I have just turned 40 and live with my wife and daughter in a metro city. Our combined monthly income is about Rs 3.5 lakh and we have saved close to Rs 2.4 cr in equities and around Rs 50 lakh in PF. I would like to know how much savings would help us create a corpus of Rs 10 Cr within the next 10 years apart from setting aside Rs 1 Cr for our daughters higher education. Our risk profile is a little aggressive.
Your existing investments and your combined family income should allow you to comfortably achieve your target corpus within 10 years. Given your stated risk appetite, your equity corpus should grow to Rs 7.45 crore within 10 years assuming an annualised return of 12%. Similarly, assuming an average annual return of 7% with annual compounding, your PF corpus should grow to about Rs 98.35 lakh. The remaining portion of your target corpus can be achieved by investing Rs 1.20 lakh per month in equity funds through SIPs of 10 years. Here also, I am assuming a 12% annualised return from your equity fund SIPs.
You can spread your existing equity investments and monthly SIPs equally among flexicap, large cap index and ‘large & midcap’ funds. The direct plans of Parag Parikh Flexi Cap Fund and PGIM India Flexi Cap Fund can be considered for the flexicap category; HDFC Index S&P BSE Sensex Fund or ICICI Prudential S&P BSE Sensex Fund for the large cap index category; and Mirae Asset Large & Midcap Fund and Kotak Equity Opportunities Fund for the ‘large & midcap’ category.
As your monthly SIPs would constitute about 35% of your combined monthly income, any additional monthly investible surpluses can be used for purchasing Sovereign Gold Bonds (SGB) though secondary markets. Ideally, gold should constitute 5-10% of one’s total portfolio as gold as an asset class acts as a hedge against market volatility, economic uncertainty and inflation. Apart from the scope of capital appreciation, your SGB investments would generate an interest income of 2.5% p.a. on the face value of investment, a feature not offered by physical gold, Gold ETFs or gold funds. Additionally, SGBs would also help in accumulating gold for your daughter’s wedding.
Also ensure to maintain an emergency fund equalling unavoidable expenses for at least 6 months. Park this fund in the fixed deposits of scheduled banks offering FD yields of 8% and above. Some of the banks that you can consider include Suryoday Bank, Unity Bank, Utkarsh Bank, Ujjivan Bank and AU Bank.
Finally, maintain adequate term life covers and health insurances for your family. The total term life cover of your family should be at least 10-15 times of your combined family income whereas your family health insurance covers should be 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 choose your term insurance cover(s) from any of the following private sector life insurance players — ICICI Prudential, Max Life, Tata AIA, PNB Metlife, HDFC Life and Bajaj Allianz Life. For your family health insurance cover, you can consider Aditya Birla or Niva Bupa health insurance companies, which offer bigger health covers at very low premiums.
An edited version of this article was published in The Economics Times Wealth on March 4, 2024.