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POSTED BY ON June 27, 2011 4:14 pm COMMENTS (10)
Hi,
For the last 6 years, I have regularly invested in MF via SIP and few lumpsump during recession times.
Total balance is around 46 Lakh now. I am 32.
I am thinking should I stop contributing ( contributing 40K per month ) as this amount with 12% in 20 years can grow to 4.4 Crores which should be fine for a Middle Class Retirement..
Let me know
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Sorry, I over looked your response of buying a new flat.
Madam,
please look at this simple calculations.
Let me presume your monthly expenses now is 30000/- PM.
You want retirement money after 20 years.
Assume inflation of 8%,
After 20 years you need 140000=00 for same life style, for next 23 years to take upto your age of 75.
So, from 52 to 75 , ie 23 years. you need to get 140000=00 every month again inflation adjusted. For adjustment for inflation from 52 to 75 we adjust the return on your money at that stage. and take as 5%.
So you need a corpus of 2.8 crores at your age of 52.
Here again can you assume 12% return for next 20 years?
I suggest you shift 80% of money into debt fund or monthly income plan (growth), and effect systematic weakly transfer plan to 3-4 equaity funds, for next 10 years. Review after 10 years, take the extra money and enjoy:-)
So you can stop contributing to MF, and invest in gold, bonds, NSC. PPF.if you so wish.
But rerotate the existing money.
You are on a very firm footing.
@ Krishna
I dont understand the need for transferring from equity to debt fund(s) / MIPs. Then doing STP back into equity.
Or the advise to invest in gold, bonds, NSC, PPF.
Or the need for rerotation.
when you are assuming inflation @ 8% (correctly).
Can you explain more?
Mr. Ramesh, Growth of money depends on time in the market. Since she has started early, she could make good money early. Now, the entire corpus is subjected to market risk. So gain can be protected by shifting to Debt fund or MIP. And having an STP (it’s like SIP) further gains can be availed by using the ups and downs in market. STP works on weekly basis also, which further makes “rupee cost averaging” much better. When the existing money is enough for 2 of the financial goals known there, further investments may be made in secured asset class. The portfoilo must be balanced between, “high risk, high return” and “low risk and low return”. Again this depends on the age , requirement to achieve goals, investible surplus, financial and mental ability to take risk and the like.
Now Shifting existing corpus is to protect the gain
STP is to use the market flutuations to one advantege
Investment in Gold , Bonds, PPF, NSC and so on is to have secured portfoilio and to balance.
It is advisable not to risk entire money in risky asset, if he/ she can afford to diversify.
Hope I am fairly clear.
@Krishna
1. Growth of money depends on time in the market. Yes. correct. Her retirement corpus is actually dependent on the market returns, including the risk. So, her portfolio in terms of asset classes should have a high equity orientation.
2. Subjected to market risk. so what? Risk is both upside and downside. but atleast that risk protects against inflation over a long term.
3. Are you sure, MIP do not have market risk? They have, as you should know.
4. STP / SIP do have a time-diversification. But is that necessarily better. No.
5. Secured asset class. Its a dream, yet to be fulfilled. Even the traditional secured asset classes are prone to various kinds of risk, the biggest being inflation risk.
6. Shifting existing corpus to protect the gain (this is a traders’ mindset). Though it protects the gain. It fails over a long term because the power of compounding is lost.
7. if she would have invested in the supposedly secured portfolio, she would not have got this amount of portfolio. same will happen in future.
8. all asset classes have risk attached with them. there is no risk-free asset.
9 Frequent churning and changing asset classes has a hidden problem of taxes too.
I would be happy to be corrected.
At @ 32 you able to save a wonderful amount. When did you start your investment? I mean early 20s? A great example of ‘power of compounding over long term’. All the best!!!
great going!
may i ask which MF you were investing ?
1. So what are you planning to do with that money from now onwards (i.e. 40k per month).
2. i am not sure, 4.4 crores will be enough for 35-40 years after 20 years. I just want to say that you cannot be “sure”. there is enough risk there.
3. on the other hand. overall, the amount looks good. but 12% is a feasible thing. still it is a variable.
Thanks for the comments
1. So what are you planning to do with that money from now onwards (i.e. 40k per month).
——–> Thinking of buying bigger flat which is appr cost 65Lakh in Bangalore… Arranging some funds outside this Retirement corpus for the downpayment… Current Flat
can result in 10K rent.
2. i am not sure, 4.4 crores will be enough for 35-40 years after 20 years. I just want to say that you cannot be “sure”. there is enough risk there.
———> Agree. What should be the risk mitigate plans ?
3. on the other hand. overall, the amount looks good. but 12% is a feasible thing. still it is a variable
———–> Right. I belive rebalancing and monitoring might assist
1. so trying to shift from smaller house to bigger house. good. but why not sell the smaller house to get money for the bigger house? why to create a liability (in the form of a house loan, etc). despite you not touching the retirement corpus!
2. keep things simple. do not create unnecessary stress.
in short, “till the day you think you can retire, your retirement corpus accumulation phase is not over.” rebalancing / monitoring / other things are good and but not complete/enough by themselves.