Hi, I am 42 years old working in a software company. I have been working on an early retirement plan since last 12 years. I have accumulated saving of corpus 1.3 Cr which starts maturing from 2030 onwards for 5 years. In addition I have 40 Lakhs in fixed deposits now. Also, 21 lakhs in PF and invested in 3 lands worth 50 lakhs market value. I bought 2 houses last year worth 1.7 crore and 40 lacks worth and I have running EMI of 1.10 Lakhs/month for the next 17 years. Worth noting, 1) I have invested 10 lakhs in gold 2) Leased one of my lands for a 12 year sandalwood plantation with a onetime returns of 40 lakhs in the year 2032. 3). Both my houses are insured until 2032 to mitigate risk. 4). Possess a personal health insurance of 30 Lakhs for the whole family. 5). I also own a house of worth 25 lakhs from my parents. All in all apart from the two EMIs don't have any other debts . All my earnings goes into savings. I have take home of 4 Lakhs/ month after taxes. Close to 3 lakhs every month goes to EMIs and savings. I need guidance on two aspects. 1. How can I pre-close my EMI lets say before 2030. 2. How to double my returns by 2030. My plan is to get retired by 2030 with no debts. Appreciate your suggestion. FYI i do not have any investments in SIP.
Ans: It's fantastic to see your dedication and strategic planning for early retirement. With your current financial landscape, you’re in a solid position, but optimizing your approach will help you reach your goals more efficiently. Let's explore your options in detail for pre-closing your EMIs and doubling your returns by 2030.
Overview of Your Current Financial Position
You've built a diverse portfolio with significant investments in various asset classes. Your corpus includes savings, fixed deposits, provident funds, real estate, and gold. Additionally, your monthly earnings and disciplined savings habits position you well for early retirement.
Impressive Accumulation: Accumulating a corpus of Rs 1.3 crore and substantial assets is commendable.
Diverse Investments: Your diversified investments in gold, real estate, and FDs reflect a balanced approach.
Risk Management: Having health insurance and insuring your properties show foresight and prudence.
Strategic Real Estate Use: Leasing your land for a sandalwood plantation with future returns is a smart, long-term move.
How to Pre-Close Your EMIs Before 2030
With EMIs of Rs 1.10 lakhs/month for the next 17 years, pre-closing these loans can significantly ease your financial burden. Let’s explore how you can achieve this.
Prioritize EMI Payments
Prioritizing loan repayments, especially those with higher interest rates, is key. This strategy will reduce your overall interest payments and shorten the loan tenure.
Actionable Steps:
Assess Interest Rates: Identify which loan has the highest interest rate and focus on pre-paying that first.
Lump Sum Payments: Use any surplus income or bonuses to make lump sum payments towards your loans.
Increase EMI Payments: If possible, increase your EMI amounts slightly to reduce the principal faster.
Utilize Your Fixed Deposits and Savings
Your Rs 40 lakhs in fixed deposits can be a great resource for pre-closing EMIs. While maintaining liquidity is crucial, strategically using these funds can expedite loan closure.
Considerations:
Partial Withdrawal: Use part of your fixed deposits to pay down a portion of your loan principal.
Optimize Returns: Compare the interest earned on FDs with the interest paid on loans. If FD returns are lower, consider using these funds for loan pre-payment.
Maintain an Emergency Fund: Ensure you keep an adequate emergency fund even after using FDs for loan payments.
Reallocate Your Corpus
Your Rs 1.3 crore corpus maturing from 2030 onwards can also play a role in pre-closing your EMIs. Planning the utilization of these funds will be crucial.
Strategy:
Plan for Early Maturities: Explore options to access part of this corpus earlier if it aligns with your financial goals.
Debt Reduction: Allocate a portion of the maturing funds towards loan repayments as they mature.
Consider Restructuring Your Loans
Negotiating better terms with your lenders can be beneficial. Lowering interest rates or consolidating loans could reduce your EMI burden.
