Can I build a 2 crore corpus with a 1 lakh salary and 45,000 EMI?

Ans: Hello. Thanks for writing to me. To create a corpus of Rs.5 Crore in the next 20 years, you will need to invest Rs.50,000 every month.

Ans: Creating a corpus of 5 crores in 10 years is an ambitious goal, but with careful planning and strategic investments, it's achievable. Your current investment portfolio and savings habits provide a solid foundation for reaching this milestone.

Given your age of 34 and the 10-year time horizon, we'll need to focus on a growth-oriented investment strategy while ensuring diversification and risk management.

Let's start by optimizing your mutual fund portfolio. While you have a diversified mix of funds, we may need to make some adjustments to align with your goal. Consider increasing allocations to high-growth potential funds like mid-cap and small-cap funds, which historically have outperformed broader market indices.

Regularly review your portfolio to monitor performance and make necessary adjustments based on market conditions and your evolving financial goals.

Additionally, continue your disciplined approach towards savings. Your LIC, PPF, and NPS contributions provide stability and long-term growth opportunities. Ensure you maximize contributions to these instruments within permissible limits to harness their full potential for wealth accumulation.

Remember to stay patient and committed to your financial plan. Building a significant corpus requires time and consistency. As a Certified Financial Planner, I'm here to guide you every step of the way and help you navigate through market fluctuations and uncertainties.

With determination and strategic financial planning, you can achieve your goal of creating a 5 crore corpus in 10 years.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Creating a corpus of Rs. 10 crores in the next 10 years is an ambitious but achievable goal. Let's analyze your current financial situation and create a detailed plan to help you reach your objective.

Current Financial Snapshot
Income and Expenses:

Monthly Income: Rs. 1.27 lakh
Home Loan EMI: Rs. 25,000
Net Monthly Income after EMI: Rs. 1.02 lakh
Existing Investments:

Mutual Funds: Rs. 45 lakh
Fixed Deposits: Rs. 15 lakh
Life Insurance Policies: Rs. 28 lakh
Sukanya Samriddhi Account: Rs. 16 lakh
Home Loan Outstanding:

Rs. 26 lakh
Strategy to Achieve Rs. 10 Crores in 10 Years
Step 1: Enhance Savings and Investments
Evaluate Monthly Savings:

With a net income of Rs. 1.02 lakh after EMI, you should aim to save and invest a significant portion.
Assume you save 50% of this amount, which is Rs. 51,000 per month.
Systematic Investment Plans (SIPs):

SIPs are a disciplined way to invest regularly in mutual funds.
Allocate Rs. 51,000 per month towards SIPs in a diversified portfolio of equity mutual funds.
Increase your SIP amount by 10% each year to account for salary increments and inflation.
Step 2: Diversify Your Investments
Mutual Funds:

Continue investing in a mix of large-cap, mid-cap, and small-cap equity mutual funds.
Consider adding sector-specific funds for more growth opportunities.
Hybrid Funds:

Allocate a portion to aggressive hybrid funds for a balanced risk-return profile.
These funds invest in both equity and debt instruments.
Debt Funds:

Maintain some investments in debt mutual funds for stability and lower risk.
Debt funds can provide liquidity and reduce overall portfolio volatility.
Step 3: Optimize Existing Investments
Fixed Deposits:

FDs offer low returns. Gradually move funds from FDs to higher-yielding investments.
Keep a small portion in FDs for emergency funds.
Life Insurance Policies:

Evaluate the performance and returns of your life insurance policies.
If they are not performing well, consider surrendering or partially withdrawing and reinvesting in mutual funds.
Sukanya Samriddhi Account:

Continue contributing to your daughter’s Sukanya Samriddhi Account.
It offers tax benefits and good returns, securing her future.
Step 4: Accelerate Debt Repayment
Home Loan:

Consider prepaying your home loan with surplus funds to reduce interest burden.
Aim to be debt-free sooner, freeing up more money for investments.
Step 5: Plan for Tax Efficiency
Tax-Advantaged Investments:

Utilize tax-saving mutual funds (ELSS) for long-term capital gains and tax deductions.
Maximize contributions to PF and PPF for tax benefits and stable returns.
Step 6: Monitor and Rebalance Portfolio
Regular Reviews:

Conduct quarterly reviews of your investment portfolio.
Rebalance to maintain desired asset allocation and capture market opportunities.
Stay Informed:

Keep yourself updated with market trends and financial news.
Consult with a Certified Financial Planner for professional guidance.
Understanding Mutual Funds: Categories, Advantages, and Risks
Equity Mutual Funds:

