsize.
2. Stocks: Rs 7.5 Lakhs
Your current stock portfolio is modest. Over the next 8 years, aim to increase your investment in stocks through systematic investments (SIPs or direct stock purchases) to leverage market growth.
3. Mutual Funds: Rs 13.5 Lakhs
Continue your SIPs, and consider increasing the amount when feasible. Diversify into equity funds with a good track record, and consider a mix of large-cap, mid-cap, and hybrid funds to balance risk and return.
4. Corporate Bonds: Rs 2 Lakhs
While bonds are safer, they offer lower returns. It’s good to have them for stability, but focus more on equity for growth at this stage.
5. EPF and PPF: Rs 31.5 Lakhs
Your EPF and PPF investments are doing well. Continue with these contributions as they provide tax-free returns and security. Consider increasing your contribution to PPF if possible, as it offers a secure, long-term return.
6. Gold: Rs 20 Lakhs
Your monthly investment of Rs 50,000 in gold is significant. While gold is a good hedge against inflation, it should not dominate your portfolio. Consider reducing the monthly investment in gold and reallocating some of these funds into equity SIPs or mutual funds to enhance growth.
7. Home Loan: Rs 23 Lakhs
Closing this loan within a year is a wise decision, as it will free up cash flow and reduce your financial liabilities, allowing you to invest more aggressively for your retirement.
8. NPS: Rs 50,000 Annually
Since you’ve just started investing in NPS, it’s a good tax-saving tool with the added benefit of a pension. Continue with this investment, as it will provide you with a regular income post-retirement.
9. Term Insurance and Health Insurance
Your term insurance cover of Rs 1 crore is adequate. Ensure it is kept active as it provides financial security for your family. Review your health insurance coverage to ensure it meets your future needs, especially as your family grows.
Future Investment Strategy
Given your current asset base and retirement goal, here’s a roadmap to help you reach your target:

1. Increase Equity Investments
With 8 years to retirement, your portfolio should have a higher equity exposure to maximize growth. Gradually increase your SIP amounts in equity mutual funds or direct stocks.
Consider reallocating some of your monthly gold investment into equity funds to enhance returns.
2. Diversify Mutual Fund Investments
While continuing with your current SIPs, consider adding diversified equity funds and index funds to your portfolio. A balanced mix of large-cap, mid-cap, and small-cap funds will provide the necessary growth potential.
3. Consider Additional Real Estate Monetization
Evaluate if selling one of your real estate holdings closer to retirement could provide liquidity and enhance your retirement corpus. Alternatively, rental income can supplement your retirement income, but be cautious about the management and upkeep costs.
4. Maximize Tax-Advantaged Accounts
Continue contributing to your PPF and NPS accounts, as PPF provides tax-free returns and NPS contributes to a secure retirement corpus. Maximize contributions to these accounts within the allowable limits.
5. Focus on Debt Repayment
Prioritize closing your home loan within the next year. Once this debt is cleared, redirect the EMI amount into your retirement savings.
6. Emergency Fund
Ensure you have a sufficient emergency fund, equivalent to at least 6 months of expenses, to cover any unforeseen events without dipping into your retirement savings.
7. Plan for Healthcare and Child’s Education
Given that your family is growing, it’s essential to plan for increased healthcare needs and your children’s education expenses. Consider setting up dedicated funds for these goals, separate from your retirement corpus.
Regular Monitoring and Review
Retirement planning is dynamic. It’s crucial to review your investments regularly, at least once a year, to ensure they are aligned with your retirement goals. Adjust your strategy as needed based on market conditions, changes in your financial situation, and progress towards your retirement target.

Final Insights
Based on your current financial situation and assuming disciplined investment and regular reviews, accumulating a corpus of Rs 3-4 crores by the time you retire at 45 is feasible. This corpus, combined with your real estate assets and other investments, should provide a comfortable retirement with a reasonable withdrawal strategy.

