I am 28 years old. My monthly income is 30 k.I have a wife and one child.I have one flat.My bank balance is Rs 5lakh.I want that I should have 2 crore fund in upcoming time
Ans: You’re 28 years old, with a monthly income of Rs. 30,000. You have a wife and one child, and you own a flat. Your bank balance stands at Rs. 5 lakh, and your goal is to build a Rs. 2 crore fund in the future. This goal is achievable, but it requires disciplined saving and smart investing over the years.
Understanding the Goal: Rs. 2 Crore Fund
Building a Rs. 2 crore fund is an ambitious goal. It requires careful planning and consistent effort. With your current income, the key will be to balance your expenses while maximizing your savings and investments.
Importance of Starting Early
You’re 28 years old, which gives you a significant advantage. Starting early allows your investments to benefit from the power of compounding. This means your money grows over time, and the growth itself also earns returns. The earlier you start, the less you need to invest each month to reach your goal.
Allocating Your Savings: Bank Balance vs. Investments
You have Rs. 5 lakh in your bank account. While it’s important to maintain an emergency fund, having too much idle cash can limit your growth potential. Consider setting aside 6 to 12 months' worth of expenses as an emergency fund, and allocate the remaining amount towards investments that offer higher returns.
Investment Strategy: Mutual Funds for Wealth Creation
To achieve a Rs. 2 crore fund, you’ll need to invest consistently in a well-diversified portfolio. Mutual funds are an effective tool for wealth creation, as they provide diversification and professional management.
Here’s a suggested allocation strategy:
Large-Cap Funds (40%): These funds offer stability and moderate returns. They should form the core of your portfolio.
Mid-Cap Funds (30%): Mid-cap funds provide a balance of growth and stability. They invest in companies that have the potential to grow into large-cap firms.
Small-Cap Funds (20%): Small-cap funds carry higher risk but also offer the potential for higher returns. A small allocation here can significantly boost your overall returns over time.
Hybrid Funds (10%): Hybrid funds invest in a mix of equity and debt, offering a balanced approach. This allocation will add a layer of safety to your portfolio.
SIP: Systematic Investment Plan
With your monthly income of Rs. 30,000, it’s important to allocate a portion towards systematic investments. Start a SIP (Systematic Investment Plan) in mutual funds. Even small amounts invested regularly can grow into a significant corpus over time.
Starting with Rs. 5,000 per month: If you’re new to investing, start with Rs. 5,000 per month. Gradually increase your SIP amount as your income grows.
Increasing your SIP: Aim to increase your SIP amount by 10-15% each year. This helps in maintaining the purchasing power of your investments and accelerates your wealth creation.
Importance of Equity: Avoiding Index and Direct Funds
While index funds are popular for their low costs, they may not be the best option for you. Index funds track a specific index and don’t offer the flexibility to outperform the market. Actively managed funds, where professional fund managers make strategic decisions, have the potential to deliver higher returns.
Similarly, direct funds might seem attractive due to their lower expense ratios, but they require constant monitoring and a deep understanding of the market. Regular funds, managed by experienced Certified Financial Planners (CFPs), offer a more hands-off approach, ensuring your investments are managed by professionals.
Debt Instruments: Balancing Risk and Return
While equity investments are crucial for wealth creation, having a small portion in debt instruments can add stability to your portfolio. Consider the following:
Public Provident Fund (PPF): A PPF account offers tax-free returns and the safety of government backing. It’s a good option for the debt portion of your portfolio.
National Savings Certificate (NSC): Another government-backed option, NSCs provide guaranteed returns over a fixed tenure.
Fixed Deposits (FDs): While FDs offer lower returns compared to equity, they provide safety and liquidity. Keep a portion of your savings in FDs for short-term needs.
Insurance: Protecting Your Financial Future
It’s important to protect your family’s financial future. Consider the following:
Term Insurance: A term insurance plan provides a high sum assured at a low premium. Ensure you have adequate coverage to protect your family in case of any unforeseen event.
Health Insurance: With rising medical costs, having a comprehensive health insurance policy is crucial. This ensures that your savings and investments are not drained by medical emergencies.
Tax Planning: Optimising Your Returns
Investments that offer tax benefits can help you save money and increase your returns:
Section 80C: You can claim a deduction of up to Rs. 1.5 lakh under Section 80C. Consider investing in ELSS (Equity Linked Savings Scheme) funds, PPF, or NSCs to avail of this benefit.
Section 80D: Premiums paid for health insurance are eligible for a deduction under Section 80D. This can be an additional benefit while ensuring your family’s health is protected.
Regular Monitoring and Rebalancing
Your financial situation and goals may change over time. It’s important to review your investments regularly and rebalance your portfolio to stay on track.
Annual Review: Conduct an annual review of your portfolio to assess its performance. Make adjustments as needed to ensure it aligns with your goals.
Rebalancing: Over time, certain investments may outperform others, leading to an imbalance. Rebalancing ensures that your portfolio stays aligned with your risk profile and long-term goals.
Final Insights
Building a Rs. 2 crore corpus is achievable with disciplined saving, smart investing, and regular monitoring. Start by investing a portion of your income in a well-diversified mutual fund portfolio. Protect your family’s future with adequate insurance coverage, and optimize your returns with tax planning. Regularly review and rebalance your portfolio to stay on track.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
