Hi, I'm 31 years old and married. She is a housewife. I have about 30 lakhs in FDs and PPFs. I have loan-free farm land of 35 lakhs, highway touch, which yields only 20k per year in rent right now. I have home loan of 38 lakhs with 33500 EMI. I have just recently started investing in MFs with SIP of 9000 per month in 5-6 different funds comprising of large cap, mid cap, small cap, dividend yield and I want to increase it. I only prefer equity oriented funds because of its higher returns as compared to debt funds as I already have enough FDs to play safely and thus I avoid debt funds. I know I have enough years to gather large corpus till age 60. But right now, please suggest me how much (or how much more) and where should I invest Rs.50000 per month (savings of my salary after all expenses per month) so that I earn exactly Rs.1 lakh per month from all my investments (passive income) in exactly 5 years from now. Also, I wonder if I should pay off my home loan or not coz one side is that currently I avail tax return on interest component upto 3.5 lakhs but the other side is that paying off home loan will lessen my mental burden. So sir, please share your valuable opinion om both these points.

Ans: At 35, your financial journey has begun on a strong footing. Your monthly income of Rs. 2 lakhs offers a good base for future growth. You have substantial investments, including Rs. 25 lakhs in shares, Rs. 19 lakhs in mutual funds, Rs. 30 lakhs in PPF, and Rs. 15 lakhs in savings. With Rs. 15,000 in NPS contributions and a home loan of Rs. 65 lakhs, your financial landscape is diversified.

Let's break down the best strategy to invest Rs. 50,000 monthly for the next 15 years, ensuring a secure retirement and an optimal balance between growth and risk.

Assessing Your Current Investments
Shares (Rs. 25 lakhs value): Good growth from Rs. 16 lakhs investment until 2022 shows your stock selection was effective. But equities are highly volatile and can cause fluctuations in your portfolio's value. Consider reducing concentrated stock exposure if the risk feels high for your comfort. Balancing this with mutual funds could bring stability.

Mutual Funds (Rs. 19 lakhs): Your existing investments in actively managed funds are solid choices. They offer diversification and potential for better long-term returns than direct stock investments. However, it’s important to assess fund performance regularly and make adjustments if needed.

PPF (Rs. 30 lakhs): This is a safe investment providing tax benefits and risk-free returns. Continue this as part of your retirement corpus since it offers a steady, guaranteed income stream in the future.

Savings (Rs. 15 lakhs): Savings is crucial for emergencies, but holding too much in cash can reduce potential returns. You should aim to keep 6–12 months of expenses in liquid funds, and the rest can be channeled into higher-return investments.

Home Loan Impact
Your Rs. 65 lakh home loan with an EMI of Rs. 66,000 has a significant role in your financial situation. With 13 years remaining, managing this alongside your investment strategy is key.

Repayment Strategy: Home loans come with tax benefits, so aggressive prepayment may not always be the best move. Focus on maintaining regular EMI payments and use extra funds only if interest rates rise or your other goals are secure.

Balancing EMI and Investments: Given your stable income, continue paying the EMI while maximizing long-term investments. This balance will ensure that your home loan doesn’t restrict your financial growth.

The Importance of Diversification
Your current portfolio is well diversified, covering stocks, mutual funds, PPF, and NPS. However, there are areas for optimization.

Index Funds: You are currently investing Rs. 10,000 in index funds. While index funds provide low-cost exposure to broad markets, they may not always outperform actively managed funds. Index funds track the market passively and don't offer the advantage of tactical shifts during market volatility. Consider reducing your index fund exposure and shifting a portion into actively managed funds for potential outperformance. Actively managed funds, especially through a Certified Financial Planner (CFP), allow expert management, adjustments during market cycles, and better chances of beating inflation.

Mutual Funds (Regular Plans): It is crucial to invest in regular plans of mutual funds through a Certified Financial Planner (CFP). Regular plans provide access to professional advice, enabling you to make better-informed decisions and adapt your investments as needed. Direct funds, on the other hand, leave you without such guidance, making it harder to navigate the complexities of the market. The CFP-backed advisor can optimize your portfolio with a tailored approach to suit your risk profile, future goals, and market conditions.

Sectoral and Thematic Funds: Avoid sector-specific funds as they concentrate risk in one area of the economy. For long-term retirement goals, it’s better to stick with diversified funds that mitigate risk by spreading investments across multiple sectors.

Future Investments: Rs. 50,000 Monthly
To meet your retirement goals, investing Rs. 50,000 monthly for the next 15 years is a wise move. Here's a strategy to ensure a mix of growth, risk management, and diversification:

Equity Mutual Funds
Allocate 60% (Rs. 30,000) of your monthly investments to equity mutual funds. Over 15 years, this will help in building a corpus that outpaces inflation. Focus on actively managed funds across various market capitalizations:

Large-cap funds: These are less volatile than small and mid-cap funds but provide steady growth. You already have exposure through your existing SIPs, but increasing your allocation here would offer more stability.

