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Can I achieve a 5cr target in 10 years with ELSS SIP?

Ramalingam

Ramalingam Kalirajan  |7163 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
Naveen Question by Naveen on Sep 11, 2024Hindi
Money

Hello Sir, I am Naveen Raja from Chennai. I am investing from Sep 2021 in ELSS SIP. Now I have been stopped due to monthly expenses. Question 1: I want to start again on a daily sip basis to achieve 5 cr in next 10 years suggest me a fund which will give this target amount over 10 years on an average of 20% interest Y-o-Y compunding to the investment amount? Question 2: Also, which I stopped in ELSS SIP - Axis Long term - Growth should I need to continue for a longer period or should take that money and invest in any different hybrid funds ?

Ans: Naveen, thank you for reaching out. Investing in ELSS funds is a good choice, especially considering tax-saving benefits. Stopping your SIPs due to monthly expenses is understandable, but restarting is crucial to achieving your financial goals.

Let’s address your two concerns one by one.

Question 1: Achieving Rs. 5 Crores in 10 Years
You aim to accumulate Rs. 5 crores in the next 10 years, with an expected 20% annual growth. While this is a high target, it’s not impossible. But I must highlight that 20% returns over 10 years are aggressive, and the market may not guarantee such consistent growth. Equity mutual funds, however, can potentially give you strong returns if you stay disciplined.

Steps to Achieve Rs. 5 Crores in 10 Years
Daily SIP Approach:
Daily SIP is a good way to spread out your investments. It allows for better averaging as the market fluctuates daily.

Focus on Equity Mutual Funds:
For such high returns, equity mutual funds are ideal. These funds have a strong track record of delivering long-term growth. However, keep in mind that they come with market risk.

Avoid Setting Unrealistic Return Expectations:
A 20% return every year is optimistic. A more realistic return from equity funds would be around 12% to 15%. Anything beyond that would require consistent high-performing market conditions.

Recommended Strategy
Diversified Equity Funds:
Instead of chasing returns with a single fund, diversify your investments across various equity funds. This reduces risk and ensures balanced growth.

Mid and Small Cap Funds:
These funds offer higher returns but come with more volatility. You can allocate a portion of your investments to these funds for higher growth potential.

Large Cap Funds:
They offer stability. Having some exposure to large-cap funds can help you maintain balance in your portfolio.

Avoid Index Funds:
Index funds might not meet your target as they only track the market. Actively managed funds can provide better returns through stock selection.

Calculating SIP Contribution
Achieving 5 Crores in 10 Years:
If you want to achieve Rs. 5 crores in 10 years, based on a more realistic 12% to 15% annual return, you would need to invest a significant amount every month. A Certified Financial Planner can help you calculate the exact monthly SIP amount based on your goal and risk tolerance.
Question 2: Should You Continue ELSS SIP or Shift to Hybrid Funds?
Your current ELSS investment in Axis Long Term Equity Fund is a tax-saving fund with a 3-year lock-in period. Since you’ve already completed the minimum holding period, you may wonder if it’s wise to continue or switch to a different type of fund.

Assessing ELSS Funds
Tax Benefit:
ELSS funds provide tax benefits under Section 80C. This is a significant advantage if you still need to save tax. Continuing with your ELSS investment can help you keep your tax-saving advantage.

Equity Exposure:
ELSS funds are equity-oriented, which means they have good long-term growth potential. If your goal is to build wealth over time, equity exposure is necessary.

Disadvantages of Switching to Hybrid Funds
Lower Returns:
Hybrid funds invest in a mix of equity and debt, which may offer lower returns compared to pure equity funds. While they are less volatile, their growth potential may not meet your goal of Rs. 5 crores in 10 years.

Not Ideal for High Growth:
If you want aggressive wealth creation, hybrid funds may not be the best fit. Their balanced approach is better suited for those with low to moderate risk tolerance.

What You Should Do
Continue with ELSS:
Since you’ve already started with Axis Long Term Equity Fund, consider continuing for a longer period. ELSS funds provide both tax benefits and growth. You’ve already endured the initial market volatility, and over time, equity funds tend to deliver better returns.

Avoid Hybrid Funds for Now:
If your goal is aggressive wealth creation, hybrid funds might not align with this. Instead, stick to equity funds with a high growth potential.

