I'm conservative investor with 10 yr investment time horizon to create a corpus of 2 cr. Present MF monthly SIP as follows 1) UTI Nifty 50 -5k 2) MO midcap-5k 3) Parag Parikh Flexi -5k 4) MO large n mid -5k 5) Axis small cap -5k 6) Quant active -5k 7) SBI contra - 5k
Present MF portfolio value-5 lakh, direct equity -3 lakh, EPF -20 lakh n investing monthly 14k, FD -6 lakh
Will i b able to reach 2 cr corpus in 10 year .. advise pl
Ans: You have a diverse portfolio that includes mutual funds, direct equity, EPF, and fixed deposits. This is a good starting point. Your portfolio value currently stands at Rs. 34 lakh, including Rs. 5 lakh in mutual funds, Rs. 3 lakh in direct equity, Rs. 20 lakh in EPF, and Rs. 6 lakh in fixed deposits. You are also investing Rs. 14,000 monthly in your EPF and Rs. 35,000 through SIPs in mutual funds.
Your goal is to create a corpus of Rs. 2 crore in 10 years. This is an ambitious yet achievable goal with the right investment strategy. Let’s assess your portfolio and see if any adjustments are needed.
Assessing Your Mutual Fund Investments
You are investing Rs. 35,000 per month across seven different mutual funds. Your funds cover various segments, including large-cap, mid-cap, small-cap, flexi-cap, contra, and active funds. This diversified approach helps in managing risk while capturing growth across different market segments. However, there are a few points to consider:
Actively Managed Funds vs Index Funds: You’ve included an index fund in your portfolio. While index funds are popular, they lack the flexibility of actively managed funds. Actively managed funds have the potential to outperform index funds, especially in a volatile market. This could be particularly important given your conservative investment style. You might want to reconsider the allocation towards the index fund.
Mid and Small-Cap Exposure: You have significant exposure to mid-cap and small-cap funds. These funds can deliver high returns, but they also come with higher risk. Given your conservative investment approach, you might want to re-evaluate this exposure. It may be wiser to shift some allocation towards more stable large-cap or multi-cap funds.
Fund Overlap: Multiple funds in your portfolio might have overlapping stocks. This can reduce diversification benefits. Consider consolidating your portfolio to reduce overlap and streamline your investments.
Evaluating Your Direct Equity Investments
You have Rs. 3 lakh in direct equity. While direct equity can offer high returns, it also comes with high risk. As a conservative investor, you should evaluate whether your stock picks align with your risk tolerance. It might be beneficial to focus more on mutual funds managed by professionals, especially in a volatile market.
Importance of EPF in Your Portfolio
Your EPF stands at Rs. 20 lakh, with a monthly contribution of Rs. 14,000. EPF is a safe and tax-efficient investment, providing steady returns. It’s a critical part of your portfolio, especially given your conservative nature. It ensures a stable base, and the compounding effect will significantly contribute to your overall corpus in the long term.
Fixed Deposits: Safe but Limited Growth
You have Rs. 6 lakh in fixed deposits. While FDs are safe, their returns are low compared to inflation and other investment options. Given your 10-year horizon, you might want to reconsider this allocation. Shifting a portion of your FD investment into debt mutual funds or balanced funds could offer better returns without significantly increasing risk.
Evaluating Your SIP Strategy
You are currently investing Rs. 35,000 per month through SIPs in mutual funds. Over 10 years, this disciplined approach will compound significantly. However, let’s evaluate if this amount is enough to reach your Rs. 2 crore goal.
Increasing SIP Contributions: Given your current portfolio and investment rate, you might need to increase your SIP contributions to meet your target. Even a small increase in your monthly SIP can have a substantial impact over 10 years due to compounding.
Reallocating SIPs: As mentioned earlier, consider reallocating some of your SIPs from mid-cap and small-cap funds to more stable funds. This will align better with your conservative risk profile.
Additional Strategies for Wealth Creation
Beyond your current investments, there are other strategies you can consider to enhance your wealth creation:
Systematic Transfer Plan (STP): If you have a lump sum amount in your FD or savings account, consider using an STP to transfer this money into mutual funds gradually. This helps in averaging out the purchase price and reduces the risk of investing a large sum at one go.
Systematic Withdrawal Plan (SWP): As you approach your goal in 10 years, consider setting up an SWP to generate a regular income from your corpus while protecting your principal. This is particularly useful for post-retirement planning.
Debt Funds: Given your conservative nature, adding some debt funds to your portfolio might provide stability. Debt funds offer better returns than FDs with relatively low risk. They also provide liquidity, which is crucial for any emergency needs.
Monitoring and Reviewing Your Portfolio
Regularly reviewing your portfolio is critical to staying on track with your financial goals. Markets and personal situations change over time. Thus, it’s important to monitor your investments and make adjustments as needed.
Annual Review: Conduct an annual review of your portfolio. This will help you assess the performance of your funds and make necessary changes.
Rebalancing: If certain funds outperform, they may take up a larger portion of your portfolio than intended. Rebalancing ensures that your portfolio remains aligned with your risk profile and financial goals.
Tax Efficiency: Consider the tax implications of your investments. Long-term capital gains from equity funds are taxed at 10% beyond Rs. 1 lakh, while debt funds have different tax rules. Tax planning should be an integral part of your investment strategy.
Final Insights
Achieving a Rs. 2 crore corpus in 10 years is possible with disciplined investing and a strategic approach. Your current portfolio is well-diversified, but some adjustments can make it more aligned with your conservative nature. Consider increasing your SIP contributions, reallocating some funds, and exploring additional strategies like debt funds and STPs.
By staying disciplined and regularly reviewing your portfolio, you can stay on track towards your financial goal.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in