Flexi-cap funds: These funds offer flexibility to the fund manager to invest across large, mid, and small-cap companies. You already have investments in a good flexi-cap fund, and adding more to this category can help manage risk while allowing for growth.

Small and mid-cap funds: Allocate around 20% of your equity investments to small and mid-cap funds. These funds can offer higher returns over the long term but are riskier. Maintain a smaller allocation here to balance risk.

Debt Mutual Funds
Allocate 20% (Rs. 10,000) to debt mutual funds. Debt funds offer stability, especially when markets are volatile. Since debt funds are taxed according to your tax slab (both short-term and long-term capital gains), they should be used cautiously but are still necessary to reduce overall portfolio volatility.

Short-duration funds: These can be considered as they offer better returns than savings accounts and FDs while being less risky.

Corporate bond funds: These funds invest in high-quality corporate debt, offering a balance of safety and returns.

NPS (National Pension System)
Continue your Rs. 15,000 monthly contribution to NPS. It offers an additional Rs. 50,000 tax deduction under Section 80CCD(1B). NPS investments are diversified across equity, corporate bonds, and government securities, which ensures a balanced retirement corpus. Consider gradually shifting your NPS allocation towards safer instruments as you near retirement.

Hybrid Funds
Allocate 10% (Rs. 5,000) to hybrid funds. These funds invest in both equity and debt, providing a balanced approach. Hybrid funds can serve as a cushion during volatile market conditions by offering both growth and protection.

International Funds
Consider allocating a small portion (5%, Rs. 2,500) to international mutual funds. This provides exposure to global markets, which helps diversify country-specific risks and benefit from global growth stories.

Insurance Review
You haven't mentioned insurance, but having sufficient coverage is crucial for financial stability. Ensure you have:

Term Insurance: Pure protection plans are critical, especially with a home loan. Consider a term plan that covers your outstanding loan and income replacement needs.

Health Insurance: Verify that you have adequate health coverage for your family. While your employer may offer coverage, it’s advisable to have a personal health plan as well.

Final Insights
You are on a strong financial path, with a well-balanced portfolio and a clear retirement goal. By optimizing your investments, shifting focus from index funds to actively managed funds, and ensuring proper diversification, you can achieve a secure and comfortable retirement.

Continue investing regularly, review your portfolio annually, and work with a Certified Financial Planner (CFP) to ensure your investments align with changing market conditions and personal goals.

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

Ans: Hi Shaks,

Your query will resonate with many working professionals.

First and foremost, please check/calculate if you have capital gains arising out of the sale of your current flat. This is important for tax implication and will also help make your decision for utilizing the funds.

Lets assume you have some capital gains from this sale, then you can again have to confirm if the capital gains can be utilized without paying tax on it - this is possible if you have purchased the new flat within the last 1 year. If so, then you can utilize/adjust the capital gains towards payments made for the new flat and save tax on it. If you have purchased the new flat earlier than the last 1 year, then you have 2 options - pay tax on the capital gains and then use the funds as you wish OR invest the capital gains amount in NHAI bonds (locked) for the next 5 years (pay tax only on the interest earned).

Once you have sorted the above, you will know what is the amount in hand to make your decision, so lets dive into it.
You have a loan of 60 Lacs and you can manage the EMI from your salaries. Over the next 6-7 years, your salary will also see an increment of approx 7-8% annually, so I suggest you utilize this excess amount each year to prepay/topup your EMI payments. This will help reduce the loan burden over time. At the time of retirement, your loan outstanding can be paid with available options at that time.
You mentioned PPF as an option - I would suggest you do not utilize PPF amount towards this loan closure. The reason is PPF is a completely tax exempt asset and can be utilized well towards retirement income. Of course depends on how much you have accumulated in PPF.

So lets now consider paying the loan amount with the sale proceeds of the current flat. You have a loan today (assuming interest rate applicable is 8-8.5%), which you can manage and you are keen to continue it till retirement, so also recommend you do so. Keep the sale proceed amount available for investment and wealth creation as there are opportunities that can generate returns at a same rate (conservative options) and higher returns (with a slightly higher risk associated).

As you do not have any major liability which is outstanding or cannot be managed, and also you are investing 90k per month in Mutual funds, you can consider wealth creation options for the sale amount available.
PMS is an option but I feel its risks will out weigh the returns in the time frame you have, unless you have a known and trust-worthy option you want to consider.
As you are looking to retire early, at age 50, you should target to create a corpus that will sustain your retirement life (consider at least 30 years post retirement) and your child's education requirements.
Hence my recommendation would be to invest in Mutual Funds and continue with your PPF until retirement. A well constructed portfolio to create a retirement corpus and your child's education requirements would be required.

You can consult a Certified Financial Planner to help you with this plan. They can guide you with your Investments and Retirement planning and provide options to consider and provide advise on risk management (Insurance requirements).

Thanks & Regards
Janak Patel
Certified Financial Planner.