Hi, I am 27 and running a restaurant business in my town for 4.5yrs now. I have a profit of 1.2l to 1.5l per month after all expenses. The restaurant is fully mine including the land. Due to my parents death on a accident, their savings, FDs and MFs are now given to me. But don't know about market so didn't invested till now. I want to retire at age of 50. My savings is some about 2l and Fds are 5l. My parents money is Savings of 7l, Fds of 50l and Mfs of 75l. Can you please suggest me where to invest or how to plan my retirement so that monthly income can be good enough so that my children's education and any emergency can be handled. Thanks
Ans: You’re 27 and running a successful restaurant business. You have a monthly profit of Rs. 1.2 to 1.5 lakhs after expenses. You’ve inherited savings, FDs, and MFs from your parents, and you want to retire by 50 with a comfortable monthly income to support your children's education and handle emergencies.
Income and Assets Overview
Monthly Profit: Rs. 1.2 to 1.5 lakhs
Savings: Rs. 2 lakhs
Fixed Deposits (FDs): Rs. 5 lakhs (your savings) + Rs. 50 lakhs (parents’ savings)
Mutual Funds (MFs): Rs. 75 lakhs (parents’ investments)
Parents’ Savings: Rs. 7 lakhs
Establishing Financial Goals
Retirement at Age 50: You have 23 years to build a substantial retirement corpus.
Children’s Education: Plan for your future children’s education expenses.
Emergency Fund: Set aside funds to cover unforeseen expenses.
Budgeting and Emergency Fund
Monthly Budget: Allocate a portion of your monthly profit towards expenses, savings, and investments.
Emergency Fund: Save at least 6 months’ worth of expenses in a liquid, easily accessible account. This can be around Rs. 9-10 lakhs based on your current monthly profit.
Investing in Mutual Funds
Mutual funds are a great way to grow your wealth over time. Let’s explore different types and their benefits.
Equity Mutual Funds
Equity Funds: Invest in stocks and have high growth potential. Suitable for long-term goals but come with higher risks.
Power of Compounding: Over time, compounding helps your investments grow exponentially. Reinvested earnings generate more returns.
Debt Mutual Funds
Debt Funds: Invest in government and corporate bonds. They offer stable returns with lower risk compared to equity funds.
Advantages: Suitable for short to medium-term goals and provide a steady income.
Balancing Your Portfolio
Diversification: Spread your investments across different asset classes (equity, debt, balanced funds) to manage risk.
Balanced Funds: These invest in a mix of equities and debt instruments. They provide a balanced risk-reward profile.
Systematic Investment Plan (SIP)
SIP: Invest a fixed amount regularly. It’s a disciplined way to invest in mutual funds and benefits from rupee cost averaging.
Benefits: SIPs help in mitigating market volatility and building a substantial corpus over time.
Evaluating Existing Investments
Parents’ Mutual Funds: Assess the performance of your parents’ mutual funds. If they are underperforming, consider switching to better-performing funds.
Fixed Deposits: FDs offer safety but lower returns. Consider moving some FDs to mutual funds for better growth.
Insurance Coverage
Health Insurance: Ensure you have adequate health insurance coverage to manage medical expenses.
Life Insurance: If you have any existing LIC, ULIP, or other investment cum insurance policies, assess their performance. If they are not performing well, consider surrendering them and reinvesting in mutual funds.
Creating a Retirement Corpus
Retirement Planning: To retire comfortably by 50, you need a significant retirement corpus. Start by calculating your expected expenses during retirement.
Monthly Savings: Allocate a significant portion of your monthly profit towards retirement savings. Aim to save at least 20-30% of your income.
Long-Term Investments: Focus on equity mutual funds for long-term growth. Use SIPs to invest regularly and build your retirement corpus.
Children’s Education Planning
Education Fund: Education costs are rising, so start saving early. Use a mix of equity and debt funds to build a substantial education fund.
SIPs for Education: Start SIPs in mutual funds dedicated to your children’s education. This will ensure you have enough funds when needed.
Seeking Professional Help
Certified Financial Planner (CFP): Consider consulting a CFP for personalized advice. They can help you create a comprehensive financial plan based on your goals and risk tolerance.
Regular Review: Regularly review and adjust your financial plan to ensure you stay on track.
Advantages of Actively Managed Funds
Active Management: Actively managed funds aim to outperform the market through strategic investments. They provide better returns compared to index funds.
Disadvantages of Index Funds: Index funds simply track the market and do not offer potential for higher returns. They are more suitable for passive investors.
Avoiding Direct Funds
Direct Funds: Direct funds require you to choose and manage your investments. This can be challenging without expertise.
Benefits of Regular Funds: Investing through a certified financial planner provides expert guidance and better management of your investments.
Financial Discipline
Avoid Debt: Try to avoid unnecessary debt. If you have any existing loans, prioritize paying them off.
Control Spending: Be mindful of your spending habits. Avoid impulse purchases and stick to your budget.
Final Insights
Managing your finances effectively can help you achieve your goal of retiring comfortably by 50. Focus on budgeting, saving, and investing wisely in mutual funds. Ensure adequate insurance coverage, avoid unnecessary debt, and regularly review your financial plan. Your proactive steps and willingness to adapt will lead to a secure and comfortable financial future.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
