Hello sir,
I am currently 28 years old and next year will be getting married.
Currently getting 100k in hand from my salary. As of now i have 5k ELSS mutual fund per month. There are no loans on me but i am deciding to pursue MBA by 30 years of age for which i will have yo take loan of about 35L. I am also looking to invest 20k-25k, please suggest what should i do and how to plan so that by the age of 60 i have about 8 cr.
As of now my monthly expenses are 30k+1250 health insurance, i am living in rental flat, no car/bike.
Note: my to be wife is also earning about 50k per month
Ans: Congratulations on your upcoming wedding and your future plans to pursue an MBA. Your proactive approach to financial planning is commendable. Let's develop a comprehensive strategy to achieve your goal of accumulating Rs 8 crores by the age of 60 while managing your current and future financial commitments.
Current Financial Situation
You have a monthly salary of Rs 1 lakh with monthly expenses of Rs 30,000 plus Rs 1,250 for health insurance. You’re investing Rs 5,000 per month in an ELSS mutual fund. Your fiancé earns Rs 50,000 per month. You plan to take a loan of Rs 35 lakhs for your MBA by the age of 30.
Investment Approach
To reach your goal of Rs 8 crores by the age of 60, a disciplined and well-diversified investment approach is essential. Given your monthly savings potential of Rs 20,000-25,000, a mix of equity and debt investments will help balance risk and returns.
Benefits of Actively Managed Funds
Actively managed funds have several advantages over index funds. Fund managers use their expertise to select stocks and manage portfolios to outperform the market. This active approach can potentially yield higher returns and better risk management compared to index funds.
Disadvantages of Direct Mutual Funds
Direct mutual funds have lower expense ratios but require more active management by the investor. Without professional guidance, it can be challenging to make informed decisions. Regular funds, managed through a Certified Financial Planner (CFP), offer professional advice and management, enhancing your investment strategy.
Creating a Balanced Portfolio
A balanced portfolio should include equity and debt mutual funds. Equity funds offer growth potential, while debt funds provide stability.
Systematic Investment Plan (SIP)
Investing Rs 20,000-25,000 per month through SIPs in diversified equity mutual funds can leverage the power of compounding. SIPs ensure disciplined investing and rupee cost averaging, which helps in managing market volatility.
Suggested Asset Allocation
Given your age and long-term horizon, the following allocation is advisable:
70% in Equity Mutual Funds: For growth potential.
30% in Debt Mutual Funds: For stability and risk mitigation.
Equity Mutual Funds
Equity mutual funds can be diversified into:
Large-Cap Funds: Invest in well-established companies with stable returns.
Mid-Cap Funds: Offer higher growth potential but increased volatility.
Small-Cap Funds: High growth potential with higher risk.
Sectoral/Thematic Funds: Focus on specific sectors or themes with high returns.
Debt Mutual Funds
Debt mutual funds can be diversified into:
Short-Term Debt Funds: Provide liquidity and lower interest rate risk.
Corporate Bond Funds: Invest in high-rated corporate bonds for stable returns.
Government Bond Funds: Offer safety and moderate returns.
Planning for MBA Loan
Considering your MBA loan, it's important to plan for its repayment. Ensure that a portion of your investments is allocated towards building a corpus for loan repayment. Post-MBA, your increased earning potential can help accelerate this process.
Emergency Fund
Maintain an emergency fund equivalent to six months' expenses. This ensures financial stability during unforeseen circumstances and prevents the need to liquidate long-term investments.
Insurance Coverage
Adequate life and health insurance coverage is essential. This protects against financial risks and ensures peace of mind.
Monitoring and Rebalancing
Regular monitoring and rebalancing of your portfolio is crucial. This ensures your investments align with your financial goals and risk tolerance. A CFP can provide valuable insights and make necessary adjustments.
Tax Planning
Mutual funds offer tax-efficient investment options. Equity funds held for more than one year qualify for long-term capital gains tax at 10% on gains exceeding Rs 1 lakh. Debt funds held for more than three years qualify for long-term capital gains tax at 20% with indexation benefits.
Additional Considerations
After your MBA and with increased income, consider increasing your SIP contributions. This will help you achieve your Rs 8 crore goal faster. Your wife's income can also contribute towards household expenses and savings, enhancing overall financial stability.
Summary of Action Plan
Invest Rs 20,000-25,000 per month in mutual funds via SIPs.
Allocate 70% to equity mutual funds for growth.
Allocate 30% to debt mutual funds for stability.
Maintain an emergency fund for financial stability.
Ensure adequate insurance coverage.
Plan for MBA loan repayment with part of your investments.
Regularly monitor and rebalance the portfolio with a CFP’s guidance.
Increase SIP contributions post-MBA and with increased income.
By following this plan, you can secure your financial future and achieve your goal of Rs 8 crores by the age of 60.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner,
www.holisticinvestment.in
