Good Investors use Mutual Funds to meet Financial Goals

Key Takeaways:

1. Investing in mutual funds to accumulate Rs 1 crore in 5 years requires careful consideration of market conditions and realistic return expectations.

2. For a 30-year-old investor aiming to accumulate Rs 1 crore through a monthly SIP of Rs 1 lakh for five years, it is advisable to consider equity funds with a potential for higher returns. However, a longer time horizon of 10 years may be more feasible for achieving the goal with lower risk.

3. Reach your goals with mutual funds for consideration include Parag Parikh Flexi Cap Fund, DSP Flexi Cap Fund, HDFC Focused Fund, PGIM Mid Cap Opportunities Fund, and Kotak Small Cap Fund.

4. Building an emergency corpus is essential, and liquid savings should cover all expenses, including medical costs and insurance premiums for up to two years. Parking the emergency funds in high credit quality debt mutual funds is suggested.

5. For a 52-year-old individual with a well-structured portfolio, regular monitoring and adjustments are crucial for retirement planning.Consideration should be given to shifting funds from fixed deposits to mutual funds for better returns and adjusting the systematic withdrawal plan (SWP) amount to account for inflation.

6. Allocation of funds for specific financial goals, such as a daughter’s education and wedding, should be planned through a combination of fixed deposits and liquid funds. Additionally, a review of family health insurance and consideration of a term plan for risk protection are recommended.

Based on the information provided by experts, here are the investment recommendations for achieving the goal of accumulating Rs 1 crore in 5 years through SIPs and the retirement and financial planning advice for the 32-year-old and 52-year-old individual:

Investors use Mutual funds for achieving financial goals in 5 Years

1. For Rushabh Desai (30-year-old)

Considering the goal of accumulating Rs 1 crore in 5 years through SIPs, the expert suggests that a monthly SIP of Rs 1 lakh for five years would require equity markets to generate returns of around 19% CAGR. However, for more feasible returns in the range of 10-12% CAGR, the time horizon should be increased to 10 years.

The expert recommends increasing the time horizon to 10 years to achieve the goal more easily. Additionally, it is important to exit mutual fund SIPs in good market conditions at the end of the time horizon to avoid impacting the returns, so a buffer period of 1-2 years is advised.

The suggested mutual fund schemes for investment are:

• Parag Parikh Flexi Cap Fund (20%)
• DSP Flexi Cap Fund (20%)
• HDFC Focused Fund (20%)
• PGIM Mid Cap Opportunities Fund (20%)
• Kotak Small Cap Fund (20%)

For emergency corpus, the expert advises having liquid savings that can take care of all expenses, including medical costs, based on lifestyle, and insurance premiums for up to two years. Parking this money in open-ended, high credit quality debt mutual funds from categories like liquid, ultra-short duration, and low duration funds is recommended.

Retirement and Financial Planning Advice to invest in Mutual Funds for the 52-Year-Old Investor

2. For Raj Khosla (52-year-old)

The expert acknowledges the diversified and well-structured portfolio of mutual fund investments of the individual and emphasizes the need for regular monitoring and adjustments in retirement planning.

The individual’s fixed deposits (FDs) will take care of the emergency fund, and a systematic withdrawal plan (SWP) from mutual fund investments is recommended to ensure a regular income of Rs 1 lakh. It is suggested to consider shifting Rs 50 lakh from FDs to equity mutual funds to earn better returns and increase the SWP amount to account for inflation.

For the daughter’s long term goals such as education and wedding, the expert recommends allocating Rs 80 lakh from mutual fund investments maturing in 2024 in a combination of FDs and liquid funds. The balance should be invested in mutual fund schemes through a systematic transfer plan.

The expert advises keeping sovereign gold bonds until maturity unless there is a specific need for liquidity. Additionally, it is recommended to review the family health insurance to ensure it adequately covers post-retirement needs and to opt for a minimum of Rs 2 crore term plan for risk protection.