Final Insights
Set Realistic Expectations:
While you aim for 20% annual returns, the market is unpredictable. A more realistic expectation of 12% to 15% will help you stay grounded and focused.

Daily SIPs Can Be Helpful:
A daily SIP strategy can help you achieve better averaging. However, for high returns, focus on equity funds with a long-term horizon.

Continue Your ELSS Investments:
Since you’ve already invested in Axis Long Term Equity Fund, consider continuing with it. It offers both tax benefits and long-term growth.

Consult with a Certified Financial Planner:
To determine the exact amount you should invest monthly, it’s essential to work with a professional. They can help you build a diversified portfolio aligned with your goals.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
Asked on - Sep 11, 2024 | Answered on Sep 11, 2024
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Thank you so much for your immediate response sir. I will work accordingly to achieve my goal.
Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

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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Hi sir, I am fifty years old. I was already invested one month ago 12,50,000/- in SBI equity regular growth mutual fund. Now, I am planning to start SIP and monthly 5,000/-. Kindly, advice me for the SIP. Thanks.
Ans: It's excellent to see your commitment to investing, especially as you plan for your financial future. Let's explore your options for starting a SIP:

• Given your existing investment of 12,50,000/- in SBI Equity Regular Growth Mutual Fund, it's clear you're already on the path to building wealth.
• Adding a monthly SIP of 5,000/- will further enhance your investment strategy and help you achieve your financial goals.

• When selecting a SIP, consider factors like your investment horizon, risk tolerance, and financial objectives.
• As you're fifty years old, it's essential to strike a balance between growth potential and stability in your investment choices.

• Equity mutual funds offer growth potential but also come with higher volatility. Since you're already invested in SBI Equity Regular Growth Mutual Fund, you may want to diversify your portfolio with a different category of mutual fund.
• Debt mutual funds or balanced funds could be suitable options to consider, offering a more conservative approach while still providing potential for growth.

• Additionally, ensure you choose a SIP with a reputable fund house and a track record of consistent performance.
• Look for funds that align with your investment goals and have a proven track record of delivering returns over the long term.

• As a Certified Financial Planner, I'm here to guide you in selecting the right SIP to complement your existing investment and financial objectives.
• We'll evaluate various mutual fund options, assess their suitability for your portfolio, and ensure they align with your risk profile and investment horizon.

• Remember, investing is a journey, and it's essential to stay disciplined and patient.
• By making informed decisions and staying focused on your long-term goals, you can achieve financial success.

• If you have any further questions or need assistance in selecting a SIP, feel free to reach out.
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Mutual Funds, Financial Planning Expert - Answered on Jul 06, 2024

Asked by Anonymous - Jun 30, 2024Hindi
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I am 42 and have one son with my wife. Holding salary of 60000/- monthly in hand. Have investments in two ELSS scheme one is ?500 every month and other ?8000 lumpsum for 3 years. Regularly invest in NPS ?1000 monthly. Holding SGB Bonds value ?38000/-.I want to invest ? 5000 monthly in SIP for long tenure of 17 years. Pls suggest
Ans: You are 42, have a son, and a monthly salary of Rs. 60,000. You already invest in ELSS schemes, NPS, and SGB Bonds, and now you want to invest Rs. 5000 monthly in SIP for 17 years. Here’s a comprehensive plan to guide you towards your financial goals.

Understanding Your Financial Situation

Let’s break down your current financial status and future investment plans:

Monthly Salary: Rs. 60,000
ELSS Investments: Rs. 500 monthly and Rs. 8000 lumpsum for 3 years
NPS Investment: Rs. 1000 monthly
SGB Bonds: Rs. 38,000 value
New SIP Investment: Rs. 5000 monthly for 17 years
Step 1: Assessing Your Financial Health

First, evaluate your monthly expenses and savings.

Monthly Income: Rs. 60,000
Essential Expenses: Calculate monthly living costs including household expenses, child’s education, and other necessary expenditures.
Current Savings and Investments: Summarize your existing investments in ELSS, NPS, and SGB Bonds.
Step 2: Building an Emergency Fund

Before investing, ensure you have an emergency fund covering 6-12 months of expenses.

Emergency Fund: Save Rs. 3-6 lakhs in a liquid fund for emergencies.
Step 3: Managing Existing Investments

Review your existing investments to ensure they align with your financial goals.