Invest in stocks, offering high returns but with higher risk.
Ideal for long-term goals like retirement and wealth creation.
Categories: Large-cap, mid-cap, small-cap, sector-specific.
Hybrid Mutual Funds:

Mix of equity and debt investments, balancing risk and return.
Suitable for moderate risk-takers.
Debt Mutual Funds:

Invest in fixed-income securities, offering stability and lower risk.
Suitable for conservative investors and short-term goals.
Advantages of Mutual Funds:

Diversification reduces risk by investing in various securities.
Professional management by experienced fund managers.
Liquidity allows easy buying and selling of units.
SIPs promote disciplined investing and cost averaging.
Tax benefits through ELSS funds.
Risks of Mutual Funds:

Market risk affects equity funds due to market fluctuations.
Credit risk in debt funds if issuers default.
Interest rate risk impacts debt funds with changing rates.
Liquidity risk in some funds, making it hard to sell holdings without losses.
Power of Compounding
Compounding is earning returns on both initial principal and accumulated returns.
Longer investment duration amplifies the compounding effect.
Start early and stay invested for maximum benefits.
Disadvantages of Direct Funds
Direct Funds:

Bought directly from fund houses, saving on distributor commissions.
Lower expense ratios but lack guidance from professionals.
Disadvantages:

No expert advice, leading to suboptimal choices.
Time-consuming and requires significant effort.
Risk of mismanagement without professional guidance.
Benefits of Regular Funds through MFD with CFP Credential:

Expert advice and professional management.
Customized portfolios based on goals and risk tolerance.
Ongoing support and regular portfolio reviews.
Peace of mind knowing investments are managed by professionals.
Action Plan to Achieve Rs. 10 Crore Goal
Enhance Monthly Savings:

Save and invest Rs. 51,000 per month in diversified mutual funds.
Increase SIPs by 10% annually.
Diversify Investments:

Continue with equity mutual funds, adding sector-specific and hybrid funds.
Maintain some debt funds for stability.
Optimize Existing Investments:

Move funds from FDs to higher-yielding investments.
Evaluate and possibly reinvest insurance policies in mutual funds.
Accelerate Debt Repayment:

Prepay home loan to reduce interest burden and free up funds.
Plan for Tax Efficiency:

Utilize ELSS, PF, and PPF for tax benefits and stable returns.
Regularly Review and Rebalance Portfolio:

Conduct quarterly reviews and rebalance as needed.
Stay informed about market trends and seek professional advice.
Final Insights
Achieving a corpus of Rs. 10 crores in 10 years requires disciplined saving, smart investing, and regular portfolio management. Diversify your investments, optimize existing assets, and aim for tax efficiency. Prepay your home loan to reduce debt burden and free up funds for investments. Stay committed to your SIPs, increase them annually, and regularly review your portfolio. Seek guidance from a Certified Financial Planner for professional advice and peace of mind. By following this comprehensive plan, you can achieve your financial goal and secure your family's future.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: It’s commendable that you have set a bold financial goal and are ready to invest Rs 2 lakh every month. However, expecting Rs 15 crore in just 7 years with Rs 2 lakh SIP is, in most cases, an overly optimistic target. Let’s break this down further and explore a more realistic timeline while also allowing for wealth compounding to work in your favor.

Assessing the Return Expectations

For your investment to grow to Rs 15 crore in 7 years, the returns needed would be abnormally high. Even aggressive equity mutual funds, which historically provide the highest returns, may not deliver the required returns in such a short time frame.

A typical equity mutual fund may offer returns between 12-15% annually over the long term.

At these realistic growth rates, achieving Rs 15 crore in 7 years will be quite difficult.

To reach Rs 15 crore with a Rs 2 lakh monthly SIP in 7 years, you would need an extraordinary annual return of around 40-45%, which is highly improbable with traditional investment options.

How Compounding Needs Time to Work

The power of compounding plays a significant role in wealth creation, but it needs more time to show its true potential. Compounding works best over longer periods, especially beyond 10-15 years.

With 7 years, you are giving your investments a relatively short time frame, which limits the full benefit of compounding.

To fully realize the benefits of compounding, it is advisable to allow your investments more time to grow beyond 7 years.

By extending your investment horizon, you can allow your wealth to multiply at a more sustainable rate without relying on extremely high and unrealistic returns.

Extending the Investment Horizon for Better Growth

The key to reaching Rs 15 crore is to give your investments more time. By extending your horizon to 10 or even 15 years, you increase the likelihood of reaching your goal.

A Rs 2 lakh SIP in actively managed equity mutual funds with an average return of 12-15% could realistically reach Rs 8-10 crore in 10 years.

