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I am 25 and have just started investing in mutual funds. I put in ₹1,000 every month in each of the following funds (growth option): SBI Bluechip, Birla Sun Life Frontline Equity, HDFC Top 200, ICICI Pru Value Discovery, Reliance Small Cap and L&T Infrastructure Equity. How much can I get if I keep investing for 10 to 20 years? My goal is ₹10 crore for my retirement.
Akhil Kumar
It is good you have made an early start. If you continue with the ₹6,000 you are investing every month for 10-20 years, you will end up with a corpus of ₹14 lakh (10 years) and ₹60 lakh (20 years), assuming 12 per cent annual return on your investment.
But, if you are only eyeing ₹10 crore for your retirement, here’s how the math works: Since you will hang up your boots at 60, you have 35 years to go for your retirement. For a goal of ₹10 crore 35 years later, you will need to invest ₹18,318 every month through SIPs, assuming a 12 per cent compounded annual return on your investments. Though you are investing only ₹6,000 per month currently, over the years, step up the SIP amounts to make up for the shortfall. Besides, your funds may earn more than the assumed 12 per cent. You can also diversify into debt and invest in PPF, fixed deposits or join the NPS.
However, since you are starting to save for retirement at an early age, the monthly SIPs required don’t seem daunting, even for a ₹10-crore corpus requirement. But do a reality check on how much you may actually require for retirement as well as life goals such as buying a home, funding the education of your child (once you marry and start a family), and at what point in time you will need each of these sums. This will help you plan better for financial needs at different stages in your life.
Coming to your funds, for the ₹6,000 you are putting in, invest in two-three funds. Since you have just started out and most of the funds you have chosen have a record of outperformance over longer periods, we are making minimum changes to your portfolio.
Continue with SBI Bluechip, Birla Sun Life Frontline Equity, HDFC Top 200 and ICICI Pru Value Discovery. While the first three mainly invest in large-cap stocks, the last one is a multi-cap fund, which invests where the opportunity lies in the market at a particular point in time. All these funds suit investors with a moderate risk appetite.
Avoid small-cap and sector funds as of now. Small-cap stocks are probably ripe for a correction. Completely avoid sector funds, which are even riskier. Stop SIPs in Reliance Smallcap and L&T Infrastructure Equity. Divide the ₹6,000 equally as ₹1,500 each among the three large-cap and one multi-cap fund mentioned above. Check the performance of the funds regularly. If a fund underperforms its benchmark for at least two years, move it out, choose better ones.
Send your queries to mf@thehindu.co.in
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