Focus on increasing your equity exposure, reducing unnecessary debt, and ensuring your portfolio is well-diversified to achieve higher growth. As you approach retirement, gradually shift your portfolio towards more stable, income-generating assets to preserve your capital.

Retirement planning requires careful consideration of both current and future needs. By staying committed to your investment strategy and making informed adjustments, you can secure a financially independent retirement at 45.

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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Ramalingam

Ramalingam Kalirajan  |6528 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 15, 2024

Asked by Anonymous - May 15, 2024Hindi
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37F with one kid, living in Bengaluru. We have own house with no loans. I have a corpus of 3.2 Crores and expenses are close to 25L per year including vacations, school fees, shopping, regular household expenses. How much more corpus is required for me to retire at 45 if I need to maintain similar lifestyle? Thanks in advance, sir.
Ans: Understanding your financial situation, aspirations, and concerns is crucial to charting a path towards a comfortable retirement. Let's delve into your query.

Given your current annual expenses of 25 lakhs, extending this lifestyle into retirement necessitates a sizable corpus to sustain it over the years.

Evaluating Current Corpus
Your existing corpus of 3.2 Crores is commendable, laying a strong foundation for retirement planning. It reflects prudent financial management and diligent saving habits.

Estimating Retirement Corpus
To retire at 45 with a similar lifestyle, we need to factor in inflation, healthcare costs, and unforeseen expenses. Considering a life expectancy of 85 years, a conservative estimate suggests a corpus of around 8.5 Crores.

Closing the Gap
With a current corpus of 3.2 Crores, you're approximately 5.3 Crores short of the required amount. This gap underscores the importance of robust financial planning and strategic investment decisions.

Crafting a Strategy
To bridge this gap, we can explore avenues like systematic investment plans (SIPs) in diversified equity mutual funds, which historically offer higher returns over the long term. Additionally, optimizing tax-saving instruments can enhance your savings rate.

Conclusion
Retiring at 45 is an ambitious yet achievable goal given diligent planning and disciplined execution. Your proactive approach to seeking financial advice is commendable, and I'm confident that with the right strategies in place, you can realize your retirement dreams.

Best Regards,

K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6528 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 08, 2024

Asked by Anonymous - Jul 31, 2024Hindi
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Hi sir, I have net salary of 2.5L per month and am 48 year old with 2 children aged 16 and 14. I have a EPF corpus of 60 lakhs , NPS 20 lakhs, 10L in stocks,MF portfolio of 15L,invest 50k monthly in MF SIPs. I own a house(loan free), have other outstanding loans of 8 lakhs. I have family floater medical insurance with 30L coverage and life cover for 1.5Cr. I wish to retire by age of 50 - pls advise how much corpus do I need at hand to retire.consider my monthly expense as 60-70k
Ans: Current Financial Situation

Your current financial position is strong. You have a good salary and a solid investment portfolio. Owning a loan-free house adds security. Your EPF, NPS, and SIP investments are well-planned. The life and health insurance coverage is also comprehensive. However, retiring at 50 requires careful planning, especially considering your children’s future needs.

Assessing Your Retirement Needs

To determine your required retirement corpus, several factors must be considered:

Monthly Expenses Post-Retirement: Currently, your expenses are Rs. 60k-70k monthly. This will likely increase with inflation. At an estimated 6% inflation rate, your monthly expenses might double in 12 years.

Retirement Age: You plan to retire in two years at 50. This is an early retirement, so your corpus needs to last longer, possibly 35-40 years.

Children’s Education: Your children are 16 and 14. Higher education costs can be significant in the next few years. Allocating funds for their education is crucial.

Lifestyle Post-Retirement: Consider how your lifestyle might change. Will you travel more? Will healthcare needs increase? These factors affect your corpus requirement.

Estimating the Retirement Corpus

Based on your current expenses and future needs, your retirement corpus should be substantial. Here’s a simplified approach to calculating it:

Inflation-Adjusted Expenses: Your current expenses of Rs. 60k-70k monthly could rise to around Rs. 1.2 lakh monthly by the time you retire. Over a 35-40 year retirement period, this requires a significant corpus.

