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I'm 40 and just started SIP. Can I make Rs.25,000 monthly income after 5 years and Rs.1 crore over time?

Ramalingam Kalirajan |7337 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 13, 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

Question by Mohammed on Aug 07, 2024Hindi

this is md nadeem, 40 year age, just now one month back started SIP in Mutual fund (SBI Blue chip & SBI index fund), I want to make monthly income rs 25,000 Per month after 5 year and another plan is, make a crore, I will be greatful if you tell me about, i dont have any loans but having 5 to 6 lakhs saving, business is not monthly basis it depend on season or oppornity.

Ans: Md Nadeem, you’ve set clear goals for your financial future. You want to achieve a monthly income of Rs 25,000 after 5 years and build a corpus of Rs 1 crore. Let’s assess how your current strategy aligns with these goals and what adjustments might be needed.

Current Investment in Mutual Funds
You’ve started a SIP in a blue-chip fund and an index fund. Blue-chip funds invest in well-established companies with a strong track record. These funds offer stability and moderate returns. They are suitable for conservative investors looking for steady growth.

However, index funds have limitations. They mirror market indices and do not offer the flexibility of actively managed funds. Index funds do not aim to outperform the market, and during market downturns, they might not protect your investments as effectively as actively managed funds. You might want to reconsider your investment in index funds and focus on actively managed funds. These funds have the potential to deliver better returns, especially in volatile markets.

Achieving a Monthly Income of Rs 25,000
To generate a monthly income of Rs 25,000 after 5 years, your investment approach needs to be carefully planned. While SIPs in mutual funds are a good starting point, the choice of funds is crucial. Actively managed funds, particularly those focused on generating regular income, might be more appropriate for your goal.

You should also consider the following:

Diversification: Investing in a mix of equity and debt funds can balance growth and income. Equity funds offer growth potential, while debt funds provide stability and income.

Systematic Withdrawal Plan (SWP): After 5 years, you can opt for an SWP from your mutual fund investments. This allows you to withdraw a fixed amount regularly while keeping the rest of your investment growing.

Risk Management: Since your income is seasonal, it’s essential to manage risk. Ensure your portfolio is diversified across different asset classes to reduce the impact of market fluctuations.

Building a Corpus of Rs 1 Crore
To accumulate Rs 1 crore, your current savings and SIPs need to be supplemented with a more aggressive investment strategy. Here’s how you can approach it:

Increase SIP Contributions: If possible, gradually increase your SIP amount. Regularly increasing your SIP can significantly boost your corpus over time.

Focus on Growth-Oriented Funds: Consider investing in mid-cap or small-cap funds, which have higher growth potential. However, be mindful of the risk associated with these funds.

Lumpsum Investments: You have Rs 5-6 lakhs in savings. You can invest this amount in a staggered manner in growth-oriented funds. This approach can enhance your overall returns without exposing you to significant market risk at once.

Regular Review and Rebalancing: Periodically review your portfolio with a Certified Financial Planner. This will help you stay on track with your goals and make necessary adjustments.

Managing Seasonal Business Income
Given that your business income is seasonal, it’s important to plan your investments and savings carefully:

Emergency Fund: Ensure that you have a robust emergency fund. This fund should cover at least 6-12 months of expenses. It will provide a cushion during lean business periods.

Flexible SIP Options: Choose mutual fund SIPs with the option to pause or modify contributions. This flexibility can be useful when your business income fluctuates.

Diversified Income Streams: Consider diversifying your income sources. Investments in dividend-paying funds or other income-generating assets can provide additional income during off-seasons.

Final Insights
Md Nadeem, you are on the right path by starting your investments in mutual funds. However, to achieve your financial goals, consider focusing on actively managed funds over index funds. Actively managed funds offer better growth potential and flexibility, which are crucial for your objectives.

Increase your SIP contributions if possible and consider investing your savings in a staggered manner to enhance returns. Keep an emergency fund and ensure that your investments are diversified to manage risks effectively.

Regularly review your portfolio with a Certified Financial Planner to stay aligned with your goals. With careful planning and disciplined investing, you can achieve your desired monthly income and build a substantial corpus over time.

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.