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Anonymous: I am 36 years old, earning around 1.6 lakhs per month, I have car loan for 7 years and paying 25,000 per month, I bought a land property 3 years back and its current evaluation is 35 lakhs, I have a ulip plan of 2 lakhs per years and the premium was for 7 years (completed) and holding period is 3years, total fund accumulated is 22 lakhs.
I have a liquid reserve of 20 lakhs.
Can u tell me if I have to accumulate 8 crore at the age of 60, what should I do?
Let’s look at your investments and see what you will be able to achieve at the age of 60.
ULIP: This is an insurance + investment product and as you have completed your premium term of 7 years you should be able to access this amount (now or 3 years later). It may seem to be a good product but I believe on both Insurance and Investments there are better products. First the insurance cover is not substantial and the charges are quite high. They will manage to invest the amount just like a Mutual fund. It’s better to split insurance and investment.
If you are looking at this amount like an investment, then the amount of 22 lakhs is available as a starting point, over the next 24 years if invested at 12% rate (typical returns in Mutual Funds), you will be able to accumulate 3.33 crores. You can buy a term life cover of a high value (much higher than the ULIP cover), for a very low premium and you should definitely get that and come out of the ULIP.
Savings of 20 lakhs: I suggest you keep about 10 lakhs aside in some FDs as your emergency fund — to be used only for any unexpected/emergency situation. This will grow to 40 lakhs at 6% over the next 24 years.
The remaining 10 lakhs should be invested in Mutual funds and at a 12% returns after 24 years this will accumulate into an amount of 1.51 crores.
Thus you can accumulate approx. 5.25 crores with these 2 amounts invested as above for the next 24 years.
The Balance: To achieve 8 crores, you need to accumulate another 2.75 crores. If you invest 16500 monthly into similar investment (Mutual fund SIP) and assuming same return of 12%, you can accumulate this amount.
In this process we have not considered the land property you have, as its difficult to calculate its value without knowing its location and usage/type. So you can get some estimate for it in future then you can accordingly reduce the monthly SIP requirement.
Mutual Funds are a good investment option when you consider its long term benefits — as it’s managed by professionals. It’s important to construct a good MF portfolio and with time of your side, you should be able to achieve your goal comfortably.
Consult a fee based Certified Financial Planner/Financial advisor who can help and guide you for this.
Hajira Mahmood: Sir, i am 39 YO, single mother working in Oman. Since i reside outside india i cannot open a demat account. i am currently investing in SBI mutual funds (since i have my NRE account in SBI). i have invested 25 lakhs — 15 lakhs in Multi cap fund; 4 lakhs in Gold fund; 5 lakhs in SBI magnum child benefit fund 1 lakh in Long term equity fund ELSS and 50,000 in SBI bluechip.
i have child education policy where i pay 2.5 lakhs or 5 years and leave it for 5 years and my child is eligible of 25 lakhs. i already paid 2 installments and for next 3 installments, i have taken 3 funds — SBI savings fund for 1 year, SBI liquid Fund for 2 years and SBI balanced advance fund for 3 years. i want to pay the remaining 3 installments with these three funds accordingly. Please advice if i can improve my financial investment journey. thank you.
I believe the banking relationship with SBI has led you to invest in various schemes of SBI Mutual Fund.
For the child’s education, you have already committed to a plan and invested in various schemes to supplement it. That’s fine.
As for the other schemes you have invested 25 lakhs — they are all also SBI schemes. When you invest across various schemes of one Mutual Fund house, you end up not optimising your investments and thus add risk towards your investment’s potential.
Not all schemes from a fund house perform above expectations and hence it’s good to diversify across fund houses too; especially when you are looking to create wealth over a long time period.
For example the SBI Multicap is not above its category average over last 3 years period (its only 3 years old). I would suggest to change this investment to either Nippon Multicap or Mahindra Manulife Multicap schemes.
Currently you are heavy on Large cap and though its stable and good option, you should decide your long term investment goal.
Accordingly going forward for new investments do consider funds that will complement your investment requirement. If you have long term plan in mind, say more than 10 years, you can consider a mid-cap or even a small cap scheme to diversify and aim for higher growth (with a little added risk) towards wealth creation.
On your next visit to India, or if comfortable online/on call, you can consult a CFP/Financial advisor to discuss and prepare a plan towards achieving your goals. A fee based service with them, which aims to optimise your interests/goals will add a lot more value for you rather than someone who wants to sell their products to you.
Tina: I am 26 years old female, currently earning 95k per month. Can save 40-45k and invest that amount. I have 3L in mutual funds and 1L in stocks. Can’t remember EPF balance. I have 1cr Term plan and health insurance is covered by company for my mother and I. So how should I proceed with the money I want to invest? Please suggest.
I am glad to see you have already started your investment journey and you are asking the right questions.
Good so far:
- You are saving almost 50% of your income for investment and that is a very good start.
- You have a Term Plan of 1Cr.
- You have Health insurance from employer to cover your mother and your self.
- You have investments in Equity – stocks 1L and Mutual funds – 3L.
Next steps:
1. Create an emergency fund: This is typically 6 months of expenses (no investments). So save approx. 3L towards this and hold them in a no/low risk investment like FD. FDs can be accessed as and when required and funds are available almost instantly thru online mode. Each month keep aside 25k towards this and so in a year you will be set. Create an FD each month and keep on auto renewal and enable swipe-in feature. This will make breaking/withdrawal easy. Use these FD only for emergency situations.
2. Buy a health insurance super top-up policy for a large amount e.g. 50 lakhs for mother and self. The premiums will be very less and it will provide good cover. Keep deductible equal to the health insurance cover from employer e.g. cover from company is 5 lacs, then buy super top-up with deductible of 5 lakhs for a cover of 50lacs.
3. Assuming you do the above, you will have approx. 20k per month for investments in the 1st year and 45K from 2nd year onwards. List your goals for future and approx. amounts you will require for them with the timeframe e.g. Goal 1 in 5 years requires X amount. Once you have them listed or you decide simply to create wealth without goals that’s also fine to start with. I would suggest you invest the amounts into a well diversified Mutual Fund portfolio. You already have investment in stocks and if you feel comfortable in that then you allocate some amount towards it, it depends on your comfort level and experience so far with stocks.
Mutual Fund portfolio (indicating some schemes to consider).
For creating wealth in the long term (over 7 years), you can consider allocations as below:
- Large Cap – 20% (alternative is Flexi cap fund or Nifty Index funds) (ICICI Bluechip, UTI Nifty 50)
- Flexi cap – 20% (Parag Parikh, HDFC)
- Multicap – 40% (Nippon, Mahindra Manulife)
- Hybrid fund – 20% (Balance advantage funds) (HDFC)
If your goals are within 3 years, put money in FDs, 3-5 years consider Hybrid funds and beyond 5 years consider equity mutual funds.
As you have MF investment, try to align your portfolio accordingly. A good MF portfolio can be between 4-7 funds. Too many funds will not provide anything much except increase the overhead of managing them, so try to keep you portfolio simple.
Wealth creation in not so much about timing the market and picking funds (assuming you do a reasonable job with it), its more about patience and time ‘in’ the market. So staying invested and reviewing your investment every year to see that they are on track with your expectations is more important.
You can connect with a Certified Financial Planner / Financial Advisors that are fee based to get the right advice and guidance.
- You can ask rediffGURU Janak Patel your questions HERE.
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this QnA or an attempt to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