By allowing another 5 years of growth, compounding can work its magic, pushing your corpus closer to Rs 15 crore.

This extended timeline reduces the pressure to seek unrealistically high returns and makes the journey more achievable.

Recommended Strategy to Reach Rs 15 Crore

Rather than expecting Rs 15 crore in just 7 years, let’s develop a more practical strategy by extending your investment period and focusing on compounding growth.

1. Continue Rs 2 Lakh Monthly SIP for 7 Years

For the next 7 years, continue your commitment to investing Rs 2 lakh per month. This consistency is key to building wealth. However, instead of expecting Rs 15 crore by the end of 7 years, aim for a more reasonable corpus, which could be around Rs 3-4 crore at the end of 7 years, assuming returns of 12-15%.

Stick to SIPs in diversified equity mutual funds that focus on large-cap, multi-cap, and sectoral funds.

Actively managed funds provide better growth potential than passive index funds, especially in a medium-term horizon like this.

Keep reviewing your portfolio every year to ensure that it’s aligned with your financial goals.

2. Let Your Wealth Compound for an Additional 5-10 Years

Once you have built a sizable corpus after 7 years, the key is to let that money continue growing. Compounding will accelerate your wealth growth over time if you allow it to work longer.

Instead of withdrawing your corpus after 7 years, allow your investment to compound further for another 5-10 years.

Even if you stop contributing Rs 2 lakh after 7 years, the wealth you’ve accumulated will continue to grow due to compounding.

In the next 5-7 years, the compounded returns can take your corpus from Rs 3-4 crore to potentially Rs 10-12 crore.

3. Increase SIP Contributions After 7 Years If Possible

If your financial situation allows, you could further boost your investment by increasing the SIP contributions after 7 years. As your income and financial capacity grow, allocating a higher amount for investment will speed up the wealth accumulation process.

After 7 years, you could increase your SIP from Rs 2 lakh to Rs 3 lakh or more to accelerate the journey to Rs 15 crore.

By increasing your contribution and letting compounding work over a longer period, your target of Rs 15 crore becomes more achievable within the next 5-10 years.

4. Maintain a Balanced Portfolio for the Long Term

As you approach the 7-year mark, it’s essential to start balancing your portfolio to reduce risk. Shifting a portion of your funds to safer, more stable investments like debt funds or hybrid funds can safeguard the wealth you’ve built.

Continue to keep a significant portion of your portfolio in equities to benefit from long-term growth.

Gradually increase your allocation to debt or hybrid funds for stability, especially when you are within 5-10 years of your target.

A balanced approach will help you avoid large market corrections that could affect your corpus in later years.

5. Don’t Rely on Unrealistic Returns

It’s important to have realistic return expectations. Equity markets have historically delivered between 12-15% returns annually, and banking on anything higher can be risky.

Keep your expectations aligned with market realities.

By extending your horizon and allowing for compounding, you don’t need to chase extremely high returns to meet your goal.

Stick to equity mutual funds with strong historical performance and diversified portfolios.

Why Trying to Achieve Rs 15 Crore in 7 Years is Unrealistic

To understand why Rs 15 crore in 7 years is not realistic, let’s consider a few key points:

Even with aggressive growth, equity mutual funds typically provide 12-15% annual returns, far lower than what is required to meet this goal.

Achieving Rs 15 crore in 7 years would require an annual return of over 40%, which is not feasible in the long run.

Attempting to chase such high returns could lead you into risky and speculative investments that may result in capital losses.

A balanced and long-term approach is always better for achieving high financial goals like Rs 15 crore.

The Importance of Patience in Wealth Creation

Building Rs 15 crore requires patience and time. Compounding rewards those who invest regularly and leave their money untouched for long periods.

The longer you stay invested, the more compounding will work in your favor.

Stay disciplined and avoid the temptation to withdraw your funds prematurely.

Market volatility may occur, but staying invested through ups and downs is crucial for long-term success.

Final Insights

Achieving Rs 15 crore is a significant financial goal. While it may not be realistic to expect this in just 7 years with Rs 2 lakh SIPs, you can certainly reach it by allowing more time for your wealth to compound. Extending your investment horizon to 10-15 years, while continuing your SIPs, will give you the best chance of success.

Be patient and let compounding work for you over the long term.

Continue investing Rs 2 lakh per month for 7 years, and allow the corpus to grow further beyond this time frame.

Regularly review and adjust your portfolio to stay aligned with your financial goals.

Don’t rely on speculative returns—stick to a balanced and diversified portfolio to achieve steady growth.

By following these strategies and giving yourself more time, your target of Rs 15 crore can become a reality without taking excessive risks.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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