Steps:
Refinance Options: Look for refinancing opportunities at lower interest rates.
Negotiate Terms: Discuss with your bank about restructuring your loans to more favorable terms.
Loan Consolidation: Consolidate multiple loans into a single loan with better interest rates and terms.
Doubling Your Returns by 2030
Doubling your investment returns in the next 7 years is an ambitious goal, but with strategic planning and disciplined investing, it’s achievable. Here’s how you can aim to double your corpus by 2030.
Investing in Growth-Oriented Mutual Funds
While you don’t currently have investments in SIPs, considering growth-oriented mutual funds can provide higher returns. Actively managed funds, in particular, can outperform the market.
Advantages:
Professional Management: Fund managers actively make investment decisions to maximize returns.
High Growth Potential: Growth-oriented funds target high-return investments.
Diversification: These funds spread your investment across various sectors and companies, reducing risk.
Action Plan:
Start SIPs: Begin systematic investment plans (SIPs) in growth-oriented mutual funds.
Regular Contributions: Invest regularly to take advantage of rupee cost averaging and compound growth.
Review and Adjust: Monitor fund performance and adjust your investments as needed.
Enhancing Your Portfolio with High-Return Instruments
Exploring high-return investment options, while managing risk, can boost your returns. Diversify beyond traditional assets to enhance your portfolio’s growth potential.
Options to Consider:
Equity Investments: Direct equity investments in well-researched companies can offer substantial returns.
Hybrid Funds: These combine the stability of debt with the growth potential of equity.
Balanced Allocation: Allocate a portion of your portfolio to higher-risk, higher-return assets.
Utilizing Tax-Efficient Investment Strategies
Maximizing your returns also involves efficient tax planning. Leveraging tax-saving instruments can boost your net returns.
Tax-Saving Strategies:
Tax-Efficient Funds: Invest in funds that offer tax benefits under Section 80C or ELSS (Equity Linked Savings Scheme).
Long-Term Holdings: Hold investments for the long term to benefit from lower capital gains tax rates.
Tax-Advantaged Accounts: Utilize tax-advantaged accounts to reduce taxable income and maximize returns.
Leveraging Your Real Estate and Other Assets
Your substantial investments in real estate and other assets can be optimized for better returns. Strategic management of these assets will contribute to doubling your returns.
Real Estate Strategy:
Rental Income: If possible, rent out properties to generate regular income.
Leverage Potential: Use the equity in your real estate for investments in higher-return assets.
Market Timing: Consider the timing of any potential sale to maximize returns.
Exploring Gold and Other Alternative Investments
Gold and alternative investments can add a layer of diversification and security to your portfolio. They often perform well in uncertain economic conditions.
Gold Investment Strategy:
Hold for Stability: Gold can act as a hedge against inflation and market volatility.
Periodic Review: Regularly review the performance of gold investments in the context of your overall portfolio.
Alternative Investments:
Consider Alternative Assets: Explore options like commodities, or peer-to-peer lending for additional returns.
Risk Management: Ensure these investments align with your risk tolerance and financial goals.
Regular Monitoring and Rebalancing
Consistent monitoring and rebalancing of your portfolio are essential to stay on track towards doubling your returns. This helps in maintaining the desired asset allocation and adapting to market changes.
Steps for Monitoring:
Set Review Frequency: Review your portfolio quarterly or annually.
Assess Performance: Evaluate the performance of each asset against its benchmarks.
Rebalance as Needed: Adjust allocations to maintain the desired risk-return balance.
Final Insights
Your journey towards early retirement and financial independence is inspiring. By focusing on pre-closing your EMIs and strategically investing to double your returns by 2030, you are setting yourself up for success. Keep diversifying, managing risks, and regularly reviewing your portfolio. With disciplined planning and action, you will achieve your goal of retiring debt-free and financially secure.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
