Will I be able to create Rs 30 lakh in 20 years?
ET Online|
Updated: Jan 16, 2018, 04.59 PM IST
I am 27 years old and have a moderate risk profile. I have started investing Rs 1,000 each in the following funds through SIP:
1. HDFC Balanced Fund (G)
2. SBI Bluechip Fund-Reg (G)
3. Franklin India Smaller Companies Fund (G)
I am planning to increase my SIP amount gradually. My aim is to create a corpus of Rs 30 lakh in 20 years. Is it good to invest in these schemes?
--Jui Deshpande
Vivekh Pathak, a certified financial planner, responds:
There are two ways to interpret your goal of creating Rs 30 lakh in 20 years:
1 ) Rs 30 lakh in future value needed after 20 years - In current value terms (inflation being 6 per cent) it would mean Rs 9.35 lakh today. This means if you want Rs 30 lakh after 20 years, with six per cent inflation, it would be as good as Rs 9.35 lakh today.
2) Rs 30 lakh in present value needed after 20 years - With nominal inflation taken at 6 per cent, this sum would grow to Rs 96.21 lakh. So the requirement would be Rs 96.21 lakh after 20 years.
Considering your risk appetite as moderate and your goal is 20 years ahead, you can increase your investment in all the funds in similar proportions, may be by 10 per cent annually. Although, initially you may choose to invest more in Franklin India Smaller Companies Fund (G) for five years, later, you may increase the allocation towards HDFC Balanced Fund and then in another seven to eight years into largecap schemes like SBI Blue Chip Fund.
Remember, power of compounding is the eighth wonder of the world. The more time you give to your investments, the faster they will grow. With this rule, if you have your goal far away, you may take a little more exposure in equity, but the funds should be performing well, i.e., generating higher risk adjusted returns as compared to peers. Follow this strategy only if you are investing via SIP mode in the initial 1/4th of the entire time period of your investments.
For example, if you have 20 years, for initial four to five years, you may invest via SIPs in midcaps which are comparatively volatile and offer higher risk adjusted returns. This shall ensure greater growth of the corpus and more accumulation of units in the initial few years. You may then gradually reduce your exposure in high volatile funds and move to lesser volatile funds over the years.
Assuming you maintain your asset allocation as 40 per cent in midcaps and 60 per cent in largecaps, and if you keep on increasing your SIP allocation by 10 per cent annually, with initial monthly SIP of Rs 3,000, you will be able to accumulate a sum of Rs 70 lakh approximately. With your existing investments, you might fall short of your desired corpus after a period of 20 years.
In order to reach a sum of Rs 96.21 lakh (future value of Rs 30 lakh after 20 years) , you need to increase your investment to Rs 4,300 per month. You may divide this in two to three schemes. You may keep an asset mix of 60 per cent in midcaps and 40 per cent in largecaps all throughout your investment tenure.
Above Asset Allocation has been advised assuming that you also invest in fixed deposits/ PPF/EPF/Gold.
1. HDFC Balanced Fund (G)
2. SBI Bluechip Fund-Reg (G)
3. Franklin India Smaller Companies Fund (G)
I am planning to increase my SIP amount gradually. My aim is to create a corpus of Rs 30 lakh in 20 years. Is it good to invest in these schemes?
--Jui Deshpande
Vivekh Pathak, a certified financial planner, responds:
There are two ways to interpret your goal of creating Rs 30 lakh in 20 years:
1 ) Rs 30 lakh in future value needed after 20 years - In current value terms (inflation being 6 per cent) it would mean Rs 9.35 lakh today. This means if you want Rs 30 lakh after 20 years, with six per cent inflation, it would be as good as Rs 9.35 lakh today.
2) Rs 30 lakh in present value needed after 20 years - With nominal inflation taken at 6 per cent, this sum would grow to Rs 96.21 lakh. So the requirement would be Rs 96.21 lakh after 20 years.
Considering your risk appetite as moderate and your goal is 20 years ahead, you can increase your investment in all the funds in similar proportions, may be by 10 per cent annually. Although, initially you may choose to invest more in Franklin India Smaller Companies Fund (G) for five years, later, you may increase the allocation towards HDFC Balanced Fund and then in another seven to eight years into largecap schemes like SBI Blue Chip Fund.
Remember, power of compounding is the eighth wonder of the world. The more time you give to your investments, the faster they will grow. With this rule, if you have your goal far away, you may take a little more exposure in equity, but the funds should be performing well, i.e., generating higher risk adjusted returns as compared to peers. Follow this strategy only if you are investing via SIP mode in the initial 1/4th of the entire time period of your investments.
For example, if you have 20 years, for initial four to five years, you may invest via SIPs in midcaps which are comparatively volatile and offer higher risk adjusted returns. This shall ensure greater growth of the corpus and more accumulation of units in the initial few years. You may then gradually reduce your exposure in high volatile funds and move to lesser volatile funds over the years.
Assuming you maintain your asset allocation as 40 per cent in midcaps and 60 per cent in largecaps, and if you keep on increasing your SIP allocation by 10 per cent annually, with initial monthly SIP of Rs 3,000, you will be able to accumulate a sum of Rs 70 lakh approximately. With your existing investments, you might fall short of your desired corpus after a period of 20 years.
In order to reach a sum of Rs 96.21 lakh (future value of Rs 30 lakh after 20 years) , you need to increase your investment to Rs 4,300 per month. You may divide this in two to three schemes. You may keep an asset mix of 60 per cent in midcaps and 40 per cent in largecaps all throughout your investment tenure.
Above Asset Allocation has been advised assuming that you also invest in fixed deposits/ PPF/EPF/Gold.
