I am 48 year old male with two sons 19 and 17 studying in college. Wife is homemaker. House and car are paid up completely. Salary is 3 lacs per month. Over the past 17 years have been investing in MF regularly by SIP. Today I have 1.5 lac monthly SIP with equal amounts in large, mid and small cap. My MF corpus is 3.7 cr. Have 60 lacs in PPF and 20 lacs in PF . Wish to retire in 5 years with corpus of 10 cr. My mutual fund investments are in 19 different funds which is too much but I am afraid to merge them into lesser number of funds since I will end paying high capital gains tax. Also I am thinking of being agressive in next 5 years and invest SIP in only small cap funds . Over the past 17 years I noticed my small cap funds have increased substantially over large and mid cap. In retrospect had I invested only in small cap, I would have had over 6 crores today as corpus in MF . Will it be a good decision to go aggressive with only small cap investment? Also how do I merge my mutual fund portfolio into fewer funds since I have invested in 19 different funds by paying min capital gains tax? Or should I leave it the way it is and worry only after retiring since I don’t need that money for my monthly expenses right now..
Ans: Your situation and plans for the future are well thought out. Let's explore how you can manage your investments and reach your retirement goal of Rs. 10 crores.
Current Financial Situation
Age: 48 years
Monthly Salary: Rs. 3 lakhs
Sons: Two, aged 19 and 17, in college
Wife: Homemaker
House and Car: Fully paid
Monthly SIP: Rs. 1.5 lakhs (large, mid, and small cap)
MF Corpus: Rs. 3.7 crores
PPF: Rs. 60 lakhs
PF: Rs. 20 lakhs
Retirement Goal: Rs. 10 crores in 5 years
Reviewing Mutual Fund Strategy
1. Fund Diversification
Current Portfolio: 19 different funds. This is excessive and can be streamlined.
Rationalisation: You can merge similar funds to reduce the number without paying high capital gains tax immediately. Use the Systematic Transfer Plan (STP) to gradually merge funds.
Aggressive Investment Approach
2. Small Cap Investments
Observation: Small cap funds have shown high returns historically.
Risk Assessment: Small caps are volatile and risky. Investing solely in small caps for the next 5 years could be risky.
Balanced Approach: Continue investing in a mix of large, mid, and small cap funds. Consider increasing allocation to small caps, but not exclusively.
Tax Efficiency
3. Managing Capital Gains Tax
STP Strategy: Use Systematic Transfer Plans to transfer investments gradually into fewer funds.
Long-Term Capital Gains: If you hold investments for more than a year, the tax rate is 10% on gains exceeding Rs. 1 lakh per year.
Reviewing PPF and PF
4. Provident Fund (PF) and Public Provident Fund (PPF)
Secure Returns: Both PF and PPF offer secure, tax-free returns.
Continue Contributions: Keep contributing to these for risk-free growth.
Additional Considerations
5. Emergency Fund
Liquidity: Ensure you have an emergency fund covering 6-12 months of expenses. This should be easily accessible.
6. Education Fund for Sons
College Expenses: Set aside funds specifically for your sons’ education to ensure it doesn’t disrupt your retirement corpus.
7. Review and Rebalance
Regular Review: Periodically review and rebalance your portfolio to stay aligned with your goals.
8. Professional Guidance
Certified Financial Planner: Consult a Certified Financial Planner for tailored advice. They can help you optimise your investment strategy and tax planning.
Final Insights
Streamlining your mutual funds and balancing your investments is crucial. Going all-in on small caps is risky. Diversify wisely and use tax-efficient strategies like STPs. Regularly review your portfolio and consult a professional for optimal results.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
