I m 31 years now, having 1.8L P.M, want a corpus of 20Cr after 30 years, currently having 21L in PPF plan to continue till 60 with 1.5L PA, Have LIC which will give me 5Cr at 60 years, having NPS for last 3 years at 1L pm contribution, having PPF...

I m 31 years now, having 1.8L P.M, want a corpus of 20Cr after 30 years, currently having 21L in PPF plan to continue till 60 with 1.5L PA, Have LIC which will give me 5Cr at 60 years, having NPS for last 3 years at 1L pm contribution, having PPF as per company norns. Also Mediclaim of 40L Please let me know what to be do to attain the objective

Ans: It's great to see your clear vision for the future and your diligent saving efforts. Your goal of a Rs 20 crore corpus after 30 years is ambitious but achievable with the right strategy. Let’s analyze and outline a comprehensive plan.

Assessing the Current Situation
You're 31, earning Rs 1.8 lakh monthly, with various investments:

Rs 21 lakh in PPF with Rs 1.5 lakh annual contributions.
LIC policy for Rs 5 crore at age 60.
NPS with Rs 1 lakh monthly contributions.
Employer-provided PPF.
Mediclaim policy with Rs 40 lakh coverage.
The Role of LIC Policy
While your LIC policy promises a substantial payout at 60, it ties up a significant portion of your funds with limited flexibility. Surrendering it can free up resources for potentially higher-yielding investments.

Surrendering LIC Policy
Surrendering the LIC policy involves discontinuing premium payments and receiving the surrender value. This value is lower than the policy's maturity value due to deductions. Before surrendering, assess the surrender value and consider any penalties.

Reinvesting in Mutual Funds
Reinvesting the surrender value into mutual funds offers several advantages:

Higher Potential Returns: Mutual funds, especially equity funds, historically offer higher returns over the long term compared to traditional insurance policies like LIC.

Flexibility: Mutual funds provide flexibility in investment amounts, redemption, and fund choices, allowing you to adapt to changing financial needs and market conditions.

Diversification: Mutual funds allow you to diversify across asset classes and fund types, reducing risk compared to a single insurance policy.

Importance of Professional Guidance
Consulting with a Certified Financial Planner (CFP) is crucial before surrendering the LIC policy. A CFP can assess your financial situation, evaluate the surrender value, and recommend suitable mutual fund investments aligned with your goals and risk tolerance.

Considerations Before Surrendering
Before making a decision, consider the following:

Surrender Charges: Assess any surrender charges or penalties associated with discontinuing the LIC policy. Calculate the net surrender value after deductions.

Tax Implications: Understand the tax implications of surrendering the LIC policy and reinvesting the proceeds into mutual funds. Consult with a tax advisor to optimize tax efficiency.

Risk Tolerance: Evaluate your risk tolerance and investment horizon. Mutual funds, especially equity funds, carry higher market risk compared to insurance policies. Ensure your investment strategy aligns with your risk profile.

Financial Goals: Review your long-term financial goals and assess whether reinvesting in mutual funds supports these objectives better than maintaining the LIC policy.

Rebalancing Your Portfolio
After reinvesting the surrender value into mutual funds, rebalance your portfolio to ensure optimal asset allocation. Consider factors such as age, risk tolerance, and investment horizon when reallocating assets across different fund categories.

Regular Monitoring and Adjustments
Regularly monitor the performance of your mutual fund investments and make adjustments as needed. Market conditions and your financial goals may change over time, requiring periodic portfolio reviews and rebalancing.

Conclusion
Surrendering your LIC policy and reinvesting the proceeds into mutual funds can potentially enhance your long-term wealth accumulation and financial flexibility. However, it's essential to carefully evaluate the surrender value, tax implications, and investment strategy before making a decision. Seeking guidance from a Certified Financial Planner ensures that your investment decisions align with your financial goals and risk tolerance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You are in a solid position with a take-home salary of Rs. 2 lakhs per month at 32 years of age. The family corpus of Rs. 1.2 crore provides an excellent base, and your personal corpus of Rs. 65 lakh is commendable. You have built a well-diversified portfolio consisting of the following:

Rs. 33 lakh in Fixed Deposits (FD)
Rs. 7 lakh in Sovereign Gold Bonds (SGB)
Rs. 7-year-old PPF account, contributing Rs. 1.5 lakh yearly
LIC with an annual contribution of Rs. 2.5 lakh for the past three years
National Pension System (NPS) with Rs. 50,000 annually for three years
Rs. 7,000 in SIP for one year, continuing
Your existing portfolio demonstrates a balanced approach, but achieving Rs. 20 crore by the age of 58 will require a more aggressive and consistent strategy.

Growth Potential of Existing Investments
Your existing corpus of Rs. 1.85 crore (including family corpus) is growing well. Here's how each of your current investments can be expected to perform:

Family Corpus of Rs. 1.2 Crore: Growing at 8-9% annually, this portion will steadily grow and provide substantial returns over time.

PPF: With a current interest rate of around 7.1%, your PPF provides safety and tax benefits. However, its long lock-in period means it may not give rapid growth for your target.

LIC: If your LIC plan is a traditional endowment or money-back policy, the returns are typically around 6-8%. Though safe, these returns are relatively low compared to equity-based investments.

