I am a 33 year old IT professional with a 1 year old daughter and have just started investing in Mutual Funds (MFs). i have almost 8 lakh more in my savings account 2 lakh in MF. I want to start investing for my retirement and my daughter’s education. I would also like to upgrade to a new house for which I would need 25 lakhs in the next five years. How much should I invest and which MFs are good for this?
Name withheld on request
Now you have three goals and enough time to build funds for each of these goals. You can set upgrading your home as the top priority, followed by the other two goals. A part of the money can be converted into a contingency fund. For this, you can set aside 6-9 months from your monthly mandatory expenses. You can invest the remaining amount to upgrade your home. If we assume that you invest 2 lakh from bank account for this target, then at 10% p.a. (p.a.) it can be approx 3.2 lakhs. for the rest 21.8 lakhs, you would need to invest 28,500 per month. If the amount invested grows at 10% per annum, it will meet your goal
As far as other goals are concerned, you have 22 years to save for your retirement and about 16 years to save for your daughter’s higher education. Some thoughts on target amount and Employees’ Provident Fund (EPF) balance would have been helpful here. If we consider your current monthly expenditure 60,000, then considering inflation of 6%, you would need to deposit 5.95 crores for age group 56 to 85 for your post-retirement needs. During this period, you can remove approx. 2 lakh per month to take care of his monthly expenses in line with the annual inflation of 6%. To reach retirement goal, you must invest 66,000 per month for 22 years.
For your daughter’s education, if we assume that you want to deposit 50 lakhs in 16 years, you will need to invest 9,000 per month for 16 years 2 lakh in MF can also be mapped to this target. If the total monthly investment amount at this stage appears to be more than your monthly surplus, you can follow the strategy of increasing the monthly investment amount by 10-20% every year as you progress in your career. For these goals you can consider investing in the following funds: UTI Nifty Index Fund, Parag Parikh Flexi Cap Fund, IIFL Focused Equity Fund, ICICI Prudential Bluechip Fund, Kotak Emerging Equity Fund and SBI Large & Mid Cap Fund
You should review these funds every six months to make sure you are on track. The key to investing in equity MFs is to have a long-term horizon, in terms of your goals.
Harshad Chetanwala is the co-founder of MyWealthGrowth.com.
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