ELSS Schemes: Continue with your current ELSS investments for tax-saving benefits.
NPS: Your Rs. 1000 monthly contribution in NPS is good for retirement planning.
SGB Bonds: Hold onto your SGB Bonds for gold investment benefits and interest income.
Step 4: Investing in SIP for Long-Term Growth

Systematic Investment Plans (SIPs) in mutual funds are ideal for long-term wealth creation. They offer the power of compounding and professional management.

Advantages of SIPs in Mutual Funds

Disciplined Investing: Regular investments instill discipline.
Rupee Cost Averaging: Invests in different market conditions, reducing risk.
Compounding: Reinvested returns generate more returns over time.
Diversification: Invests in a variety of assets, reducing risk.
Choosing the Right Mutual Funds

Select a mix of equity and debt funds to balance risk and returns.

Equity Funds: High returns but higher risk. Suitable for long-term goals like retirement and child’s education.
Debt Funds: Lower risk and returns. Good for stability and short-term goals.
Hybrid Funds: Mix of equity and debt. Moderate risk and returns.
Creating a Diversified SIP Portfolio

Equity Funds: Invest 60-70% in diversified equity funds. Focus on large-cap and multi-cap funds for stability and growth.
Debt Funds: Invest 20-30% in debt funds for stability. Consider corporate bond funds or gilt funds.
Hybrid Funds: Invest 10-20% in hybrid funds for balanced risk and returns.
Step 5: Setting Up Your SIP

Start a SIP of Rs. 5000 monthly in a diversified portfolio of mutual funds.

Monthly SIP Amount: Rs. 5000
Step 6: Regularly Review Your Investments

Monitor your investments to ensure they are on track.

Annual Review: Assess your portfolio’s performance annually.
Rebalancing: Adjust the allocation if needed to maintain the desired risk level.
Step 7: Tax Planning

Optimize your investments for tax efficiency.

ELSS Funds: Continue with ELSS for tax benefits under Section 80C.
Other Tax-Saving Instruments: Consider PPF, EPF, and NPS for additional tax benefits.
Step 8: Planning for Child’s Education

Ensure you have a plan for your child’s higher education. Set aside a separate fund for this purpose.

Children’s Education Fund: Invest in child-specific mutual funds or a combination of equity and debt funds based on the time horizon.
Step 9: Retirement Planning

Your retirement plan should be robust to ensure you maintain your lifestyle post-retirement.

Retirement Corpus Goal: Rs. 1 crore
Investment Strategy: Continue investing in a mix of equity and debt funds.
Retirement Accounts: Contribute to EPF, PPF, and NPS for additional retirement savings.
Step 10: Insurance

Ensure you have adequate insurance coverage to protect your family.

Life Insurance: Adequate term insurance to cover liabilities and provide for your family.
Health Insurance: Comprehensive health insurance to cover medical expenses.
Final Insights

Creating a robust financial plan is essential for long-term financial stability and achieving your goals. Here’s a summary of your action plan:

Action Plan Summary

Assess Expenses: Calculate monthly expenses and savings.
Emergency Fund: Set aside Rs. 3-6 lakhs.
Manage Existing Investments: Continue with ELSS, NPS, and SGB Bonds.
SIP Investments: Start a monthly SIP of Rs. 5000 in diversified mutual funds.
Review Investments: Regularly review and rebalance the portfolio.
Tax Planning: Optimize investments for tax efficiency.
Education Planning: Create a separate fund for your child’s education.
Retirement Planning: Continue building your retirement corpus.
Insurance: Ensure adequate life and health insurance coverage.
By following this comprehensive plan, you can achieve your long-term financial goals and ensure a secure future for yourself and your family.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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Latest Questions
Nayagam P

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Career Counsellor - Answered on Nov 27, 2024

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Ramalingam Kalirajan  |7163 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 27, 2024

Asked by Anonymous - Nov 27, 2024Hindi
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Hi, sir I am a an 30 year old (single) engineer working with a MNC in Chennai, unfortunately till this day i haven't had any savings at all for my future (retirement, other short term or long term goals). Currently my take home salary after EPF and parental insurance is 53k ( EPF is about 4900/month - employee+employer) i haven't opted for Corporate NPS but is provided by the company without any additional contribution from company. I have company health insurance policy and have planned to take my own health insurance and term insurance plan. Adding to above I have zero emergency fund with me. How should I proceed with my investments?
Ans: You have taken the first step by recognising the need to plan. It’s essential to appreciate your intention to secure your financial future. Let’s look at how you can proceed to achieve your short-term and long-term goals.

