I am 38 years old and aspiring to build a corpus of Rs 50 Cr by the time I reach 60. Currently, my assets include: A rental property valued at Rs 3.70 Cr, generating an annual income of Rs 25 Lakhs. A bank balance of Rs 3.68Cr, to be inherited soon, earmarked for investments and securing a home for my family—my wife, 8-year-old son, and 1-year-old daughter. These funds will be accessible in 2 months. Anticipated profits of Rs 25 lakhs annually from ongoing business, projected to increase by 10% each year. How should I plan my investments to achieve my goal?
Response: From the information you have shared, your annual income seems to be around Rs 50 lakh. You have not shared any information regarding your expenses; so I am assuming it to be 50% of your annual income with the remaining component, i.e. Rs 25 lakh, to be your investible surplus. I would suggest you spread your investment surplus between equity mutual funds and fixed income instruments in an 8:2 ratio. As you are expecting a 10% annual increase in your business profits, you should also top-up your monthly contributions, currently at Rs 2.08 lakh per month, by 10% every year. Assuming a 12% return from your equity contributions and a 5% post-tax return from your fixed income contributions, your corpus should grow to about Rs 50.5 crore by the time you reach 60.
Distribute your monthly equity contributions equally between large cap, flexicap and multi-asset funds. You can consider Parag Parikh Flexi Cap Fund and/or Quant Flexi Fund for the flexicap category; ICICI Prudential Bluechip Fund and HDFC Top 100 Fund for the large cap category; and Quant Multi Asset Fund or ICICI Prudential Multi Asset Fund for the multi-asset category. Coming to the fixed income portfolio, invest up to Rs 1.5 lakh per year in PPF to claim income tax deduction under Section 80C. Investing in PPF will also earn you tax-free income while ensuring maximum possible income and capital protection through sovereign guarantee.
The rest of your fixed income contribution can be spread equally between high yield FDs and central government bonds. You can consider
the FDs of Suryoday Bank, Unity Bank, Utkarsh Bank, Fincare Bank and Equitas Bank, which are offering yields of 8% and above. For central government bonds, you can consider the ones maturing in 2061, 2063 & 2064 with yields current ranging around 7.30. Purchase
these bonds from the secondary market through the RBI’s Retail Direct Platform or the various stock broking platforms.
While you have not shared any target value for the home property you are planning to purchase, I am assuming that your ‘to-be-inherited’ bank balance should be adequate for achieving this goal. Any surpluses left after purchasing/constructing your home property can be distributed among the above-mentioned instruments in the same ratios.
Ensure to maintain an emergency fund big enough to meet your monthly expenses for 6-12 months. This fund would help you deal with unforeseen financial exigencies without impacting your long-term investments. Also purchase term insurance plan(s) covering 20 times of your family’s annual expenses. This will ensure financial security of your dependents in case of an unfortunate event of your untimely demise. You can visit Policybazaar.com to compare and choose term insurance cover(s) from any of the following private sector life insurance players — HDFC Life, ICICI Prudential, Max Life, PNB Metlife, Bajaj Allianz Life and Tata AIA.
Purchase health insurance cover of at least Rs 1 crore, with a base health cover of Rs 5 lakh and super top-up cover of Rs 95 lakh. You can visit Policybazaar.com to compare and choose health insurance cover(s) from Niva Bupa or Aditya Birla health insurance companies. These private sector health insurance companies offer bigger covers at very low premiums.
An edited version of this article was published in The Economics Times Wealth on May 6, 2024.