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Can I reach my retirement goal of 10 crores with my current portfolio?

Ramalingam

Ramalingam Kalirajan  |6558 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 10, 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
Rahul Question by Rahul on Dec 02, 2023Hindi
Money

Sir please review my portfolio I have Parag Parikh Flexicap ,Sbi mid cap & Axis small cap fund each with 5000 rs total 15000 rs per month sip for 25 year's and 10 percent step up every year, I want 10 crores for my retirement is this portfolio Good..? My Age is 33 ????

Ans: At 33, you are taking an important step toward securing your financial future with a Rs. 15,000 SIP across three different funds. Your goal of Rs. 10 crores in 25 years is ambitious yet achievable with consistent investing and disciplined planning. Let's break down your portfolio and assess it from a 360-degree perspective.

Current Portfolio Breakdown
Flexicap Fund: Flexicap funds provide diversification across large, mid, and small-cap stocks. They can take advantage of market opportunities across market caps, offering potential for long-term growth.

Midcap Fund: Midcap funds tend to offer higher growth potential, though they come with greater volatility. With a long-term horizon, this fund can help boost overall returns.

Small Cap Fund: Small cap funds provide aggressive growth but also carry higher risk. Including a small-cap fund in your portfolio adds a layer of growth potential, especially with a long investment horizon.

Your portfolio of three funds balances growth and diversification across market caps. Each fund plays a role in creating a solid growth trajectory over time. However, let’s look at how you can enhance your strategy.

10 Crore Retirement Target: Is It Realistic?
A goal of Rs. 10 crore is achievable with a disciplined approach to investing, especially given the time frame of 25 years. Let’s explore the key factors that will influence whether you reach your target:

Investment Tenure: With a 25-year horizon, compounding works strongly in your favor. The earlier you start, the more you allow your investments to grow exponentially.

10% Step-Up SIP: By increasing your SIP amount by 10% every year, you are wisely capitalizing on your increasing income over time. This will accelerate your wealth creation significantly.

Average Returns: Over the long term, equity markets have provided average annualized returns of around 12% to 15%. If your portfolio grows in this range, it’s possible to reach your Rs. 10 crore goal. However, you must consider that markets fluctuate, and there will be ups and downs.

Inflation Factor: Although Rs. 10 crores sounds substantial, inflation will reduce its purchasing power in the future. A portfolio that consistently grows above inflation rates is essential to maintain your standard of living in retirement.

With a well-balanced portfolio and disciplined SIPs, your target seems attainable, but adjustments may help ensure success.

Areas of Improvement in the Portfolio
Your portfolio is on the right track, but let’s evaluate a few aspects that can enhance your investment strategy for better results.

1. Diversification Across Asset Classes
Currently, your entire portfolio is focused on equity through mutual funds, which provides excellent growth potential. However, including debt funds or hybrid funds can add stability to your portfolio. Over time, as you approach retirement, a portion of your portfolio can be shifted to safer instruments like debt funds or PPF to preserve capital.

Why Consider Debt Funds? They offer more stability and lower risk compared to equities, especially in the later stages of your financial journey. A small allocation to debt can balance risk and ensure smooth growth.

PPF for Long-Term Stability: Public Provident Fund (PPF) is an excellent low-risk option with a 15-year lock-in period, which aligns well with your long-term goals.

2. Flexibility to Adjust Over Time
Your current portfolio is growth-oriented, and as you get closer to retirement, your risk appetite will decrease. It’s important to keep reviewing your portfolio and gradually shift a part of it into lower-risk assets like debt or hybrid funds.

Phase-Wise Portfolio Adjustment: Around 10 years before retirement, start reducing your exposure to small-cap funds and increase investments in large-cap or balanced funds. This approach will protect your portfolio from excessive market volatility during the later years.
3. Emergency Fund and Liquidity
Your investment plan should also account for unforeseen circumstances. Ensure that you have a sufficient emergency fund in a liquid asset like a savings account or liquid fund. This fund should cover at least six months of your living expenses.