Healthcare Costs: As you age, healthcare costs will likely increase. While your insurance covers a significant amount, out-of-pocket expenses can still be high.

Children’s Future: Your children’s higher education and potential marriage costs must be factored in. This could be an additional Rs. 50-60 lakhs or more.

Lifestyle and Emergencies: Maintaining your current lifestyle and being prepared for emergencies is essential. This could add another Rs. 50 lakhs to your corpus requirement.

Considering these factors, a retirement corpus of approximately Rs. 10-12 crores might be necessary. This should be enough to cover your monthly expenses, healthcare, and any unforeseen costs. This estimate ensures a comfortable and secure retirement, even if you live longer than expected.

Optimizing Your Investments

To reach this corpus in two years, maximizing your investments is critical:

Increase SIP Contributions: Currently, you invest Rs. 50k monthly in SIPs. Increasing this amount, if possible, will help grow your corpus faster.

Focus on Growth-Oriented Funds: With a two-year horizon, investing in funds with higher growth potential can be beneficial. While these are riskier, they offer better returns.

Review Your Portfolio: Regularly review your mutual fund portfolio. Ensure it’s aligned with your retirement goals and risk tolerance.

Debt Reduction: Paying off the remaining Rs. 8 lakh loan should be a priority. Reducing debt will lower your financial burden in retirement.

NPS and EPF Utilization: Your EPF and NPS together amount to Rs. 80 lakhs. These are crucial components of your retirement corpus. However, they may not be enough alone, so continue to build on them.

Healthcare and Insurance Planning

Adequate Coverage: Your current health coverage of Rs. 30 lakhs is good. But, it might not be enough in later years due to rising medical costs. Consider enhancing your coverage or adding a super top-up plan.

Life Insurance: Your Rs. 1.5 crore life cover is substantial. Ensure it’s sufficient to cover your family’s needs if something happens to you before or after retirement.

Retirement Lifestyle and Goals

Post-Retirement Activities: Think about how you want to spend your retirement. If you plan to pursue hobbies or travel, these will need additional funds.

Part-Time Work: If full retirement seems challenging, consider part-time work or consulting. This can supplement your income and keep you engaged.

Final Insights

Retiring at 50 is ambitious, but achievable with careful planning. You should aim for a retirement corpus of Rs. 10-12 crores to cover all your future needs. Maximizing your investments, reducing debt, and planning for healthcare are key steps. Regular reviews with a Certified Financial Planner will help ensure your financial plan stays on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6528 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 09, 2024

Asked by Anonymous - Sep 09, 2024Hindi
Money
Hi sir, I have net salary of 2.7L per month and am 46 year old with 2 children aged 12 and 6. I have a EPF+PPF corpus of 65 lakhs , NPS 5 lakhs, 1CR in MF portfolio, invest 50k monthly (Which is on Hold currently) in MF SIPs. I own a house 65L(loan free) & another house 2CR have outstanding loans of 1CR. I have family floater medical insurance with 20L coverage and life cover for 1Cr. I wish to retire by age of 55 - pls advise how much corpus do I need at hand to retire. Consider my monthly expense as 1L
Ans: You are 46 years old with a net salary of Rs. 2.7 lakh per month. You have two children, aged 12 and 6, and a current corpus of Rs. 65 lakh in EPF and PPF, Rs. 5 lakh in NPS, and Rs. 1 crore in your mutual fund portfolio. Additionally, you own two properties, one valued at Rs. 65 lakh (loan-free) and another valued at Rs. 2 crore, with an outstanding loan of Rs. 1 crore. Your current monthly expenses are Rs. 1 lakh, and you have paused your monthly SIP of Rs. 50,000. You also hold a life insurance cover worth Rs. 1 crore and a family floater medical insurance with Rs. 20 lakh coverage.

