Hello Sir , I am 42 years old . I have one child 3 years old. I have invested in Max Life High Growth fund of one lakh per year which is 5 years now . Amount reflecting is 10 lakhs today. 5 years more to go for completion. I have my own house 62 lakhs just purchased . No loans . I recently purchased one more ulip policy midcap momentum 150 max life yearly one lakh for 10 years.I have invested in 3 Bhk apartment amount 1.7 cr which I will complete payment in next year. I earn around 36 to 40 lakhs per year. At present the expense is 50 thousand per month. How much amount should I invest yearly and where to develop a corpus of 5 cr at the age of 60 after deduction for one .child education. Thanks
Ans: First, let's understand your financial situation. You're 42, have a 3-year-old child, and a substantial annual income of Rs 36-40 lakhs. Your expenses are Rs 50,000 per month. You own a house worth Rs 62 lakhs and a 3BHK apartment for Rs 1.7 crores. No loans exist, and you’ve invested in ULIPs.
Compliments and Understanding
It's commendable that you've built a solid financial base and are debt-free. Your foresight in investing for the future is impressive. Let's plan for a corpus of Rs 5 crore by age 60, covering your child's education expenses too.
Evaluating Your Current Investments
Max Life High Growth Fund
You’ve invested Rs 1 lakh per year in Max Life High Growth Fund for 5 years. It's now worth Rs 10 lakhs. This ULIP has 5 more years to go. Evaluating ULIPs for high charges and lower flexibility, consider other options for higher returns.
New ULIP Policy
You recently bought another ULIP policy (Midcap Momentum 150, Max Life) with Rs 1 lakh annually for 10 years. ULIPs have mixed reviews due to their high charges and lower liquidity compared to mutual funds.
Real Estate Investments
Owning a house and a 3BHK apartment indicates a strong asset base. However, real estate might not yield high liquidity or returns compared to other investments. We'll focus on diversifying your portfolio further.
Creating a Financial Plan
Defining Financial Goals
Your primary goal is accumulating Rs 5 crore by age 60. Secondary goals include funding your child’s education. Let's outline steps to achieve these objectives.
Diversification Strategy
Diversification is key to managing risk and maximizing returns. We'll explore various investment options, ensuring a balanced portfolio.
Mutual Funds: A Preferred Investment Avenue
Equity Mutual Funds
Equity mutual funds offer high growth potential, suitable for long-term wealth accumulation. They invest in stocks, providing inflation-beating returns.
Debt Mutual Funds
Debt mutual funds are less risky, providing stable returns. They invest in fixed-income securities like bonds. They suit investors seeking steady income with lower risk.
Hybrid Mutual Funds
Hybrid funds balance risk and return by investing in both equities and debt. They offer a diversified approach, suitable for moderate risk-takers.
Benefits of Regular Funds
Investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) credential provides personalized advice. MFDs help choose funds aligning with your goals and offer ongoing portfolio management.
Systematic Investment Plan (SIP)
Regular Investments
Investing through SIPs in mutual funds is beneficial. It ensures disciplined investing and rupee cost averaging, reducing the impact of market volatility.
Calculating SIP Amount
To accumulate Rs 5 crore by age 60, we need to determine the annual investment amount. Given your financial situation, a significant portion of your income can be allocated towards SIPs in equity and hybrid funds.
Public Provident Fund (PPF)
Long-Term Savings
PPF is a government-backed savings scheme offering attractive interest rates and tax benefits under Section 80C. It suits risk-averse investors seeking assured returns.
PPF Strategy
Investing a portion of your savings in PPF can provide a secure and stable return, balancing the overall risk of your portfolio.
National Pension System (NPS)
Retirement Planning
NPS is a government-sponsored pension scheme offering diversified investments in equities, corporate bonds, and government securities. It provides tax benefits and helps build a retirement corpus.
NPS Contributions
Allocating funds to NPS ensures a steady income post-retirement. It complements other investments, ensuring financial security in later years.
Gold: A Traditional and Reliable Asset
Gold ETFs and Sovereign Gold Bonds
Investing in Gold ETFs and Sovereign Gold Bonds offers benefits of gold without storage hassles. Sovereign Gold Bonds also provide periodic interest, enhancing returns.
Health and Term Insurance
Health Insurance
Comprehensive health insurance is crucial to cover medical expenses, protecting your savings and ensuring quality healthcare.
Term Insurance
Term insurance provides high life cover at low premiums. It ensures financial security for your family in case of your untimely demise. Choose a plan with adequate coverage.
Reviewing and Adjusting Investments
Regular Portfolio Review
Regularly reviewing your investment portfolio ensures it aligns with your goals. Make necessary adjustments based on market conditions and personal circumstances.
Avoiding Emotional Investing
Stick to your financial plan and avoid making investment decisions based on emotions. Make informed decisions and seek professional advice when needed.
Benefits of Actively Managed Funds
Professional Management
Actively managed funds are managed by professional fund managers. They conduct extensive research and make informed investment decisions, aiming to outperform the market.
Potential for Higher Returns
Actively managed funds have the potential to deliver higher returns compared to index funds. Fund managers can take advantage of market opportunities and mitigate risks through active management.
Flexibility
Actively managed funds offer flexibility in investment strategies. Fund managers can adjust the portfolio based on market conditions and economic trends, enhancing performance.
Disadvantages of Index Funds
Lack of Flexibility
Index funds are passively managed and track a specific index. They lack flexibility to adjust to market conditions, which can limit returns.
Potential Underperformance
Index funds may underperform actively managed funds during market downturns. They cannot capitalize on market opportunities or mitigate risks effectively.
Limited Scope
Index funds have limited scope for diversification. They invest in a fixed set of securities, which might not align with your investment goals and risk tolerance.
Final Insights
Achieving a corpus of Rs 5 crore by age 60 requires disciplined investing and strategic planning. Diversifying your investments across mutual funds, PPF, NPS, and gold ensures a balanced and robust portfolio. Engaging a Certified Financial Planner ensures personalized advice and disciplined investing, helping you achieve long-term financial success.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
