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Hello, I have the following investmens/savings:
1) 7,50,00,000 in MF
2) 3,00,00,000 in debt/liquid fund
3) 15,00,00,000 in FD
4) 4,00,00,000 in Real estate development
5) 30,00,00,000 in corporate savings
Expenses:
1) Loan emi (cars) - 40k/month
2) Business expenses - 2,00,00,000/yearly
3) Personal/Family expenses - 1,00,00,000/yearly
Current situation/wants:
1) I am 35 y/o , want to retire by 42 and work not for money but for what I like to do.
2) I want to have substantial amount of returns coming in every month and per annum.
3) Align 15-20% ROI yoy. 4) Retire with enough cash to live until lifetime.
Question(s):
1) Shall I re-align my investments?
2) I want to move the funds from Debt+FD to MF (80%), is it a wise decision? Considering that 50% of the MF investment will be invested considering it as a short term investment (i.e. 12-24 months) given the constant work related needs.
3) Considering the inflation and current expenses, I want maintain my expenses almost on the same level, would my current investments make enough to cover up monthly/yearly expenses and cover the retirement period as well?
Ans: You’ve done an impressive job building your wealth. At 35, you have substantial investments. Let's see how you can retire by 42 and still maintain a steady income.
Current Investments
You have a diverse portfolio:
Mutual Funds: Rs 7,50,00,000
Debt/Liquid Funds: Rs 3,00,00,000
Fixed Deposits (FD): Rs 15,00,00,000
Real Estate Development: Rs 4,00,00,000
Corporate Savings: Rs 30,00,00,000
Current Expenses
Your expenses are significant:
Car Loan EMI: Rs 40,000/month
Business Expenses: Rs 2,00,00,000/year
Personal/Family Expenses: Rs 1,00,00,000/year
Retirement Goals
You want to retire by 42 and work on what you love, not for money. You aim for substantial monthly and annual returns, targeting a 15-20% ROI year over year.
Re-aligning Your Investments
Yes, re-aligning your investments is a smart move. It’s essential to match your investments with your goals, risk tolerance, and time horizon.
Moving Funds to Mutual Funds
You’re considering moving 80% of your debt and FD investments to mutual funds. Let's evaluate this.
Short-term Needs
You want 50% of the mutual fund investments for short-term needs (12-24 months). This is achievable but requires careful selection of funds.
Evaluating Current Investment Portfolio
Mutual Funds
Advantages: Higher potential returns, diversification, professional management.
Risks: Market volatility, requires a long-term horizon for optimal growth.
Power of Compounding: Mutual funds benefit significantly from compounding, especially over long periods.
Debt/Liquid Funds
Advantages: Lower risk, stable returns, high liquidity.
Risks: Lower returns compared to equities.
Recommendation: Maintain a portion here for emergency funds and short-term needs.
Fixed Deposits (FD)
Advantages: Safe, guaranteed returns.
Risks: Lower returns, inflation risk.
Recommendation: Consider reducing allocation due to lower returns.
Real Estate Development
Advantages: Potential for significant appreciation.
Risks: High entry/exit costs, illiquidity, market risks.
Recommendation: Avoid increasing exposure to real estate.
Corporate Savings
Advantages: Liquidity, safety.
Risks: Low returns.
Recommendation: Ensure optimal use of these funds for immediate needs and emergencies.
Moving to Mutual Funds: Pros and Cons
Pros
Higher Potential Returns: Equities typically offer higher returns.
Diversification: Spread risk across various sectors.
Professional Management: Managed by experts.
Cons
Market Volatility: Can fluctuate in the short term.
Requires Monitoring: Needs regular review and adjustments.
Actively Managed Funds vs Index Funds
Disadvantages of Index Funds
Passive Management: No active adjustments to market conditions.
Market Tracking: Merely mirrors the index, potentially missing opportunities for higher returns.
Benefits of Actively Managed Funds
Flexibility: Fund managers can adapt to market changes.
Potential for Higher Returns: Managers aim to outperform the index.
Risk Management: Active decisions to mitigate risks.
Financial Strategy for Early Retirement
Creating a Balanced Portfolio
Equity Mutual Funds: Allocate a significant portion here for long-term growth.
Debt Mutual Funds: Allocate for stability and income generation.
Liquid Funds: Maintain for emergency and short-term needs.
Corporate Savings: Use strategically for business and personal liquidity.
Targeting 15-20% ROI
Focus on Growth Funds: Look for funds with a strong track record.
Diversification: Across sectors and geographies to manage risk.
Regular Review: Adjust based on performance and market conditions.
Managing Expenses Post-Retirement
Maintaining Current Lifestyle
Your current expenses total Rs 3,00,00,000 annually. Post-retirement, ensure your investments generate sufficient income to cover this.
Income from Investments: Focus on generating monthly/annual returns.
Emergency Fund: Maintain for unforeseen expenses.
Health Insurance: Ensure comprehensive coverage for your family.
Long-term Investment Strategy
Equity Exposure: Increase gradually for higher growth.
Regular Rebalancing: Adjust portfolio annually.
Professional Advice: Consult a Certified Financial Planner regularly.
Genuine Compliments and Empathy
Your foresight and proactive planning at 35 are commendable. Your dedication to securing a comfortable future for your family is truly inspiring. Balancing high returns with safety is challenging, and your approach shows great maturity and understanding.
Final Insights
Re-aligning your investments to focus on mutual funds can help achieve your retirement goals. Diversify within mutual funds to balance growth and stability. Regularly review your portfolio to ensure it aligns with your changing needs and market conditions.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in