You plan to retire by the age of 55, which gives you approximately nine years to build a sufficient corpus. Let's explore how much you need to comfortably retire while sustaining your current lifestyle.

Estimating Your Retirement Corpus
To determine your retirement corpus, we need to consider several factors:

Current monthly expenses: Rs. 1 lakh
Retirement age: 55
Post-retirement years: Assuming life expectancy of 85 years, you need to plan for 30 years post-retirement.
Inflation rate: An assumed inflation rate of 6% per year is a reasonable estimate for the future.
Growth rate of investments: Typically, diversified equity mutual funds have delivered around 10-12% returns over the long term.
Based on these factors, your current monthly expenses will increase due to inflation, and you need a corpus that generates enough to cover these rising costs. Since your expenses are Rs. 1 lakh today, they could double or triple over time. Your corpus should be able to sustain this without depleting prematurely.

Breakup of Current Assets
EPF & PPF (Rs. 65 lakh): These are stable, low-risk assets that will help you post-retirement but won't generate high returns.

NPS (Rs. 5 lakh): Provides tax benefits and is specifically designed for retirement savings. It will grow over time but is not highly flexible for withdrawals until retirement age.

Mutual Funds (Rs. 1 crore): This is an excellent foundation for your retirement plan. Equity mutual funds, in particular, have the potential to grow at a faster rate and combat inflation.

Real Estate (Rs. 65 lakh + Rs. 2 crore): While real estate holds value, its liquidity is limited. The house you live in does not contribute to your retirement corpus unless you plan to downsize. The second house has a loan of Rs. 1 crore, and the EMIs for this property must be factored into your pre-retirement cash flows.

Life Insurance (Rs. 1 crore): While it’s important for your family’s protection, this doesn’t contribute to your retirement corpus.

Estimating Your Future Monthly Expenses
Your current monthly expense is Rs. 1 lakh, but due to inflation, this figure will increase. Let’s assume the inflation rate remains at 6%. By the time you retire at 55, your monthly expenses will likely double or triple, reaching anywhere between Rs. 1.7 lakh to Rs. 2 lakh per month. Your retirement corpus should be large enough to generate this amount without running out of funds.

In addition, you’ll have to account for:

Healthcare costs: As you age, medical expenses tend to rise. Even though you have Rs. 20 lakh family floater insurance, post-retirement medical costs not covered by insurance should be factored in.

Educational expenses: Your children’s education could be a significant expense over the next 10 to 15 years.

Corpus Required for Comfortable Retirement
To maintain your current lifestyle, you would need a corpus that generates at least Rs. 2 lakh per month during retirement. Based on a withdrawal rate of 4%, which is commonly used to ensure the corpus lasts for the entirety of your retirement, you’ll need a retirement corpus of approximately Rs. 6 to 7 crore.

This corpus will ensure that you can comfortably cover your rising living expenses, healthcare, and other unforeseen costs without depleting your savings.

Recommendations to Achieve the Corpus
Here’s a detailed plan to help you achieve your target of Rs. 6 to 7 crore before retirement:

1. Resume Your SIP Investments
Restart your monthly SIP of Rs. 50,000 immediately. This is crucial, as equity mutual funds can provide the high returns needed to meet your retirement goal.

Consider increasing your SIP contribution each year in line with salary increments. This will accelerate your corpus growth and help you fight inflation more effectively.

2. Focus on Equity Mutual Funds
Given your long-term horizon (9 years until retirement), equity mutual funds remain the best investment option to grow your wealth. These funds have historically provided higher returns (10-12% CAGR), which will be essential for building your retirement corpus.

Ensure your portfolio is diversified across large-cap, mid-cap, and multi-cap mutual funds for balanced growth and risk.

3. Debt Repayment Strategy
You currently have an outstanding home loan of Rs. 1 crore. It’s advisable to clear this debt as early as possible. Carrying such a large debt into retirement can strain your finances.

Use a portion of your liquid assets, such as your mutual fund corpus or any bonuses, to reduce the loan burden gradually. This will free up cash flow and allow you to focus more on building your retirement fund.

