Govt. employees with combined salary of 84k aim for 1cr corpus in 15 years. How?

Ans: You and your wife have a clear objective: to achieve a Rs. 1 crore corpus in 15 years. You have a structured approach towards savings, with a good mix of investments in mutual funds, PPF, GPF, and LIC. Your focus on long-term goals shows discipline and foresight. However, to reach the Rs. 1 crore target, you need a strategic plan. Let's break down your current situation and explore the necessary steps to achieve this goal.

Assessing Your Current Investments
Mutual Funds SIP
You have been investing Rs. 13,000 per month in mutual funds through SIP for the past year. This is a commendable start.
Mutual funds are a good vehicle for wealth creation over the long term. However, the choice of funds matters greatly.
It is important to invest in actively managed funds rather than index funds. Actively managed funds are overseen by experienced fund managers who can adjust the portfolio based on market conditions. This increases the potential for higher returns compared to passive index funds, which simply track the market.
While direct mutual funds have lower expense ratios, they require active monitoring. For those without the time or expertise, regular funds through a certified financial planner can be more beneficial. The planner can provide personalized advice and adjustments based on your evolving financial situation.
PPF (Public Provident Fund)
You have been consistently investing Rs. 2,000 per month in PPF for the past five years. PPF is a safe investment with tax benefits and guaranteed returns.
However, the returns on PPF are generally lower than equity-based investments. While it’s a good vehicle for stability, it won’t alone suffice for aggressive growth. Continue with PPF for the tax benefits and guaranteed returns, but consider it as part of a broader, diversified portfolio.
GPF (General Provident Fund)
Your monthly contribution of Rs. 9,000 in GPF for the past four years is another safe investment with stable returns.
Like PPF, GPF is suitable for risk-averse portions of your portfolio. It provides a safety net, but again, the returns are limited. Keep contributing for security, but don’t rely on it for aggressive corpus building.
LIC Policy
You have been paying Rs. 4,000 per month towards an LIC policy for the past six years.
While LIC policies offer life insurance, the returns on investment are generally low. These policies are not ideal for wealth creation.
Given your goal, it might be worth evaluating the benefits of continuing with this policy versus redirecting funds to more lucrative investments like mutual funds. If the LIC policy is an investment-cum-insurance plan, consider surrendering it and reinvesting the proceeds into more growth-oriented options, such as mutual funds or equity.
Evaluating the Home Loan Decision
You plan to take a home loan of Rs. 25 lakh for 20 years. While home ownership is a significant goal, it's essential to assess the impact of this loan on your cash flow and investment capacity.
The EMI for a Rs. 25 lakh loan over 20 years will reduce your monthly surplus, which could otherwise be invested. However, if managed well, this can also be a sound investment in your future.
Ensure that your home loan EMI does not exceed 30-40% of your combined monthly income. This will leave sufficient room for other financial commitments and investments.
Since a home loan offers tax benefits, it can complement your financial strategy. But, be cautious about stretching your finances too thin.
Steps to Achieve the Rs. 1 Crore Goal
Increase SIP Contributions
Your current SIP of Rs. 13,000 is a good start, but to reach Rs. 1 crore in 15 years, you may need to gradually increase this amount. Consider stepping up your SIP amount annually, even by a small percentage, to take advantage of compounding.
Focus on actively managed equity mutual funds with a good track record. Equity funds tend to offer higher returns over the long term compared to debt or hybrid funds, though they come with higher risk.
Reinvest any bonuses or windfalls into your SIPs to give your corpus an extra boost.
Maximize Tax-Saving Investments
Continue investing in PPF and GPF, as they provide tax benefits under Section 80C. These are important for reducing your taxable income and ensuring guaranteed returns.
Consider investing in ELSS (Equity Linked Savings Scheme) funds for tax-saving purposes. ELSS funds offer tax benefits under Section 80C and have the potential for higher returns due to their equity exposure.
Reassess the LIC Policy
Evaluate the return on your LIC policy. If it's an endowment or money-back plan, the returns are likely lower than what you could achieve with other investments.
Consider surrendering the policy and reallocating the funds to a higher-return investment like mutual funds or a diversified equity portfolio.
If the policy provides critical life insurance, ensure you have adequate term insurance before surrendering.
Build an Emergency Fund
Before aggressively pursuing your Rs. 1 crore goal, ensure you have an emergency fund. This fund should cover 6-12 months of living expenses and should be kept in a liquid and accessible form, such as a savings account or a liquid mutual fund.
An emergency fund protects your long-term investments from being liquidated prematurely in case of unexpected expenses.
Invest for Long-Term Growth
Diversify your investment portfolio to include a mix of equity, debt, and hybrid funds. This diversification will balance risk and return while ensuring steady growth towards your Rs. 1 crore goal.
Given your time horizon, a higher allocation to equity is advisable. Over 15 years, equities tend to outperform other asset classes, despite short-term volatility.
Monitor and Adjust Regularly
Regularly review your portfolio and financial plan. Monitor the performance of your mutual funds and other investments, and make adjustments as needed. A certified financial planner can help with this, providing expertise and advice tailored to your goals.
Stay updated on changes in tax laws and financial products to ensure your investments remain optimal.
Additional Considerations
Education and Child Planning
If you have or plan to have children, consider setting aside funds for their education. Start early with a dedicated education plan or child-specific mutual fund.
Child education expenses can significantly impact your financial planning, so factor these into your overall strategy.
Retirement Planning
While focusing on your Rs. 1 crore goal, don’t neglect retirement planning. Ensure you are contributing sufficiently to retirement-focused schemes like PPF, GPF, and NPS.
A well-rounded retirement plan should include a mix of fixed-income and equity investments to provide both stability and growth.
Final Insights
Achieving a Rs. 1 crore corpus in 15 years is an ambitious but achievable goal. With disciplined saving, strategic investment, and regular monitoring, you can reach this target and secure your financial future. It’s crucial to balance your immediate needs, such as home ownership, with long-term growth goals. By gradually increasing your SIP contributions, reassessing low-yield investments, and diversifying your portfolio, you can build a robust financial plan that aligns with your aspirations.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in