Publication details: Money Manager – CNBC Bajar – 21-04-2016
Responses, opinion and view from Kartik Jhaveri.
Question sent by Ashish Pandya:-
I am an NRI aged 32 years and married. I have shifted to India with my all savings and starting an IT software business in India. Currently, I have invested Rs. 40,00,000 lump sum investment in top large cap, mid cap and small cap funds. I am doing an SIP of Rs. 15,000 and willing to invest for next 20 years. I am staying with my dad in his house. Overall, I don’t have any major expenses for next 20 years. I got some questions for my investments now.
1. Should I keep my all savings in mutual funds or invest in real estate as well ?
Advice given:
- There is no harm in having a certain exposure towards real estate. However one should keep in mind that real estate is an illiquid asset. Hence blocking a large portion of money towards this asset class can be detrimental.
- So before making these investments ideally chart out a plan which will give you an insight on how your cash flows will pan out in years to come and then accordingly make investments.
- Try to maintain a ratio of 1:1 in real estate and liquid assets.
- Keep savings in mutual funds because you will need to provide for your children’s education. You need to put aside about Rs. 15 lakhs lumpsum or do a monthly investment of about Rs. 15,000 to Rs. 18,000.
- Hence your ongoing SIP can be earmarked for your children’s education.
2. What kind of asset allocation would be correct for me? Currently I have 90% investment in equities and 10% cash in bank to apply for good IPOs.
Advice given:
- Asset allocation depends upon your requirements and resources.
- If your requirements / needs exceeds your resources, then we might have to take higher risk to meet our objectives. Hence in such a situation the asset allocation will be skewed more towards riskier asset classes like equities.
- As of now this is good as you are in wealth creation phase.
3. How much money would I require for my retirement if I plan to retire at the age of 50?
Advice given:
- For arriving at your retirement corpus you need to consider certain pointers – Retirement age, life expectancy, amount of inflow needed post retirement, inflation rate and investment rate.
- Depending on the monthly cash inflow you require starting from retirement age till your life expectancy, there will be corpus which you need to accumulate by your retirement age.
- Assuming an expenditure of Rs. 25,000 to maintain lifestyle. This will inflate to about Rs. 85,000 (post-tax) after 18 years and the post tax amount required on a monthly basis till the life expectancy of 85 years is about Rs. 1.2 lakhs. This is assuming an inflation rate of 7% p.a. and a tax rate of 30%.
- By the time you are 50 years, you would need about Rs. 4 crores as retirement corpus.
- For this you can either deploy Rs. 38 lakhs as lumpsum OR Rs. 42,000 on a monthly basis for the next 18 years. This is assuming a growth rate of 14% p.a.
4. Is it a good idea to forget about my mutual funds investment for next 20 years and then start an SWP for my retirement?
Advice given:
- Per se, it is alright to invest and forget i.e. not engage in speculation or trade.
- It is important to review and monitor your investments at regular intervals (annually). Technically you can keep it as it is. But you need to do some amount restructuring at regular intervals, so that you can maximize profits and earn better returns on your portfolio.
- You can align some of your mutual fund investments towards your retirement goal and not dip into them till your retirement age. You can then use the amount accumulated to provide for your retirement cash flows.
