Want 2 Cr In 5 Yrs? Your SIPs Should Be...

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Anonymous: I am 37 years old.
I have a monthly salary of Rs 1 lakh with a bonus of Rs 1.5 lakhs every year.
I currently have Rs 13 lakhs in FD.
Rs 25,000 every month goes for SIPs and Rs 4,200 every month towards NPS.
I have an RD of Rs 7.5K every month.
I have a 6-year-old child whose education and miscellaneous expenses are around Rs 25,000 every month.
I have also started SIPs from my child's account (in which I have a lump sum amount of Rs 7 lakhs) from which Rs 5,000 every month goes in SIP.
I have monthly personal and family expenses which includes travel to work, medical premiums and term insurance for (Rs 1 cr coverage) premium and household expenses of around Rs 40-45k.
There are no other liabilities or loans.
I save nothing post these expenses at the end of the month.
I plan to retire 10 years from now. Is there anything I should change or can plan or invest in to have a comfortable life?

At the age of 37 years and planning to retire after 10 years is an ambitious goal. Let's see how your financials stack up to meet this challenge.

Investments

FD -- Rs 13 lakhs; SIP -- Rs 25,000 pm; NPS contribution -- Rs 4,200 pm; RD -- Rs 7,500 pm.

After 10 years the above investments, if continued, can help you accumulate approximately Rs 1 crore.

I feel the Rs 7 lakhs should be invested over the next six to nine months in MFs instead of a monthly sip of Rs 5,000. This way you can accumulate approximately Rs 20 lakhs in 10 years instead of reaching Rs 12 lakhs with the small SIP.

Thus, you can accumulate approximately Rs 1.2 crores in 10 years.

I am assuming you can service your child's education and household expenses (inflation adjusted) from your salary for the next 10 years.

After 10 years, for the next 30 years, your monthly expenses (inflation adjusted) will require at least a corpus of Rs 1.6 crores invested with 12 per cent returns.

This does not include education expenses after 10 years for your child's graduation/post graduation.

I will recommend two points below:

1. Reduce the FD from Rs 13 lakhs to Rs 3 lakhs and invest the remaining Rs 10 lakhs in equity MFs.

2. Extend your retirement from 10 years to 15 years.

With the above two points, you can achieve:

1. Retirement with accumulated corpus of approximately Rs 2.6 crores.

2. After 15 years, for the next 25 years, your monthly expenses (inflation adjusted) will approximately require a corpus of Rs 2 crores invested with 12 per cent returns with a good possibility of leaving an inheritance.

3. Excess of Rs 60 lakhs can be used for your child's education requirement.

Anonymous: At the age of 54, how can one develop a corpus of Rs 2 crores in five years by investing in SIPs?

In five years, accumulating a corpus of Rs 2 crores is possible.

I have listed two such options that can work as examples.

1. If you are willing to take risk and invest in equity mutual funds with the expectation of a 12 per cent return, then an SIP of Rs 2.42 lakh each month can achieve the target.

2. If you take lesser risk and invest in conservative hybrid mutual funds with expectation of an eight per cent return, then an SIP of Rs 2.7 lakhs each month can achieve the target.

The period being just five years, you should have realistic expectations that market can fluctuate and hence target may at times seems a little far away. Staying invested for a bit longer can give good returns.

I would suggest you consult an advisor who can analyse your profile and provide comprehensive guidance.

Anonymous: I am 45 years old and my take home salary is 1.75L.
I have Rs 30 lakhs investment in mutual funds and Rs 50 lakhs investment in the stock market.
My monthly SIP in MF is Rs 50K.
I am also planning to buy a property valued at Rs 1 cr.
I am planning to pay 40 per cent of the amount using my PF withdrawal and rest of the amount I am planning to take a bank loan and pay EMI monthly.
Kindly advise how can I improve my financial planning.

You are currently invested in stocks and mutual funds and you also have your PF. Assuming your MF investment is also more equity based, you have Rs 80 lakhs invested towards equity.

Your PF balance is not mentioned but as the maximum limit of withdrawal is 90 per cent for house purchase, I assume you have Rs 50 lakhs or more in PF.

Your equity to debt allocation is approximately 60:40 favoring equity.

In this allocation, direct stock market investment which is 40 per cent has the maximum risk exposure.

MFs are managed by professionals and they are risky but relatively less so.

For a Rs 1 cr property, home loan would be Rs 60 lakhs, which amounts to approximately Rs 57K of EMI (depends on interest rate and tenure, assumed 15 years for now) so it may impact your monthly saving capacity to start with.

With 40 per cent withdrawn from PF, your equity to debt ratio would change to 90:10, thus increasing your risk exposure.

Your PF balance is considerably reduced.

So the first question you should ask yourself is: How much RISK am I willing to take at this time?

With time, as you approach retirement age, will this RISK level be the same? Chances are -- no.

At that time, would you feel more secure with safer investment options? If yes, then your PF balance needs to be much higher than what you would probably accumulate over 15 years.

Typically, for your profile (based on age alone), I would recommend you directly invest in the stock market to supplement the house purchase plan. You can of course keep some stock investments in good quality companies as a long-term investment.

Also evaluate your mutual funds to see if they are providing you good returns of above 12 per cent. If you find any scheme that is underperforming, it would be prudent to exit it and use those funds also towards the house purchase.

Beyond the above, if you still fall short for the 40 per cent part of house purchase, then you can consider PF withdrawal.

Note PF has a purpose -- it's primarily to provide for retirement. Hence it is prudent to withdraw at the right time and get the benefit of not paying any tax on it. So even at eight per cent assured returns, it's quite attractive considering most other investments will attract tax on withdrawal.

Equity, on the other hand, has risks associated but also rewards those who can stay disciplined with their investments. But it will attract taxes.

The question you need to ask is how much risk to take and what would be preferred asset allocation you can keep without losing sleep for the next 15 years until retirement.

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