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Will This Investment Strategy Help Reach My Rs. 1 Crore Goal in 15 Years?

Ramalingam Kalirajan |7290 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Oct 16, 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 - Oct 16, 2024Hindi

Hii, I am 33 year old and my husband is 36 year old. Recently we have started investing. our monthly income is 50000 all total. i have gathered little knowledge of stock market and sip through youtube. we are investing 20% of income for now. in 15 years targeting for 1 cr. every year 5 % we will increase the investment amount. our investments are - 1) parag parikh flexi cap - 2000, 2) hdfc balanced advantage fund direct plan - 1500, 3) sbi contra fund - 1500, 4) hdfc sensex - 1500, 5) icici prudential equity and debt fund direct - 2000. Monthly RD - 2000 6) icici gold etf - 1000 IS THIS WILL REACH TO OUR TARGET? Some stocks i also bought like 1) itc - 10 stocks 2) canara bank 30 stocks 3) icici gld etf 60 stocks

Ans: At your age, you're on the right track by focusing on long-term goals like accumulating Rs 1 crore in 15 years. Investing 20% of your combined income shows discipline. Increasing the investment amount by 5% annually is another great approach to combat inflation and boost your portfolio's growth.

But, is your current strategy enough to reach your target?

Let's break it down.

Evaluating Your Current SIP Portfolio
1) Parag Parikh Flexi Cap Fund – Rs 2,000

Flexi-cap funds allow flexibility across market capitalizations.
This fund gives fund managers room to invest in large, mid, and small-cap stocks based on market conditions.
2) HDFC Balanced Advantage Fund – Rs 1,500

Balanced Advantage Funds (BAFs) manage equity and debt allocation dynamically.
Suitable for moderating risks while aiming for growth. It can provide a cushion against market volatility.
3) SBI Contra Fund – Rs 1,500

Contra funds invest in stocks that are currently out of favour but have strong future potential.
These funds require patience as they may take longer to deliver results, but they can generate substantial returns over time.
4) HDFC Sensex Fund – Rs 1,500

Index funds like this aim to replicate the performance of a benchmark, such as the Sensex.
While index funds are good for stability, they do not outperform actively managed funds.
Actively managed funds offer better growth potential over time by responding to market trends and opportunities.
5) ICICI Prudential Equity and Debt Fund – Rs 2,000

This hybrid fund balances between equity and debt, providing both growth and safety.
These funds aim for capital appreciation while managing risks with a debt component.
6) Monthly Recurring Deposit (RD) – Rs 2,000

RDs are safe but offer limited growth potential compared to mutual funds.
Consider allocating more toward equity or hybrid funds for better returns.
7) ICICI Gold ETF – Rs 1,000

Gold can act as a hedge during market downturns.
However, gold is not a significant wealth creator compared to equities. Maintain this, but avoid over-investment in gold.
Investment into Direct Funds
You’ve chosen direct funds, which offer lower expense ratios compared to regular funds. However, managing these funds on your own requires active monitoring and expertise.

Disadvantages of Direct Funds:

You miss the expert guidance a Certified Financial Planner can offer.
Direct funds are ideal only if you have substantial knowledge and time to actively manage them. Otherwise, a regular fund through a Mutual Fund Distributor (MFD) with a CFP credential would be more beneficial, providing professional expertise to rebalance and manage your portfolio.
Stocks You’ve Invested In
1) ITC – 10 stocks

ITC is a stable stock with consistent dividends, but its growth potential may not be extraordinary.
2) Canara Bank – 30 stocks

Public sector banks like Canara Bank are cyclical, but they may face challenges in delivering sustained long-term growth.
3) ICICI Gold ETF – 60 stocks

Like the mutual fund allocation, gold stocks can hedge your portfolio but should not be a core holding.
Targeting Rs 1 Crore in 15 Years
Your goal of reaching Rs 1 crore in 15 years with annual investment growth of 5% is ambitious. Your current allocation to equity, hybrid funds, and SIPs shows potential, but a few things need improvement.

Investment in RD and Gold ETFs:

These safer investments are limiting your growth potential. You may want to reduce allocations here and invest more in equity-based funds, which generally yield higher returns over the long term.
Increase Equity Allocation:

With 15 years to go, equity should dominate your portfolio for growth. You’re still young, and taking on a little more risk in equity can help you achieve higher returns.
Avoid Heavy Index Fund Exposure:

Index funds, like your HDFC Sensex Fund, are stable but cannot outperform the market. For higher returns, actively managed funds can be a better choice.
Hybrid and Balanced Advantage Funds:

While these funds are safer, they may underperform compared to pure equity funds. It’s good to have some, but ensure a higher proportion of your money is in high-growth funds.
Review Your Stock Portfolio:

While you’ve taken an interest in stocks, your current holdings may not have the aggressive growth potential you need to reach Rs 1 crore in 15 years.
Consider diversifying or investing in growth stocks rather than stable, dividend-paying companies like ITC or public sector banks.
Annual Increase in Investment:

Your plan to increase investments by 5% annually is a sound one. This will help your portfolio grow faster as your income increases.
Suggestions for a 360° Investment Approach
1. Focus on Growth Funds:

Continue to invest in diversified, actively managed mutual funds.
As you become more comfortable with risk, allocate more to mid-cap and small-cap funds for higher returns.
2. Reallocate from RD to Equity:

Recurring deposits are safe but offer minimal returns. A portion of this money can go into equity mutual funds.
3. Consider Professional Advice:

Since you’re still learning, you might want to consult a Certified Financial Planner (CFP) who can help optimize your portfolio. They can guide you on rebalancing, asset allocation, and choosing the right funds.
Regular funds through a MFD with a CFP credential can provide long-term benefits through active portfolio management.
4. Increase Emergency Fund:

You haven’t mentioned an emergency fund. It’s crucial to have 6-12 months of expenses saved in a liquid asset to cover unforeseen events.
5. Regular Portfolio Reviews:

Keep reviewing and adjusting your investments as your income and financial knowledge grow.
A bi-annual review with a professional can help you stay on track toward your Rs 1 crore goal.
Final Insights
You and your husband are in a good position, considering you’ve just started investing. With a disciplined approach and regular investment increases, you can achieve your Rs 1 crore target. However, small tweaks, such as increasing your exposure to equity and possibly reallocating from lower-return assets, can significantly boost your portfolio’s performance.

Make sure to stay consistent and continue learning about the stock market and mutual funds. If required, seek the assistance of a Certified Financial Planner to guide you through complex financial decisions and ensure that your investments align with your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Asked on - Oct 16, 2024 | Answered on Oct 16, 2024

Thank you so much SIR, from ur guidance i did learn more.. i ll implement ur advice. Sir emergency fund i have for 3 months expenses.. still learning about stock and mf

Ans: You're most welcome! I'm glad you found the guidance helpful. It's great to see that you're taking steps to learn more about stocks and mutual funds. Learning is a continuous process, and you’re already on the right track by building your emergency fund.

Since you have 3 months' worth of expenses covered, consider gradually increasing it to 6-12 months over time. This will give you more financial security, especially when focusing on more aggressive investments like stocks and equity mutual funds.

Feel free to reach out whenever you need any further guidance. I’m here to support you on your journey towards achieving your financial goals.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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