4. Maximize Your EPF & PPF Contributions
Continue contributing to your EPF and PPF accounts. While the returns from these are modest, they are low-risk and provide tax-free returns, making them ideal for post-retirement stability.

As PPF matures, consider reinvesting the proceeds into equity mutual funds to capitalize on higher returns.

5. Increase Contributions to NPS
Your NPS balance is currently Rs. 5 lakh. Increase your contributions to this as it provides excellent tax benefits and is tailored for retirement.

NPS is also one of the few products where withdrawals are partially tax-free. Increasing contributions now will give you a more substantial corpus in the future.

6. Prioritize Children’s Education
Plan separately for your children’s education expenses. You might want to use specific child education funds or a combination of mutual funds for this.

Avoid dipping into your retirement savings for education purposes. Set clear boundaries between these two financial goals.

Final Insights
At 46, you are well-positioned financially, but pausing your SIP investments and holding onto a large loan could hinder your retirement plans. Restart your investments and focus on paying off your loan as soon as possible. By maintaining discipline and increasing your contributions to SIPs, NPS, and PPF, you should comfortably achieve your retirement corpus of Rs. 6 to 7 crore. Prioritize growth-oriented investments like equity mutual funds, and continue evaluating your portfolio annually to ensure it aligns with your retirement goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Milind

Milind Vadjikar  |347 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Oct 07, 2024

Asked by Anonymous - Oct 07, 2024Hindi
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Now I'm 43 years old, but next 5 year's I need 3cr with best mutual funds to invest and son education, marriage and my retirement, currently I have housing loan commitment. 70lakhs, how should I close my loan ASAP and I should have 3cr in my hand. Kindly help me, I'm in scary situation, I'm working in private sector 95k my take home and current home loan emi is 63k, 4500 recently started investment through groww app in parakh Parikh small fund, 12500 in PPF etc, kindly help. I'm completely in debt trap.
Ans: Hello;

General Comments:
People always delay retirement planning for later stage but this is not ok.

Because when you are young the investible surplus amount maybe less but you have the biggest resource, time on your side.

A mere 25K monthly sip can achieve 3 Cr in 20+ years

Query Specific Comments:
If you need this corpus in 5 years then you need to make a monthly sip of 3.55 Lacs Minimum to reach 3 Cr corpus in 5 yrs.(modest return of 13% considered).

Focus on improving your earning because then you can earmark larger amounts for investing towards your goals.

Also try to prepay the home loan as early as possible through EPF corpus or some asset sale.

Do not panic if you diligently pre-close the home loan you have ample time to invest and create a comfortable corpus for your goals.

Continue investing in MFs with increasing allocation, PPF to reach your goals.

Happy Investing!!

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

...Read more

Milind

Milind Vadjikar  |347 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Oct 07, 2024

Asked by Anonymous - Oct 07, 2024Hindi
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I am 24 years old and earn a monthly salary of Rs.65,000. I am interested in investing some of my funds for future financial security and am also planning to marry in two years. As I have no prior knowledge of investment, I would greatly appreciate guidance on this matter.
Ans: Hello;

First and foremost buy a good term life cover including riders for critical care and accident benefit.

Ensure that you can top-up the sum assured later when you grow your responsibilities after marriage.

For retirement planning you should consider investing in NPS. If your office provides it well and good but otherwise also you can open NPS account and contribute regularly for financing your retirement. It's an E-E-E type of scheme. Charges are quite low and you can decide to select allocation to the asset classes like equity, corporate debt or sovereign bonds as per your risk tolerance. It allows limited withdrawal before 60.

If you decide to contribute to NPS per month an amount of 20 K, it will grow into a corpus of 6.51 Cr by the time you are 60 years of age.(A modest return of 9% is considered)

For all other goals such as marriage, house, kid's education, car, vacation you can use mutual funds as your mode of investments.

