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How Can I Make 1 Crore in 20 Years for Retirement?

Ramalingam Kalirajan |8365 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Oct 03, 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

Asked by Anonymous - Sep 28, 2024Hindi

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Sir, This side Pulakesh Akhuli is here now ,I want to make 1 crore in 20 years for my retirement life. Please suggest my how and where to invest ??

Ans: Pulakesh, it’s great that you have set a specific goal for your retirement. Accumulating Rs 1 crore in 20 years is achievable with disciplined investments. Let’s break it down to guide you step by step.

Assessing Investment Options
You should focus on investments that generate inflation-beating returns over the long term. For a 20-year horizon, equity mutual funds are a good choice. Equity tends to outperform other asset classes in the long run.

Here are the broad investment options to consider:

Equity Mutual Funds: These provide higher returns by investing in stocks. Historically, they’ve given an average of 12%-15% over the long term. Actively managed funds can give an edge over index funds because they are designed to outperform the market.

SIP (Systematic Investment Plan): It’s ideal to invest monthly in mutual funds through SIPs. This helps in averaging out market volatility over time and keeps your investment consistent.

Balanced Funds: These funds invest in a mix of equities and debt. This balance helps reduce risk and gives you stable returns while protecting capital.

Public Provident Fund (PPF): You can also continue investing in PPF for the tax benefits. Though returns are lower compared to equities, it's a safe option and helps diversify your portfolio.

Estimating Your Monthly Investment
For a target of Rs 1 crore in 20 years, you need to calculate how much to invest every month. Since equity mutual funds may generate around 12%-15% returns annually, you can start a SIP based on this expected return.

An approximate monthly SIP of Rs 8,000–10,000 in good mutual funds can help you reach your goal. Since SIPs allow you to increase your investment every year, you can step up your SIPs by 5%-10% yearly to stay on track.

Fund Allocation
Here’s how you can structure your investments:

Equity Large Cap Funds: Allocate 40% to these funds for stability and steady growth.

Mid and Small Cap Funds: Allocate 40% to these funds for higher growth potential. These tend to outperform large-cap funds over the long term.

Balanced Funds or Hybrid Funds: Allocate 20% to these funds for lower risk. This provides a cushion against market volatility.

Why Actively Managed Funds?
Avoid index funds for now. Actively managed funds tend to give better returns than index funds in the Indian market, where fund managers have more opportunities to outperform benchmarks.

Review and Adjust Regularly
Your investment journey will require regular monitoring. Every year, assess the performance of your mutual funds. If a particular fund is underperforming, consider switching to a better one. Working with a Certified Financial Planner ensures you get expert advice in line with your changing financial situation.

Risk Management
Emergency Fund: Keep at least 6-12 months’ worth of living expenses aside in liquid funds or a fixed deposit.

Insurance: Ensure you have adequate life and health insurance to protect your financial future.

Final Insights
Your Rs 1 crore goal is achievable with proper planning and consistent investments. Starting with Rs 8,000-10,000 per month in equity mutual funds should set you on the right path. Regularly stepping up your SIPs will help you keep pace with inflation and rising costs.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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.