I am 31 and married. I have just started investing in Mutual Fund via SIP and intend to stay invested to realise the long term goals. I am not investing anything into Debt as of now and 100% of allocation is in Equity Mutual Fund considering that my earliest goal is at-least 18 years away.
Below are the funds that I have started investing in. All my investments started early this month. All the funds are through Direct Mode, Growth Option.
- Franklin India Prima Plus Fund – Rs.6000
- Birla Sunlife Front Line Equity Fund – Rs.8000
- UTI MNC Fund – Rs.4000
- Mirae Asset Emerging Bluechip Fund – Rs.4000
- Franklin India Smaller Companies Fund – Rs. 3000
I also did a mapping of allocations to goals as below. Are these achievable? The below mapping is just indicative for the contribution towards that particular goal. The fund may/may not remain the same but the contribution should stick.
Funds (2) and (4) – Rs 3 Crores Corpus after 28 Years for retirement
Fund (1) – Rs. 50 Lakhs in 20 Years for Child’s Education
Fund (3) and (5) – Rs. 75 lakhs in 25 Years for Child’s Marriage.
I would have preferred to find this site before I started investing but oh well – better late than never.
Please let me know your thoughts on the selections. Also, please feel free to give your feedback on anything that could help with my financial plan stated above/
First, forget about all these calculations. Try to immediately reduce your equity exposure and start allocating around 30% into debt. Otherwise, it is not a proper investment strategy. Try to avoid sector funds like UTI MNC. Overall from your equity asset, for long term like your’s you can expect around 10% return. Anything above that is BONUS for you. Because we have to start planning with considering WORST.
I knew the numbers were over-whelming but I had to write them out to identify the allocations with respect to Goals.
By the way, why is it that a 30% debt component requirement strictly recommended? Since it is long term and I would be least bothered about short-term fluctuations, wouldn’t it make sense to stick to Equity for most part in time and then transfer (through a STP) to Debt closer to the end of the goal (say around 3 years before the necessity arises) ?
Good question. But sadly it is easy to say that goal is long term and not BOTHER about short term fluctuations. However, during this 18 years of journey, a 2008 kind of crash may permanently devastate you to stay away from equity forever. It is easy to say that you not bother about day to day fluctuations. However, as your investment grow, a slight 2% drop in market may give you a heat of around 30-40 lakh downward. This is where all of us do mistake. We are so confident, but loose the same in long run. Investment is lazy long term journey. To learn laziness, you must have proper behavior and asset allocation. Without proper asset allocation, I say investment as DUMB.
Moving to debt is a must when goal nearer. However, the proper asset allocation will give wonders to your portfolio than any one asset investment. Let say, you planned to move to debt after 14th year of equity investment. Exactly on 14th year, if you face the crash like 2008, then will you sustain the pain? Goal is just 4 years away, you lost almost 40% to 50% of your wealth. It is difficult to predict anything. In such situations, proper asset allocation will actually protect you. This is downside protection. Everybody gives you rosy picture of 30% 0r 25% equity return. But none of them guide you how to protect your wealth during downside. So you must plan for downside protection.
Yeah. What you say is true. No matter how much we try to be rational, when the meltdown comes, its too difficult to hold emotions back I guess. Only time would tell 🙂
Thanks for enlightening about importance of Debt component. Do you have any suggestions for what type of investments that can be made under this category?