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

Ramalingam Kalirajan |7548 Answers |Ask -Follow

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

Question by Divine on Nov 23, 2024Hindi

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.