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Ramalingam Kalirajan |4329 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 04, 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 - Jun 29, 2024Hindi

Hi. I'm a 39 year old male, married and with a 3 year old. My parents are retired govt employees and are self sufficient with their pension and savings. I have 80L in stocks and mutual funds. Another 18L in cash and FDs. I also have 24L in my EPF. I have a monthly income of 2.85L and save 50% of it. Additionally, i pay 43k to a money back policy in lic. When do you think I'll be able to comfortably retire with 5cr in savings (with in today's value)?

Ans: It’s fantastic that you’ve made such commendable progress with your savings and investments. As a Certified Financial Planner, I'll help guide you on your journey to achieving your retirement goal of Rs 5 crore. Let's break it down.

Current Financial Landscape
You've done a great job with your savings and investments. Here's a snapshot:

Stocks and Mutual Funds: Rs 80 lakh
Cash and FDs: Rs 18 lakh
EPF: Rs 24 lakh
Monthly Income: Rs 2.85 lakh
Savings Rate: 50%
LIC Money Back Policy: Rs 43,000 annually
You're on a solid path. Now, let’s analyze how to reach your Rs 5 crore target.

Setting the Retirement Goal
Your aim is to have Rs 5 crore in today's value by retirement. With inflation, you’ll need to save and invest smartly to maintain the purchasing power of this amount.

Evaluating Existing Investments
Stocks and Mutual Funds
You’ve amassed Rs 80 lakh here. Stocks and mutual funds are great for long-term growth. Actively managed funds can potentially outperform the market, offering higher returns than index funds. The expertise of fund managers and their research-driven strategies help navigate market fluctuations better.

Cash and FDs
Rs 18 lakh in cash and FDs is a safe cushion. However, returns from FDs barely outpace inflation. It’s wise to keep some cash for emergencies, but excess cash could be invested for higher growth.

EPF
Rs 24 lakh in EPF is excellent. EPF offers safe, steady growth due to government backing. It’s a great way to build your retirement corpus securely.

Income and Savings
Your monthly income is Rs 2.85 lakh, and you save 50% of it. That’s Rs 1.425 lakh per month, which is impressive. Consistent savings and disciplined investing are key to achieving your goal.

Insurance Policy Review
You pay Rs 43,000 annually to an LIC money back policy. While these policies offer insurance and periodic returns, they often have lower returns compared to mutual funds due to high charges and commissions. Consider surrendering this policy and redirecting funds to mutual funds for better growth.

Investment Strategy for Retirement
To reach Rs 5 crore, a diversified investment approach is essential. Here’s a detailed strategy:

Mutual Funds
Diversification
Diversifying across various mutual funds helps spread risk. Consider investing in different categories:

Large-Cap Funds: These invest in stable, well-established companies, offering steady returns.
Mid-Cap Funds: These invest in medium-sized companies with potential for higher growth.
Small-Cap Funds: Higher risk, higher return. Suitable for long-term growth.
Balanced Funds: A mix of equity and debt, balancing risk and return.
Sector Funds: Focus on specific sectors like technology, healthcare, etc. Higher risk, but can offer high returns if the sector performs well.
Power of Compounding
The power of compounding is a game-changer in wealth creation. By reinvesting returns, your investments grow exponentially over time. Starting early and staying invested is crucial. Regular SIPs (Systematic Investment Plans) ensure disciplined investing, leveraging market volatility to your advantage.

Risk Management
Investing involves risks. Here’s how to manage them:

Diversification: Spreading investments across various asset classes and sectors reduces risk.
Regular Review: Periodically review and rebalance your portfolio to align with your goals.
Stay Informed: Keep updated with market trends and economic conditions. Adjust your strategy accordingly.
Emergency Fund: Maintain an emergency fund to cover unforeseen expenses, avoiding the need to liquidate long-term investments.
Retirement Timeline
Given your current savings, income, and investment strategy, let’s assess your retirement timeline.

Step-by-Step Evaluation
Current Savings: Rs 1.22 crore (80L in stocks and mutual funds, 18L in cash and FDs, 24L in EPF).
Annual Savings: Rs 17.1 lakh (Rs 1.425 lakh per month).
Investment Growth: Assuming a balanced growth rate of 10% annually from diversified investments.
With disciplined savings and investments, you can reach your Rs 5 crore goal comfortably within 12-15 years. This timeframe considers the power of compounding and a balanced growth rate.

Monitoring and Adjusting
Regularly monitor your investments and financial goals. Adjust your strategy based on life changes, market conditions, and evolving financial needs. A Certified Financial Planner can help fine-tune your plan, ensuring you stay on track.

Final Insights
Your financial journey is commendable. With a disciplined approach, diversified investments, and regular monitoring, you’re well on your way to a comfortable retirement.

Reassess your insurance needs, considering term insurance for adequate coverage without compromising returns. Redirect funds from traditional policies to high-growth investments like mutual funds.

Stay informed, stay invested, and keep your long-term goals in sight. Your dedication and financial discipline will lead you to a secure and fulfilling retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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