Why Keep Liquidity? In case of emergencies, you won’t need to disrupt your SIPs or redeem your mutual fund units. Keeping a liquid buffer ensures that your long-term goals remain unaffected by short-term needs.
Active Management vs. Index Funds
Your decision to invest in actively managed funds is a positive one, as these funds often outperform passive options like index funds in the Indian market. Let’s look at the advantages of sticking to actively managed funds:

Disadvantages of Index Funds: Index funds simply mirror the market and do not take advantage of market inefficiencies. During volatile times, they may not protect your investments as well as actively managed funds.

Benefits of Actively Managed Funds: A skilled fund manager can navigate market fluctuations and optimize returns by actively selecting high-potential stocks. This is especially beneficial when investing for long-term goals like retirement.

Importance of Regular Funds with Certified Financial Planner (CFP)
You’ve chosen direct mutual funds, which may have lower expense ratios but come with certain limitations. Here’s why switching to regular funds through a trusted CFP can be more beneficial:

Personalized Guidance: A CFP can guide you in selecting funds based on your risk tolerance, time horizon, and financial goals. They also monitor your portfolio regularly and suggest adjustments when necessary.

Proactive Portfolio Management: Regular mutual funds provide you with ongoing support and access to market insights, ensuring your portfolio remains aligned with your goals.

While direct funds may seem appealing due to lower costs, the expertise and personalized service you receive from a CFP can often lead to better long-term outcomes.

Additional Considerations for Retirement Planning
1. Insurance Cover
Before focusing solely on wealth creation, ensure you have adequate insurance coverage. A comprehensive life and health insurance policy is essential to safeguard your family’s financial future.

Why Term Insurance? If you haven’t already, consider buying a term plan with coverage 10-15 times your annual income. It’s a cost-effective way to protect your family in case of any unforeseen events.
2. Retirement Corpus Calculation
Rs. 10 crores seems like a significant figure today, but its future value depends on inflation. You may need to adjust this goal upward depending on how inflation trends over the next 25 years.

Review Annually: Reassess your goal every few years to ensure you are on track and making necessary adjustments. If inflation outpaces your portfolio growth, you may need to increase your SIPs or extend your investment horizon.
3. Tax Efficiency
Mutual fund investments can generate significant wealth, but tax efficiency is essential to maximize your returns. Take advantage of tax-saving instruments like ELSS funds or use the long-term capital gains (LTCG) exemption limit effectively.

Consider ELSS Funds: These funds not only provide equity-linked growth but also offer tax benefits under Section 80C of the Income Tax Act.
Finally
Your current SIP strategy with a 10% step-up is a commendable start toward your Rs. 10 crore retirement goal. However, some improvements, such as diversification into debt and liquidity management, will ensure that your portfolio remains resilient through market cycles.

Keep reviewing your portfolio regularly and consult with a Certified Financial Planner (CFP) to optimize your investments as per changing market conditions and life goals. By maintaining this disciplined approach, your dream of achieving financial freedom at retirement is well within reach.

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.
Money

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Ramalingam

Ramalingam Kalirajan  |6558 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 10, 2024

Money
Sir please review my portfolio I have Parag Parikh Flexicap ,Sbi mid cap & Axis small cap fund each with 5000 rs total 15000 rs per month sip for 25 year's and 10 percent step up every year, I want 10 crores for my retirement is this portfolio Good..? My Age is 33 ????
Ans: At 33, you are taking an important step toward securing your financial future with a Rs. 15,000 SIP across three different funds. Your goal of Rs. 10 crores in 25 years is ambitious yet achievable with consistent investing and disciplined planning. Let's break down your portfolio and assess it from a 360-degree perspective.

Current Portfolio Breakdown
Flexicap Fund: Flexicap funds provide diversification across large, mid, and small-cap stocks. They can take advantage of market opportunities across market caps, offering potential for long-term growth.

Midcap Fund: Midcap funds tend to offer higher growth potential, though they come with greater volatility. With a long-term horizon, this fund can help boost overall returns.

Small Cap Fund: Small cap funds provide aggressive growth but also carry higher risk. Including a small-cap fund in your portfolio adds a layer of growth potential, especially with a long investment horizon.

