scorecardresearchYour Questions Answered: How to create a corpus worth ₹3 crore in a span

Your Questions Answered: How to create a corpus worth 3 crore in a span of 20 years?

Updated: 26 Mar 2022, 08:41 AM IST

We try to answer some of your most pressing personal finance questions. It is time to make the most of your money!

Your Questions Answered: How to create a corpus worth  <span class='webrupee'>₹</span>3 crore in a span of 20 to 25 years?

Your Questions Answered: How to create a corpus worth 3 crore in a span of 20 to 25 years?

Q1. I plan to create a corpus of approximately 3 crores in the next 20-25 years for which I plan to invest Rs. 10,000 every month. Which are the best mutual funds to invest considering the amount, duration and target?

Since 20 to 25 years is long term, one should consider the appropriate asset allocation as per the goal requirement. An asset allocation has a mix of Equity, Debt and Cash instruments, along with a maximum 5-10% allocation to the gold asset (Gold acts as a hedge against inflation).

The weights assigned to each asset class depends on the investor's risk profile and time horizon. Let’s take an example, if your asset allocation is 50:50 growth and stable allocations, a 10,000 monthly investment will generate 1.05 Crores over 25 years (Assuming portfolio returns at the rate of 8.5% p.a).

In case of a shortfall between the expected and the required value, one can either increase allocation to growth assets, investment amount or the time horizon. However, the exposure to growth assets should be within the range limit of the risk profile.

Asset allocation reduces from growth to stable assets when the goal end timeline is near. Based on your risk profile and time horizon, such asset allocation ranges vary between growth and stable assets. Once you determine your allocation, then select funds based on various parameters such as historic rolling returns, risk-adjusted ratios, strong AMC track record and stable fund management team. Additionally, for debt, you may consider the quality of papers, yield to maturity, expense ratio and decent AUM funds.

Note you need to frequently review schemes for any major changes and take corrective action accordingly.

Q2. I am 25 and I've been investing in mutual funds for more than 3 years now. My average returns from all the funds are close to 30%. Is it good enough returns to create a huge corpus in the long term (15+ years) or should I exit some equity funds and add debt funds?

One should consider exiting their Equity fund investments under the below circumstances:

a. The scheme's quality (based on parameters such as rolling returns, risk-adjusted ratios, etc) have deteriorated vis-a-vis peers and benchmark (At least twice in a year compare your schemes against its peers and benchmark and take corrective action)

b. There are some goals tagged to an equity investment due shortly say 3 years. (In this case one can systematically move the tagged investment to Debt or Cash asset class to avoid huge fluctuations in the near term)

If the above two reasons are not present then you should continue to stay invested.

Q3. Is it better to invest in a new flat worth 1 crore or invest the same amount in Fixed deposit and stay on rent using the interest and invest the rest in recurring deposit?

Planning to buy a house could be related to emotional satisfaction of owning a house. However, before taking the decision, you can evaluate if the liquidity required for near-term goals is intact even after locking in funds towards house purchase.

Another important parameter to consider is if you are shifting to another city due to job or otherwise this will make the maintenance of the property difficult. Further, it may not serve the emotional purpose of living in your own house.

Investment in Fixed Deposits should be done when you require funds for near term goals or for emergency requirements. It may lack in generating tax efficient, inflation beating returns. Similarly, RDs work in the same way

While building a portfolio you can consider these - Understanding Risk and Return, Asset Allocation basis your risk appetite, Diversification and liquidity. In case opting for a home loan then it is suggested that your debt servicing ratio (portion of income paid towards EMI) should not be more that 35% - 40%.

Consider the above factors while making the decision. Consult an advisor for further recommendation on the investments.

Q4. I have 5 lakh rupees to invest for 10 years. Where do I invest, buy mutual funds in a lump sum or invest in shares? It is said that 95% of people lose 95 percent of their money in the stock market. Is this true?

Investment in Equity shares requires continuous monitoring, capital and skillset to track companies. If one is equipped with these basic requirements then he can take some exposure to equity shares.

In mutual funds, the fund manager and his team take care of identifying opportunities and investing in them, which saves common investors time and efforts required to do it themselves.

However, one should carefully evaluate schemes, compare them with peers, benchmark and monitor regularly. The amount of monitoring required and the risk in the case of mutual funds are lower than direct equity shares.

Q5. What should be included in a policy for a 30-year-old who has smoked and consumed alcohol for a very long time, and is a vegetarian?

The prescribed level by Centre for Disease Control and Prevention (CDC) of permissible blood alcohol content in India is 0.03% per 100 ml blood. That means 30mg of alcohol per 100 ml of blood is the accepted standard of alcohol intake. If you drink more than this level, then you will likely be seen at an enhanced level of risk by your insurance company, and your insurance provider will increase your life insurance premium.

If you are drinking on only special occasions, it means that you won’t have any adverse effect on your health and you can get insurance easily, the chance of risk is low and therefore it may not affect in getting an insurance cover.

However, if your intake is excessive then there might be a chance that life insurance can reject your claim and if you already have one policy, you will be levied a much higher premium.

In terms of Health Insurance, apart from declaring, you would have to mention about the units of cigarettes and alcohol you consume. Based on the units declared, there may be an increase in premium. In terms of Life Insurance, if you declare you are a smoker, you would have to undergo Pulmonary Function Test and based on the test results, there may be an increase in premiums or in some cases rejection as well.

In both cases, you would have to specify the units of consumption and based on it, there may be a loading/rejection. Also, being a vegetarian is not going to affect your policy, you should be healthy enough to get a policy cover.

Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.

International Money Matters Pvt Ltd is a SEBI registered personal finance firm.


First Published: 26 Mar 2022, 08:41 AM IST