Our panel of experts answers reader’s questions related to any aspect of personal finance every week.
I have Rs 60 lakh accumulated in mutual funds, PPF and PF. I have no debt. I am currently investing Rs 1 lakh through SIPs and can invest another Rs 2 lakh per month. I want to build a corpus of Rs 10 crore in 10-15 years. I want to buy a home for Rs 2 crore in 3-5 years, attain financial freedom and save Rs 1 crore for my 6-year-old daughter. How should I plan for these goals?
Naveen Kukreja, CEO and Co-Founder, Paisabazaar.com, replies: To build a corpus of Rs 10 crore within the next 15 years, you require a monthly SIP contribution of about Rs 2.40 lakh in equity fund(s), assuming an annualised return of 10%. Assuming you can save Rs 2 lakh per month in addition to your existing monthly SIP contribution, you will be left with an investible surplus of just Rs 60,000 per month. This would be inadequate to build a corpus for buying a property worth Rs 2 crore within the next 3-5 years. Hence, invest the surplus sum in an ultra-short duration fund for the next six years to build a corpus of Rs 53.5 lakh, assuming an annualised return of 7% and finance the rest through a home loan. You can use your existing investments to build corpuses for your daughter’s higher education and your retirement. Try to top up your equity SIP contributions with lump sum investments during steep market corrections to attain goals with much lesser contributions and shorter investment periods. Consider direct plan of any of these large cap funds – Mirae Asset Large Cap, ICICI Prudential Bluechip, Axis Bluechip, or IDFC Large Cap Fund – for equity investments; and direct plan of any of these ultra-short duration plans for creating home loan corpus -SBI Magnum Ultra Short Duration, Aditya Birla Sun Life Savings and HDFC Ultra Short Term Fund.
I am saving to buy a house in the next 4-5 years. However, I am not sure if I should save Rs 50,000 annually in a Tier 1 NPS account or invest in short-term debt fund to build the corpus for the down payment. I plan to take a loan of around Rs 40 lakh. I invest separately for my retirement corpus.
Jayant R. Pai, CFP and Head – Products, PPFAS Mutual Fund, replies: NPS and debt funds are vehicles which serve vastly different requirements. While the former is a retirement savings product, the latter is used to meet obligations fructifying within a period of a few years. Besides, there are certain restrictions on withdrawals from NPS. I suggest you opt for debt funds, even though these do not offer any income tax benefits. Your financial adviser can help you choose schemes appropriate to your risk profile.