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25-year-old looking to invest 2 Lakhs per month for 5 years: Which SIPs should I choose?

Ramalingam

Ramalingam Kalirajan  |7336 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 25, 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
Divine Question by Divine on Nov 23, 2024Hindi
Money

I want to start a SIP of 2 L pm. Aum is to build a corpus of 3 Cr in next 5 yrs. kindly guide as to which all funds I should invest in.

Ans: Your goal of achieving Rs 3 crore in five years is ambitious and achievable with a disciplined approach. A well-structured investment strategy will ensure success. Below is a comprehensive guide tailored for your objective.

Assessing Your Goal and Risk Appetite
Your target corpus of Rs 3 crore in five years requires aggressive growth.

This time frame makes volatility management critical as the investment horizon is relatively short.

Ensure you are comfortable with a moderate to high-risk portfolio as equity exposure will dominate.

Key Considerations for Fund Selection
Aggressive Growth Potential: Focus on equity-heavy funds to maximise returns over five years.

Diversified Asset Allocation: Include funds across market caps—large-cap, mid-cap, and small-cap categories.

Professional Expertise: Opt for actively managed funds with experienced fund managers for better performance.

Why Avoid Index Funds
Index funds track benchmarks and lack active management.

They may underperform in volatile markets due to rigid structures.

Actively managed funds have the flexibility to adapt to market changes, enhancing returns.

Benefits of Regular Funds via Certified Financial Planner
Direct funds may seem cost-efficient but lack personalised advisory support.

Regular funds through a CFP ensure guidance on fund selection and portfolio rebalancing.

You gain professional expertise, which is essential for a goal-focused strategy like yours.

Suggested Asset Allocation
1. Large-Cap Funds

These funds provide stability to your portfolio with consistent performance.

Large-cap funds invest in top-rated, established companies, offering lower volatility.

Allocation: 30-40%

 

2. Flexi-Cap Funds

Flexi-cap funds invest across market caps for optimal growth opportunities.

They balance risk and reward with dynamic allocation.

Allocation: 30%

 

3. Mid-Cap Funds

These funds provide a growth-oriented approach with moderate risk.

Mid-cap companies can deliver superior returns but require a longer investment horizon.

Allocation: 20%

 

4. Small-Cap Funds

Small-cap funds can generate high returns but are volatile.

Limit exposure due to the shorter time frame of five years.

Allocation: 10%

Tax Implications and Strategy
Equity mutual funds held over a year attract 12.5% tax on LTCG above Rs 1.25 lakh.

Plan your redemptions strategically to reduce tax liability.

Rebalance the portfolio in the final two years to shift towards safer debt instruments gradually.

Periodic Portfolio Reviews
Monitor performance every six months with your Certified Financial Planner.

Rebalance the portfolio as needed to align with market conditions and target goals.

Ensure the portfolio gradually moves towards lower risk in the last 1–2 years.

Importance of Emergency Fund
Before starting this SIP, maintain an emergency fund for 6-12 months' expenses.

This ensures you can handle unforeseen situations without disrupting your investment plan.

Final Insights
A disciplined Rs 2 lakh SIP in a well-diversified, actively managed portfolio should help you achieve Rs 3 crore in five years. Regular reviews and professional guidance will keep you on track. Remember, a short investment horizon like this requires balancing aggressive growth with risk management towards the end.

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.
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I want a corpus of 5 Crores in next 12-15 years and currently I am investing money which is thousands in SIP in best 50 Nifty Fifty index SIP. Please help and suggest better option as well.
Ans: Now, building a corpus of Rs. 5 Crores in 12-15 years is a pretty aggressive but achievable target. You are already investing in a Nifty Fifty index SIP, so that's good. There are, however, better options that will enable you to realize your goal more effectively. Let's go into details.

Diversify Your Portfolio
Active Mutual Funds
Most actively managed funds can easily outperform index funds. There, the fund manager makes active decisions to optimize returns. This might result in better performance against a passive Nifty Fifty index SIP.

Balanced Funds
Balanced funds are those investing in both equity and debt that offer stability with potential growth. This helps to manage risk during the volatility of the market.

Sectoral/Thematic Funds
Indeed, sector-specific investments can bring in high returns. Technology, Healthcare, or Banking sectors normally do very well. But, they carry higher risk. Keep only a small portion of your portfolio in these funds.

Regular Funds Over Direct Funds
Advantages of Regular Funds
The regular funds have professional advice to back them. A CFP will channelize your investments. They will help in optimizing your portfolio as per the prevailing market conditions.

Disadvantages of Direct Funds
Direct funds want you to make all the decisions. This can be difficult in the absence of expert knowledge. Regular funds, through a CFP, are more likely to deliver better long-term results.

Systematic Investment Plan (SIP)
Continue SIPs
A systematic investment plan is a disciplined way of investing. Continue with your SIPs but diversify across various funds.

Increase SIP Amount Gradually
Increase your SIP amount as your income rises. This will help in accumulating the desired corpus faster.

Equity Investments
Large-Cap Equity Funds
Large-cap funds invest in established companies that provide stable returns with lower risk. A part of your portfolio should be devoted to these funds.

Mid-Cap and Small-Cap Equity Funds
These funds have a chance of giving higher returns. But they also carry higher risk. A smaller portion should be invested in mid-cap and small-cap funds.

Debt Investments
Debt Mutual Funds
Debt funds can bring stability to your portfolio. They are less volatile than equity funds. Invest some in debt funds for risk management.

PPF - Public Provident Fund
It is one of the safe investment options with tax benefits and stable returns in the long run.

Tax Planning
ELSS - Equity-Linked Savings Scheme
The funds under ELSS offer tax benefits under Section 80C, and on the other hand, provide good returns. Add ELSS to your portfolio for taxes out of your pocket along with growth.

NPS National Pension System
The system provides tax benefits and helps in retirement planning. It's a low-cost investment option with decent returns.

Risk Management
Life Insurance
Ensure that you are adequately covered by life insurance. It ensures that your family is financially protected against any eventuality.

Health Insurance
Have a good health insurance policy. This will ensure that medical emergencies do not drain your finances.

Review of Portfolio
Annual Review with CFP
Have an annual review with your CFP wherein you realign your investments according to the market performance and your goals.

Rebalance Your Portfolio
Rebalance your portfolio from time to time to retain the asset allocation. This helps to optimize the return and risk.

Education and Knowledge
Be Informed
Keep up-to-date with market trends and Investment options. This helps to make informed decisions.

Take Professional Advice
Consult a CFP at regular intervals for professional advice. This ensures that your investments are on the right track.

Finally
Crossing the figure of Rs. 5 Crores in a span of 12-15 years is definitely within your reach with a diversified and strategic investment approach. Help from a professional coupled with regular investments will see you through this. Just keep reviewing and adjusting your portfolio in tune with your financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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