Your portfolio of three funds balances growth and diversification across market caps. Each fund plays a role in creating a solid growth trajectory over time. However, let’s look at how you can enhance your strategy.

10 Crore Retirement Target: Is It Realistic?
A goal of Rs. 10 crore is achievable with a disciplined approach to investing, especially given the time frame of 25 years. Let’s explore the key factors that will influence whether you reach your target:

Investment Tenure: With a 25-year horizon, compounding works strongly in your favor. The earlier you start, the more you allow your investments to grow exponentially.

10% Step-Up SIP: By increasing your SIP amount by 10% every year, you are wisely capitalizing on your increasing income over time. This will accelerate your wealth creation significantly.

Average Returns: Over the long term, equity markets have provided average annualized returns of around 12% to 15%. If your portfolio grows in this range, it’s possible to reach your Rs. 10 crore goal. However, you must consider that markets fluctuate, and there will be ups and downs.

Inflation Factor: Although Rs. 10 crores sounds substantial, inflation will reduce its purchasing power in the future. A portfolio that consistently grows above inflation rates is essential to maintain your standard of living in retirement.

With a well-balanced portfolio and disciplined SIPs, your target seems attainable, but adjustments may help ensure success.

Areas of Improvement in the Portfolio
Your portfolio is on the right track, but let’s evaluate a few aspects that can enhance your investment strategy for better results.

1. Diversification Across Asset Classes
Currently, your entire portfolio is focused on equity through mutual funds, which provides excellent growth potential. However, including debt funds or hybrid funds can add stability to your portfolio. Over time, as you approach retirement, a portion of your portfolio can be shifted to safer instruments like debt funds or PPF to preserve capital.

Why Consider Debt Funds? They offer more stability and lower risk compared to equities, especially in the later stages of your financial journey. A small allocation to debt can balance risk and ensure smooth growth.

PPF for Long-Term Stability: Public Provident Fund (PPF) is an excellent low-risk option with a 15-year lock-in period, which aligns well with your long-term goals.

2. Flexibility to Adjust Over Time
Your current portfolio is growth-oriented, and as you get closer to retirement, your risk appetite will decrease. It’s important to keep reviewing your portfolio and gradually shift a part of it into lower-risk assets like debt or hybrid funds.

Phase-Wise Portfolio Adjustment: Around 10 years before retirement, start reducing your exposure to small-cap funds and increase investments in large-cap or balanced funds. This approach will protect your portfolio from excessive market volatility during the later years.
3. Emergency Fund and Liquidity
Your investment plan should also account for unforeseen circumstances. Ensure that you have a sufficient emergency fund in a liquid asset like a savings account or liquid fund. This fund should cover at least six months of your living expenses.

Why Keep Liquidity? In case of emergencies, you won’t need to disrupt your SIPs or redeem your mutual fund units. Keeping a liquid buffer ensures that your long-term goals remain unaffected by short-term needs.
Active Management vs. Index Funds
Your decision to invest in actively managed funds is a positive one, as these funds often outperform passive options like index funds in the Indian market. Let’s look at the advantages of sticking to actively managed funds:

Disadvantages of Index Funds: Index funds simply mirror the market and do not take advantage of market inefficiencies. During volatile times, they may not protect your investments as well as actively managed funds.

Benefits of Actively Managed Funds: A skilled fund manager can navigate market fluctuations and optimize returns by actively selecting high-potential stocks. This is especially beneficial when investing for long-term goals like retirement.

Importance of Regular Funds with Certified Financial Planner (CFP)
You’ve chosen direct mutual funds, which may have lower expense ratios but come with certain limitations. Here’s why switching to regular funds through a trusted CFP can be more beneficial:

Personalized Guidance: A CFP can guide you in selecting funds based on your risk tolerance, time horizon, and financial goals. They also monitor your portfolio regularly and suggest adjustments when necessary.

Proactive Portfolio Management: Regular mutual funds provide you with ongoing support and access to market insights, ensuring your portfolio remains aligned with your goals.

While direct funds may seem appealing due to lower costs, the expertise and personalized service you receive from a CFP can often lead to better long-term outcomes.

