I am 47 years old and since 1 year I am investing 18k in sip and since 3 years in nos around 15k.do I need to increase by investment. I have home loan of 45 lacs and roughly I get 1.70 salary every month i want to have corpus of 25 lacs by 2028 March for my child education can I achieve it. Considering I am having pf of 16k from my salary and 14k from employer every month. 1k in ppt and 2.5 lacs in stocks. Can I get this amount by 2028
Ans: You are currently 47 years old, and your primary focus is to accumulate Rs 25 lakhs by March 2028 for your child's education. You are already investing Rs 18,000 in SIPs, Rs 15,000 in NPS, and contributing to provident funds (PF) with both employee and employer contributions. Additionally, you hold Rs 2.5 lakhs in stocks and have a home loan of Rs 45 lakhs. Your monthly salary is Rs 1.7 lakhs.
Let’s break this down and see if you can achieve your goal by 2028.
Your Existing Investments
SIP Investment: Rs 18,000 per month.
NPS Contribution: Rs 15,000 per month, combining your own and your employer’s contribution.
Provident Fund: Rs 16,000 from your salary and Rs 14,000 from your employer every month.
Stocks: You currently have Rs 2.5 lakhs in stocks.
Other Investments: Rs 1,000 in PPF, which could also grow by 2028 but will be more conservative.
You have a structured approach with SIP, NPS, PF, and stocks, which is a positive step. You are also contributing regularly, which will help in the long run.
Analysing the Corpus Goal of Rs 25 Lakhs by 2028
Your goal of Rs 25 lakhs by March 2028 for your child’s education is realistic but will require a strategic approach.
Time Horizon: You have approximately four years to reach this goal.
Current Investments: Your ongoing SIP and NPS contributions are long-term wealth-building tools. However, we need to determine whether these investments, combined with existing resources, will be sufficient to meet your Rs 25 lakh target in four years.
Let’s evaluate your investment options and consider some strategies to improve your chances of meeting this target.
Increasing Your SIPs
Current SIP Contribution: Rs 18,000 per month is a good start. However, considering your timeline and the corpus needed, you might need to increase this amount slightly.
Recommended SIP Increase: An increase in your SIPs could help accelerate your corpus growth. A small step-up in SIPs, say by Rs 5,000 per month, can make a significant difference over four years.
Step-Up Strategy: You could also consider increasing your SIPs annually by 10-15%, if possible. This approach, known as a step-up SIP, allows you to increase your contributions as your income grows. Given your monthly salary of Rs 1.7 lakhs, this increase should be manageable.
Potential Returns from SIPs
You are currently investing in SIPs. Actively managed mutual funds have the potential to provide an annual return of 10-14% over the long term. Since your horizon is four years, expect some market volatility, but over time, you should see growth.
SIP contributions with regular increases will likely help you build a solid corpus. However, be mindful that market-linked instruments carry risk, and you need to keep track of the portfolio’s performance.
Importance of Actively Managed Funds
Let’s discuss the benefits of actively managed funds over passive options like index funds:
Targeted Growth: Actively managed funds allow the fund manager to pick high-growth potential stocks. This is especially important when trying to meet a specific financial goal in a shorter time frame.
Performance Management: Actively managed funds have the flexibility to adapt to market conditions, reducing the risk of underperformance. They are more dynamic than index funds, which simply follow the market.
Higher Returns Potential: Historically, actively managed funds in certain categories like small-cap or mid-cap funds have outperformed index funds, giving investors the edge needed to grow their wealth.
Index funds, while lower cost, may not provide the same potential for higher returns as actively managed funds.
Disadvantages of Direct Funds
You should avoid direct mutual funds, even though they have lower expense ratios. Here’s why:
Lack of Guidance: Direct funds don’t come with the expert advice and ongoing support that investing through a Certified Financial Planner (CFP) offers. A CFP helps you navigate market fluctuations and adjusts your portfolio according to your goals and risk tolerance.
Risk Management: Without expert oversight, managing risk becomes challenging. An MFD with a CFP credential can actively guide you through rebalancing your portfolio or making strategic shifts.
While direct funds seem like an attractive low-cost option, they might not provide the value and expert guidance you need to meet your goals.
Evaluating Your NPS Contribution
Your monthly NPS contribution of Rs 15,000 is a good tool for long-term retirement planning. However, it may not significantly help you towards your short-term goal of Rs 25 lakhs by 2028, since NPS is a locked-in investment until retirement.
Still, NPS contributions are valuable for building your overall retirement corpus and ensuring you have sufficient funds post-retirement.
Utilising Provident Fund Contributions
Your monthly PF contributions are Rs 30,000 (Rs 16,000 from your salary and Rs 14,000 from your employer). While this will help you in the long term, you cannot access this fund for your immediate goal.
However, it provides financial security in the form of retirement savings, which is crucial for the future.
Stocks as Part of the Portfolio
You currently hold Rs 2.5 lakhs in stocks. While equity markets offer high growth potential, they also come with higher risks. You should continue to monitor your stock portfolio closely.
Diversification: If your stocks are concentrated in one or two sectors, you might want to diversify to reduce risk. You can move part of this portfolio into less volatile instruments as you approach your goal deadline.
Growth Potential: If these stocks perform well, they can contribute significantly to your education corpus. But, you must stay prepared for fluctuations.
Managing Your Home Loan
You have a home loan of Rs 45 lakhs. Home loans come with tax benefits, but they also create a cash outflow in the form of EMIs. Considering your goal, you should not aggressively try to prepay the loan right now. Instead, focus on building your Rs 25 lakhs corpus.
Keep servicing the loan as per schedule. You can revisit prepayment options once your child’s education goal is secured.
Other Investments
PPF Contribution: You are investing Rs 1,000 per month in PPF. While PPF is a safe investment with guaranteed returns, it has a long lock-in period. Given your short-term goal, PPF won’t significantly contribute to your Rs 25 lakh target.
However, it can be a part of your long-term financial planning for retirement or other future goals.
Taxation on Mutual Funds and Stocks
Keep in mind the tax implications of your investments:
LTCG on Mutual Funds: For equity mutual funds, long-term capital gains (LTCG) over Rs 1.25 lakh are taxed at 12.5%.
STCG on Mutual Funds: Short-term capital gains (STCG) are taxed at 20%.
Stock Investments: Gains from stocks also follow similar tax rules.
You should plan your withdrawals carefully to minimize tax liability when you liquidate these assets in 2028 for your child’s education.
Recommendations for Achieving Your Goal
To achieve your Rs 25 lakh corpus by 2028:
Increase SIPs: Raise your monthly SIP contributions by Rs 5,000, making it Rs 23,000 per month. This increase will boost your investment corpus over four years.
Step-Up Approach: Consider increasing your SIPs by 10-15% annually to keep up with inflation and increase your corpus.
Review Stocks: Continue to monitor your stock investments. Reallocate a portion to safer investments as you get closer to your goal.
Stay Focused on Short-Term Goal: While your PF and NPS contributions are crucial for long-term planning, your SIPs and stock investments will drive your short-term goal. Focus on these for now.
Finally
Your goal of Rs 25 lakhs by 2028 is achievable with some adjustments. Increase your SIP contributions and monitor your stock investments closely. By staying disciplined and following this approach, you can meet your child’s education needs while maintaining a strong foundation for future financial security.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment