What to invest 55 lakhs for 15 years to maximize wealth? - 42-year-old moderate-aggressive investor.

Ans: It's difficult to generate 11 per cent post tax returns with moderate risk.

 

Ans: Hello Parry and thanks for writing to me. If you are investing in equity as an asset class whether it is thru Portfolio Management Services or Equity Mutual Funds, you will face volatility. Equity is a long term investment and with your retirement horizon in 15 years, you can reap the benefits of compounding.

The minimum investment ticket size in a PMS is Rs.50 Lakh. If you choose to go with a PMS, you will have invest your entire corpus of Rs.50 lakh with only one portfolio management company. While many PMS companies have given outstanding returns, you will have to be able to select the right PMS for you.

If you choose to go with mutual funds, you can plan to invest in tranches and have flexibility to invest across different schemes and asset types to create a diversified portfolio that can be rebalanced over time to ensure you are on track to achieve your retirement goal.

You should consider taking advise from a certified financial advisor who can help you select the right PMS or mutual funds.

Ans: You have a goal of accumulating Rs. 40 lakhs in 4 years to buy a flat. You can invest Rs. 30,000 to Rs. 40,000 monthly. This is a commendable step towards achieving your financial goal. Given your time frame, it’s crucial to balance risk and return while ensuring your investments are aligned with your goal.

Goal Analysis
Target Corpus

To achieve Rs. 40 lakhs in 4 years, you need a solid investment strategy.

Your current capacity to invest Rs. 30,000 to Rs. 40,000 monthly is a good start.

Expected Returns

Equity mutual funds typically offer higher returns but with increased risk. They are suitable for long-term goals, usually 5 years or more.

Your 4-year goal places you in a moderate risk category. It is important to consider hybrid funds or debt funds for stability.

The average return needed to reach your target is around 12-14% annually. This return expectation is achievable but not guaranteed, especially in the short term.

Investment Strategy
Balanced Approach

A balanced approach is ideal, combining equity and debt funds. This reduces risk while offering growth potential.

Equity-oriented hybrid funds can offer a good mix of equity growth and debt stability. These funds balance risk and return, making them suitable for medium-term goals.

Short-term debt funds or conservative hybrid funds can provide stability, ensuring that market volatility doesn’t erode your capital.

Systematic Investment Plan (SIP)

Start a SIP with your monthly investment of Rs. 30,000 to Rs. 40,000. SIPs spread out your investment over time, reducing the impact of market fluctuations.

This disciplined approach also helps in rupee cost averaging, where you buy more units when prices are low and fewer when prices are high.

Avoid Sector-Specific and High-Risk Funds

Avoid sector-specific funds as they are volatile. These funds require a deep understanding of the sector, and their performance can be unpredictable.

High-risk small-cap or mid-cap funds may offer higher returns but come with significant risk. Given your medium-term goal, it’s better to avoid such high-risk investments.

Evaluating Investment Sufficiency
Is Rs. 30,000 to Rs. 40,000 Per Month Sufficient?

To accumulate Rs. 40 lakhs in 4 years, you would need an aggressive investment strategy with a high return expectation of around 14%.

While equity funds can potentially deliver such returns, there’s no certainty. Market conditions, economic factors, and global events can impact performance.

If the market underperforms, reaching Rs. 40 lakhs may be challenging. It is important to be prepared for this possibility.

Top-Up Investments

Consider increasing your monthly investment if possible. The more you invest, the better your chances of reaching your goal.

You can also invest any bonuses or additional income that comes your way. This will help bridge any shortfall due to market fluctuations.

Risks and Mitigation
Market Risk

Equity investments are subject to market risks. Returns are not guaranteed, and your investment value can fluctuate.

To mitigate this risk, diversify your investments across different types of mutual funds.

Interest Rate Risk

Debt funds are sensitive to interest rate changes. Rising interest rates can reduce the returns on debt funds.

However, the impact on short-term debt funds and conservative hybrid funds is typically lower than on long-duration debt funds.

Inflation Risk

Inflation can erode the purchasing power of your returns. While FDs and debt funds offer safety, their returns might not always beat inflation.

Equity funds offer inflation-beating returns over the long term, but they come with higher risk.

Final Insights
Reaching Rs. 40 lakhs in 4 years is ambitious but achievable with disciplined investing. A balanced investment in equity and debt funds via SIPs can help you reach your goal. Consider increasing your monthly investment if possible to improve your chances. Stay informed about market trends, and be prepared to adjust your investment strategy if needed. Regularly review your portfolio with a Certified Financial Planner to ensure it remains aligned with your goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: At your I am not comfortable to recommend pure equity funds.

You may invest in equity savings fund which are relatively less riskier then pure equity funds.

So if you do sip in say Kotak Equity Savings fund for 4 years you will accumulate a sum of 35.53 L.

This allowed to grow in the same fund will grow into a corpus of around 70 L.

If you buy an immediate annuity from an insurance company for your corpus then considering 6% annuity rate it will lead to a monthly payout of 35 K.

You will need a minimum additional corpus of 3.3 Cr from other sources which when added to your sip corpus of 70 L will lead to comprehensive corpus of 4 Cr.

6% annuity will yield you a monthly payout of 2 L (pre-tax).

Feel free to revert if you have further queries.

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

Happy Investing!!