Additional Considerations for Retirement Planning
1. Insurance Cover
Before focusing solely on wealth creation, ensure you have adequate insurance coverage. A comprehensive life and health insurance policy is essential to safeguard your family’s financial future.

Why Term Insurance? If you haven’t already, consider buying a term plan with coverage 10-15 times your annual income. It’s a cost-effective way to protect your family in case of any unforeseen events.
2. Retirement Corpus Calculation
Rs. 10 crores seems like a significant figure today, but its future value depends on inflation. You may need to adjust this goal upward depending on how inflation trends over the next 25 years.

Review Annually: Reassess your goal every few years to ensure you are on track and making necessary adjustments. If inflation outpaces your portfolio growth, you may need to increase your SIPs or extend your investment horizon.
3. Tax Efficiency
Mutual fund investments can generate significant wealth, but tax efficiency is essential to maximize your returns. Take advantage of tax-saving instruments like ELSS funds or use the long-term capital gains (LTCG) exemption limit effectively.

Consider ELSS Funds: These funds not only provide equity-linked growth but also offer tax benefits under Section 80C of the Income Tax Act.
Finally
Your current SIP strategy with a 10% step-up is a commendable start toward your Rs. 10 crore retirement goal. However, some improvements, such as diversification into debt and liquidity management, will ensure that your portfolio remains resilient through market cycles.

Keep reviewing your portfolio regularly and consult with a Certified Financial Planner (CFP) to optimize your investments as per changing market conditions and life goals. By maintaining this disciplined approach, your dream of achieving financial freedom at retirement is well within reach.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Hello, My current age is 42. Our combined post tax salary is around 6.25 lakhs. We have around 50L in mutual funds, 80L in direct stocks, 14L in gold, 30L in NPS, 31L in PPF, 21L in SSY and 2.5cr in real estate. Our current household expenses are around 1.5L per month and we are contributing 1L/month to NPS, 2L/month to SIP, 20K/month to direct stocks,1.5L/yr to PPF, I.5L/yr to SSY. We have an EMI of 50000/month for next 5 years .Our kids are 12 years and 10 years. We want a corpus of 4 cr for their higher education and of 1cr for their marriage. We are living in a company provided accommodation and plan to live in it till requirement.We want a 4L monthly pension and don't have a home right now. If we are planning to retire at 55, how should we manage our finances?
Ans: Hello;

Since NPS will be available only after you reach 60 and no info. about any rental income from real estate investment hence both are kept out of our purview.

1.Higher education goals for children typically start after 12th so we have 6 to 8 years for kid's education financial goal(4 Cr) attainment.

I have split it in two tranches:
A. 2 Cr after 6 years
B. 2 Cr after 8 years

For achieving target A following will work:
Direct stocks corpus of 80 L will grow into a sum of 1.5 Cr after 6 years. (Moderate return of 11% assumed)

PPF corpus and contributions will grow into a sum of 50 L+ after 5 years block when you may withdraw this corpus towards this goal. (6.9% return considered)

So 1.5 + 0.5=2 Cr

For fulfilling target B following will work:
MF corpus of 50 L will grow into a sum of 1.15 Cr after 8 years. (11% return considered)

50% of SSY corpus eligible for withdrawal expected to be around 27.85 L. (8% return assumed)

Direct stock monthly sip of 20 K will grow into a sum of 30.85 L in 8 years.(11% return considered)

Gold corpus of 14 L will grow into a sum of 24.05 L. (7% growth assumed)

So 1.15+27.85+30.85+24.05~~2 Cr

2. Target for Marriage of offspring:
1 Cr.
3. Retirement pension: 4 L per month
13 years from now.
Investible surplus left after all monthly investments utilized for fulfilling above targets should be immediately redirected to monthly SIPs in mutual funds. That includes 20 K direct stock sip, 12.5 K/pm SSY investment after 8 years from now and 12.5 K/pm PPF investment 5 years from now.

Also the 50 K getting free from loan EMI after 5 years should be converted into a mutual fund SIP.

After accounting for monthly expenses and monthly investments, from the balance 80 K, I would suggest you to deploy 50 K into MF sip since it will help in target achievement.