Your current take-home salary is Rs 53,000, and your EPF contribution is Rs 4,900. However, you lack savings, investments, and an emergency fund. Here's a step-by-step strategy:

Build an Emergency Fund
Set aside funds to cover at least six months' expenses.

Start by saving 10-15% of your salary monthly into a high-interest savings account.

Use Recurring Deposits or Liquid Mutual Funds to maintain this fund for emergencies.

Secure Yourself with Insurance
Health insurance: Maintain your company health policy but add a personal health policy. Choose a policy offering a sum insured of Rs 10-15 lakh.

Term insurance: Buy a term plan covering 10-15 times your annual income. Keep the policy simple and avoid investment-linked insurance.

Budget Your Income
Allocate your income carefully for expenses, savings, and investments.

Use the 50-30-20 rule: 50% for needs, 30% for wants, and 20% for savings and investments.

Avoid unnecessary expenses to increase your saving capacity.

Start Investing Gradually
Short-term goals (1-5 years): Invest in debt funds or recurring deposits. Debt mutual funds are good for stable returns.

Long-term goals (5+ years): Invest in equity mutual funds for higher returns. Choose actively managed funds with consistent performance.

Avoid index funds. Actively managed funds have a better potential for higher returns through professional fund management.

Retirement Planning
Utilise the EPF for retirement. Your current contribution will grow over time with compounding.

Consider investing in diversified equity mutual funds for additional retirement savings.

Corporate NPS: You can explore NPS for its tax-saving benefits. However, don’t rely solely on it for retirement.

Tax-Saving Investments
Use Section 80C to save taxes up to Rs 1.5 lakh.

EPF, PPF, ELSS mutual funds, and life insurance premiums can qualify under this section.

Opt for ELSS funds for tax saving and wealth creation.

Review Existing Expenses
Evaluate and minimise unnecessary expenditures.

Avoid loans for discretionary spending like vacations or gadgets.

Advantages of Using a Certified Financial Planner
A CFP can help you plan holistically and ensure you stick to your goals.

They provide tailored strategies, ensuring proper fund allocation and monitoring.

Invest through a Mutual Fund Distributor with CFP credentials to access professional advice.

Key Steps for Discipline
Automate investments through SIPs in mutual funds.

Track your monthly budget and investment progress regularly.

Avoid direct funds. Regular funds offer professional guidance and fund distributor support.

Tax Implications
For equity mutual funds, LTCG above Rs 1.25 lakh attracts 12.5% tax.

STCG on equity funds is taxed at 20%.

Debt fund gains are taxed as per your income slab. Consider these while investing.

Final Insights
You are in the right direction by seeking advice now. Build a solid foundation with savings, insurance, and investments. Take small steps toward financial independence.

Remain consistent with your investments, and review your financial plan annually.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

Mayank

Mayank Chandel  |1940 Answers  |Ask -

IIT-JEE, NEET-UG, SAT, CLAT, CA, CS Exam Expert - Answered on Nov 27, 2024

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Career
Hello, i really have a serious issue regarding my studies as i am 24 yrs now and gave NEET 4times and i am still preparing for nxt year 2025 but at the back of my mind i am really tensed what if the same thing repeats in the neet 2025 also like paper leak and all, So now i am confused that should i take a full drop or partial drop. The mental pressure is really hitting hard and also its almost been 4years that i am still 12th pass only and my classmates have already completed their college and some are flight attendant and earning well, So this all things just hits so hard and also the hope in parents eyes as my father is already proud that i studied science so i would definitely become doctor. I wasted a lot of money in pg and coaching (fastrack) and this all things are hitting so hard that i really feel sad and have no ways to go.
Ans: Hi Bhima
I must say you have got perseverance & I appreciate your parent's trust in you. You have already appeared multiple times and you are going to appear again in 2025. By the time you will be 25 years old. They say there is no age to learn. But after getting admission you need another 10 years to practice as a qualified specialist. Make sure you take admission in the next session.

If higher cutoff & high fees of private colleges are an issue for you, then try exploring the MBBS abroad option, I can help with that too. Since NEXT is compulsory for Indian & Foreign graduates too it won't make a difference if you study in India or Abroad.

For time forget all the societal pressure and give your 100% and make your parents proud.

...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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