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33-Year-Old With 15K Monthly SIP: Can This Portfolio Achieve 10 Crore Retirement Goal?

Ramalingam

Ramalingam Kalirajan  |7101 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.
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Ramalingam

Ramalingam Kalirajan  |7101 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

Latest Questions
T S Khurana

T S Khurana   |197 Answers  |Ask -

Tax Expert - Answered on Nov 23, 2024

Asked by Anonymous - May 11, 2024Hindi
Listen
Money
Can you please suggest on capital gains as per Indian taxation laws arising in the below two queries : 1) property purchased with joint ownership, me and my wife’s name in 2015 at a cost of 64,80,000, housing improvements done for the cost of 1000000 and brokerages of 200000 paid and sold the same property at 10000000 in Dec 2023? 2) 87% of the proceeds got from the deal i.e 8700000, have been reinvested to pay 25% amount in purchasing another joint ownership property in Dec 2023, 3) I have invested in another under construction property in Nov 2023 by taking housing loan, which is on me and my wife’s name worth 1.4 cr, here the primary applicant is me only while wife is just made a Co applicant in the builder buyer agreement and also on the housing loan . So what are the LTCG tax liabilities arising from the above 3 scenarios for FY 2023-2024 and FY 2024-2025. I intend to sale off the property acquired in (2) by Dec 2024 and use that proceeds to close the housing loan for the property acquired in (3), will this sale of property be inviting any tax liabilities if the complete proceeds received from the sale of the property in (2) would be utilised to close the housing loan taken in Nov 2023 for the property in (3) ? Since in FY 23-24, I would be claiming the LTCG from the sale proceeds of 1) invested in the purchase of property in 2), and I intend to sale off this property in Dec 2024, will the LTCG claim be forfeited on the property sale in (1), should I hold this property at least for further 1 year so that sale of this property in 2) will not invite STCG?
Ans: (A). Let's first talk about F/Y 2023-24 :
You jointly sold a Property during the year for Rs.76.80 lakhs (64.80+10.00+2.00), & sold the same for Rs.100.00 lakhs.
You have jointly also purchased Property No.3 (I suppose it is Residential only), for Rs.140.00 lakhs.
You should avail exemption u/s-54 & file your ITR accordingly. Please disclose all details about sale & purchase in your ITR.
02. Now coming to the F/Y 2024-25 :
You intend to Sell Property No.2, which was acquired in 2023-24. Any Gain on Sale of it would be Short Term capital Gains & taxed accordingly.
Alternatively, you may hold this sale of property no.2 (for 2 years from its purchase) & avoid STCG
You are free to utilize the sale proceeds in a way you like, including paying off your housing Loan.
Please note to avail exemption u/s 54 only from investment in property no.3 & not 2.
Most welcome for any further clarifications. Thanks.

...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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