NPS: Your NPS can be expected to grow between 8-10%, depending on the asset allocation and fund performance. It is a solid retirement-oriented product but has limitations on withdrawal.

Fixed Deposits: With an interest rate of around 6-7%, your FDs provide safety but do not grow fast enough to meet your aggressive goal.

Sovereign Gold Bonds (SGB): These give around 2.5% interest annually plus any capital appreciation due to gold price movements. They are more suitable for diversification than aggressive growth.

SIP: With just Rs. 7,000 monthly for one year, the equity allocation is currently small. But SIPs, especially in actively managed funds, can provide higher long-term returns (around 12-15%).

Roadmap to Rs. 20 Crore by Age 58
To achieve a corpus of Rs. 20 crore in 26 years, your current savings and investments need to grow aggressively. Below is a strategy to boost growth across various investment classes.

Increase Equity Exposure
Shift from Low-Yield Instruments: Your current investments in PPF, LIC, and FD are heavily skewed towards low-risk, low-return products. These may not suffice to achieve your ambitious target. You may want to reallocate a portion of your FDs and reduce future LIC contributions (unless it's a ULIP or investment-linked policy).

Actively Managed Mutual Funds: Increase your SIPs in actively managed funds, especially equity-focused ones, as these have the potential to offer returns between 12-15% over the long term. Allocate a higher percentage of your savings to small-cap, mid-cap, and diversified funds.

Asset Reallocation
Revisit LIC Policies: If your LIC is an investment-linked insurance plan, you might want to surrender or reduce the premium payments and reinvest that amount into mutual funds, which have higher growth potential.

Fixed Deposits: Consider gradually reducing your exposure to FDs. You could reinvest in more aggressive instruments like debt mutual funds or balanced advantage funds. These funds offer better returns (7-9%) than FDs, with some flexibility in withdrawal.

Increase SIP Contributions: At Rs. 7,000 per month, your SIP contributions are quite low for your current income level. You should aim to allocate at least 20-25% of your income (i.e., Rs. 40,000-50,000 per month) into SIPs across various categories such as large-cap, mid-cap, small-cap, and balanced advantage funds.

Leverage the Power of Compounding
Consistency and Step-Up in Investments: It’s crucial to increase your SIP contributions each year as your salary increases. Even a 10-15% annual increment in your SIP amounts will significantly compound over time. This will allow your investments to grow at a faster rate.

Systematic Investment Discipline: Continue with your SIPs consistently. Any market volatility should be seen as an opportunity to acquire more units at a lower cost, thus benefiting from rupee cost averaging.

Retirement-Oriented Investments
NPS Contributions: While NPS is good for retirement planning, it comes with limitations on liquidity before 60. Consider increasing your annual contributions to Rs. 1.5 lakh to maximize the tax benefits. However, balance this with your need for flexibility in other investments.

Avoid Over-Reliance on NPS: Given its lock-in and withdrawal rules, do not make NPS your only retirement-oriented investment.

Tax Efficiency and Portfolio Optimization
Mutual Fund Capital Gains Taxation: Be mindful of the new rules for long-term capital gains (LTCG) on equity mutual funds. Gains above Rs. 1.25 lakh annually are taxed at 12.5%. This means you’ll need to plan withdrawals and systematic transfers (like SWPs) carefully to optimize your tax liability.

Debt Mutual Funds: Since FDs are taxed at your income tax slab, consider debt mutual funds for better tax efficiency. Short-term capital gains in debt funds are taxed according to your income slab, but they offer liquidity and higher potential returns than FDs.

Enhancing Savings and Investment Rate
Save More from Salary: With a take-home salary of Rs. 2 lakh per month, you could allocate more towards savings and investments. Currently, a significant portion seems to be in traditional, lower-yield instruments. Aim to save at least 35-40% of your income (i.e., Rs. 70,000-80,000) towards high-growth investments.

Family Corpus Growth: The Rs. 1.2 crore family corpus, expected to grow at 8-9%, should be nurtured. Ensure it is well-diversified and not overly concentrated in low-risk assets. If possible, shift some of this corpus into equity mutual funds for higher returns.

Investment Discipline and Risk Management
Emergency Fund: Ensure that you have at least 6-12 months of expenses saved in a liquid instrument. This can be in the form of liquid funds or a savings account. This provides a safety net without affecting your long-term investments.

Avoid Over-Diversification: While diversification reduces risk, over-diversification can dilute returns. Stick to a mix of equity and debt instruments but avoid investing in too many schemes. Focus on a few high-quality mutual funds that are actively managed.

Avoid Index Funds: Index funds offer returns that mirror the market, but in your case, actively managed funds can provide higher alpha, especially with the right mix of small and mid-cap funds. While index funds are passive, you would benefit more from the active approach.

Avoid Direct Mutual Funds: Investing in regular mutual funds through a Certified Financial Planner offers you better guidance and monitoring. Direct funds, while low in expense ratio, do not offer this level of professional management, which is essential for achieving high long-term returns.

Final Insights
Achieving a corpus of Rs. 20 crore by the age of 58 is ambitious, but certainly possible with the right approach. You are off to a strong start, but need to shift gears towards more aggressive, equity-focused investments.

The key is to increase your SIPs, reallocate from lower-yield products like FDs and LIC policies, and maintain a disciplined approach to long-term investing. Regular monitoring and portfolio rebalancing will also ensure that you remain on track to meet your goal.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

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