So summarily 12.5 K/8 yr, 12.5 K/5 yr, 20 K/5 yr, 50 K/8 yr and 250 K/13 yr will yield you a comprehensive corpus of 9.89 Cr. Add balance 50% SSY corpus of 27.5 L to this and your total corpus comes to 10.16 Cr. (MF returns assumed at a modest 11%)

Earmark 1 Cr for offspring wedding as envisaged.

Net retirement corpus will be 9.16 Cr. An immediate annuity at 6% will yield you a monthly income of 4.58 L from the age of 55 as planned.

You may use commutable corpus of NPS(60%) to buy your house. While NPS annuity portion(40%) may yield you a delta per month so as to have post tax income of 4 L per month.

This looks achievable because you have managed your finances and investments outstandingly well.

I discourage people to take direct stocks exposure especially when they are nearing the retirement but if you have the knowledge and temperament you may dabble into it subject to some minimum amount earmarked as risk capital.

I am sure you have adequate insurance cover for life and health.

Kudos again to your meticulous fiscal planning and execution.

Happy Investing!!

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

...Read more

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Asked by Anonymous - Oct 10, 2024
Relationship
Hi, I am not yet mairred. I used to like a man and after a month we decided to get married. He was of my caste so I thought my parents won't deny this mairrage. I used to talk to and wanted to let him know everything about my past so that we can built a strong root of our relationship. I spoke every detail of my past life to him. Then before he proposed me for mairrage I went for a vacation with my male friend to dehradun. I didn't tell him that day as he didn't proposed me till that day then why would I tell everything about me to anyone. He was noone to me at that time. After that he came to visit me in Delhi and on the same when he was on train a friend of mine along with his fiance came to meet me after a very long time. I asked him and he didn't denied. After returning home he blocked me. I cried and cried, called multiple times but he didn't received my call. Even I went to his location and waited for almost 3 hr but he didn't came. Then I asked my sister to call him. Then he talked to me but he said me so much of harsh and vulgar words that I went in shock. I cried a lot but he went on humiliating me. But somehow I convinced him to stay with me. I never talked to that friend ever. Then I told my parents about him that I want to get married with this men. Being a girl's father my father enquired about him by being annonymous. And trust me noone has said anything good about him. Later on we get to know that his father has a murder case on him of his brother in law. But then I wanted to get married. Finally my parents agreed only for my happines. Meanwhile I was never being respected by him. He always doubt me, humiliate me, abuse me mentally and physically, and when I was like I don't want to be with you he used to say sorry and begged me to be with him. He even used to restrict to visit my uncle aunty. His mother wants used to defend him and never used to make him realise that he was wrong. Then before engagement we went to Kolkata to buy dress. Yes one more thing I have informed him on the very first day that I used to drink and smoke occassionally. So whenever he used to visit me he always wanted to drink with me whether I want it or not. He always used to abuse me and humiliate me in front of everyone after drinking, so after a period of time I used to avoid drinking. Then he used to fight with me for that also that why will you not drink. In kolkata the same thing happen. We stayed there for 3 days and he was convincing to go to club from the very first day but I refused. On 3rd he hit me. After engagement his family asked for dowry. After a lot of dealing my parents agreed for an amount. But I felt betrayed. I stopped talking. After after when I initiated the conversation he picked up a fight and said he won't marry. I tried to convince. But when everyone was blaming me then I broke my silence and said everything about him to my parent. But he manipulated everything and made me villain. My parents want me to get married as the society will insult our parents. I am getting married in November only for my parents but I have already made up my mind that I'll divorce him after 1 year of mairrage and will live my life alone. Am I thinking right? What should I do?
Ans: Dear Anonymous,
No, you are not thinking right at all...This man is all RED FLAGS...
Are you actually thinking of spending one year with a person who physically abuses you? Seriously?
And then you expect him to agree to that divorce without any fuss? What world are you in? No compromises on your life please...
Be wise and protect yourself...

All the best!
Anu Krishna
Mind Coach|NLP Trainer|Author
Drop in: www.unfear.io
Reach me: Facebook: anukrish07/ AND LinkedIn: anukrishna-joyofserving/

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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