If you do a monthly sip of say 15 K into a pure equity mutual fund then at the end of 5 years you may expect to receive a corpus of 12.72 L considering moderate return of 13%.

Happy Investing!!

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

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6528 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 07, 2024

Asked by Anonymous - Oct 07, 2024Hindi
Money
Hi Gurus I'm 39, married and no kids, sole breadwinner in the family. My salary is 1.2 lakh per month and investing in mutual funds (since 2020) through SIP as below and step up investment 10-15% every year. Current corpus stands at 14 lakh. I have 10lakh in my PF account and I get another 5 lakh from gratuity. Mirae Asset tax saver fund 5k Parag parikh tax saver 3k Quant elss 3k Canara robecco small cap 5k SBI small cap 5k Tata digital India fund 5k I have parked 20 lakhs in debt fund and FD which I'm planning to use it to buy a flat within a year. Every month I keep aside 15k towards savings and emergency fund. I move it to debt fund, FD and I invest small portion of my bonus in existing MFs as lumpsum. My goal is to accumulate 2 CR by the time I turn 50 and need suggestions and plans to achieve the same.
Ans: You are 39 years old, married, and the sole breadwinner. Your monthly salary is Rs 1.2 lakh, and you have been investing in mutual funds since 2020. Your investments include a combination of tax-saving mutual funds, small-cap funds, and a sector-specific fund. You have also parked Rs 20 lakh in debt funds and fixed deposits for buying a flat within a year. Additionally, you have Rs 10 lakh in your Provident Fund (PF) and Rs 5 lakh in gratuity.

You have set a goal to accumulate Rs 2 crore by the age of 50. This is an achievable goal, but it will require some adjustments and strategic planning to optimise your savings and investments.

You are also setting aside Rs 15,000 each month towards an emergency fund and savings, while reinvesting some of your bonus into mutual funds. Let's go step-by-step to achieve your goal while ensuring financial security along the way.

Current Investment Strategy
Your investment portfolio includes:

Three tax-saving mutual funds
Small-cap mutual funds
A sector-specific fund
Rs 20 lakh parked in debt funds and fixed deposits for a future property purchase
Your current investment strategy is diversified across equity and debt instruments. This diversification is good, but there is room for improvement in your equity mutual fund selection and tax efficiency.

Analysis of Current Investments
Equity Mutual Funds
Small-Cap and Sector-Specific Funds: Small-cap funds can provide high returns over time but also carry higher risks. Over-exposure to small-cap funds can make your portfolio volatile, especially as you near your retirement goal. A sector-specific fund, while offering focused growth, can also be risky if the sector underperforms.

Tax-Saving Funds: While tax-saving mutual funds (ELSS) provide tax benefits, there may be an overlap in the holdings of your ELSS funds. Additionally, ELSS funds have a 3-year lock-in period, which reduces liquidity.

Debt Funds and FDs
You have wisely parked Rs 20 lakh in debt funds and fixed deposits, which ensures stability and liquidity for your property purchase. However, investing large amounts in fixed deposits may not be the most tax-efficient strategy in the long run due to the high tax on interest income.

Suggestions for Achieving Your Rs 2 Crore Goal
To accumulate Rs 2 crore by the age of 50, you need a more optimised approach. Here are the steps:

1. Review and Adjust Your Equity Allocation
Increase Mid-Cap and Flexi-Cap Exposure: As you are still 11 years away from your goal, consider shifting a portion of your investments from small-cap and sector-specific funds to more balanced options like mid-cap and flexi-cap funds. These funds offer a balance between risk and return, providing more stability than small-cap funds while still offering high growth potential.

Reduce Sector-Specific Fund Exposure: Sector funds can be volatile. Consider reallocating your investment in this fund to more diversified equity funds like flexi-cap or large-cap funds. These funds are less volatile and provide more stable returns over time.

2. Reassess Your Tax-Saving Funds
Optimise ELSS Investments: You already have multiple ELSS funds, which may result in overlapping holdings and lower diversification. You could consolidate your ELSS investments into one or two well-performing funds. This will simplify your portfolio and improve returns while still offering tax benefits.

Consider the Lock-in: Keep in mind the 3-year lock-in period of ELSS funds. If liquidity is a concern, consider reducing your ELSS exposure once you’ve maximised your Section 80C limit.

3. Focus on Regular Funds over Direct Funds
Investing through a certified financial planner (CFP) in regular funds is better than investing in direct funds by yourself. A CFP can provide ongoing advice, portfolio rebalancing, and support during market fluctuations, which is crucial for reaching your Rs 2 crore goal.

4. Build a Strong Emergency Fund
You are already setting aside Rs 15,000 per month towards savings and your emergency fund. Aim to build a fund that covers at least 6 to 12 months' worth of expenses. Given your Rs 50,000 monthly expense, this would mean an emergency fund of Rs 3 lakh to Rs 6 lakh.

Continue to park this money in debt funds or fixed deposits for easy liquidity. This will safeguard you from any unforeseen expenses while ensuring that your long-term investments remain untouched.

5. Bonus Investment Strategy
You are already investing your bonus into mutual funds as a lump sum. This is a good practice, but consider utilising this money strategically:

Top-Up Your Existing SIPs: Rather than investing the entire bonus in one go, you could use it to top up your SIPs in your existing mutual funds. This will average your investment cost and reduce market timing risks.

Boost Equity Allocation: If your risk appetite allows, allocate more of your bonus towards equity mutual funds. This can provide higher returns in the long run, contributing significantly to your Rs 2 crore goal.

6. Step-Up Your SIPs Annually
You have mentioned that you step up your SIPs by 10-15% every year. Continue with this approach, as it aligns well with your growing income and inflation. This will accelerate your wealth accumulation and keep your goal on track.

For instance, a 10-15% increase in SIP amounts every year can make a significant difference to your final corpus. By increasing your SIPs, you will also take advantage of compounding and market growth.

7. Debt Fund Considerations
You have Rs 20 lakh in debt funds and fixed deposits. Once you buy your flat, this money will likely be reduced. However, after the purchase, you should maintain a portion of your savings in debt funds as part of your overall asset allocation.

Debt funds provide stability and reduce risk, which is essential as you approach your retirement goal. A balanced portfolio of equity and debt is necessary for sustainable growth.

8. Retirement Planning
To achieve Rs 2 crore by the time you turn 50, you need a mix of aggressive growth in the early years and risk mitigation in the later years.

Increase Equity Exposure for Now: As you have 11 years until retirement, continue focusing on equity funds for growth. However, once you are within 5 years of your retirement goal, gradually shift a portion of your equity investments to debt funds to protect your capital.

Avoid Real Estate Investments: Since you are planning to buy a flat within a year, avoid additional investments in real estate. Real estate is illiquid and may not provide returns aligned with your retirement timeline.

Maximise Provident Fund Contributions: You already have Rs 10 lakh in your PF, and this will continue growing with your monthly contributions. Provident Fund provides a safe and stable return and should remain a core part of your retirement corpus.

9. Tax Efficiency
As your investments grow, consider tax efficiency:

Tax on Equity Mutual Funds: Long-term capital gains (LTCG) on equity mutual funds above Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%. Be mindful of these taxes when planning withdrawals.

Tax on Debt Funds and FDs: Interest income from fixed deposits is taxed as per your income slab, which is less tax-efficient than equity investments. You can reduce your tax burden by keeping longer-term investments in equity funds and shorter-term savings in debt funds.

Final Insights
With proper planning, accumulating Rs 2 crore by the age of 50 is within your reach. You are already on the right track with a balanced approach to savings and investments. However, minor adjustments in your mutual fund selection, better tax efficiency, and maintaining a strong emergency fund can further optimise your strategy.

Your commitment to stepping up your investments and regularly reviewing your portfolio will help you stay on track. Be consistent with your SIPs and disciplined in maintaining your long-term focus.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

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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