Total Corpus (Without
incremental contribution)
Investor’s
Age (Yrs)
Goals /
Plans
Total Corpus (With 10%
annual increment in contribution)
Required
Amount in ` Before
Withdrawal in ` After
Withdrawal in ` Before
Withdrawal in ` After
Withdrawal in `
40 Interior
Designing 50 L 1.0 Cr 50 L 1.5 Cr 1.0 Cr
48 Daughter’s
Education 1.0 Cr 1.9 Cr 90 L 4.6 Cr 3.6 Cr
55 Daughter’s
Marriage 1.5 Cr 2.3 Cr 80 L 11.1 Cr 9.6 Cr
59 Retirement
Corpus 18.0 Cr
Father’s pension: `30,000
Monthly contribution: `44,100
■ Mutual fund - `34,000
■ Fixed income - `10,100
Split of monthly contribution: equity (77 per
cent) fixed income (23 per cent)
Fixed deposit and cash: `65,000
Insurance premiums (Annual): `83,000
Real estate asset: `35 lakh
Risk profile: Not known
Morningstar’s Assumptions
■ Expected annualised returns from equities is
around 12-13 per cent; fixed income is six to
seven per cent for the entire tenure
Review of Goals and Suggestions
While doing long-term investment planning,
a starting point would be to do one’s risk
suitability assessment. It helps to identify
the suitable asset allocation, which is based
on the investor’s investment horizon and risk
appetite. The asset allocation (mix of various
assets, including equity, debt, gold, etc) held
in a portfolio, is considered as one of the key
determinants of the portfolio’s performance.
Generally, longer the investment horizon and
higher the risk appetite, higher would be the
allocation to equity. Historically, over the
longer-term, equities have delivered higher
inflation-adjusted returns compared to debt.
In addition, staying invested for a longer
duration helps one derive the benefit of power
of compounding, whereby, the returns
generated from the original investments get
re-invested, which further generates returns,
thus, helping the corpus to grow at a
1.3 Cr
17.0 Cr
compounding rate. However, as time
progresses, to reduce the risk of your portfolio,
the asset allocation will need to be changed.
Your current split of monthly contribution,
i.e., 77 per cent in equity and 23 per cent in
debt, can continue for another 20 years. For
the remainder of the period, the asset
allocation for prevailing corpus and
incremental monthly contribution can be
changed to 50 per cent equity and 50 per
cent debt.
The key here is to stay invested for a longer
duration without making significant
withdrawals from the corpus. In your case, you
plan to make withdrawals at certain time
intervals. As can be seen in the table above,
assuming your monthly contributions in
various assets remain the same, i.e, `34,000
for the entire duration, the total corpus you
may accumulate at the time of retirement
would be close to `1.3 crore, which is far less
than your goal of `18 crore.
You can consider reducing your interior
designing spending, as it hampers the growth
potential of your investments at the cost of
accumulating sufficient retirement corpus, or
any unforeseen expense that you may have to
incur in the future.
Instead of `50 lakh, if you spend `10 lakh on
interior designing, then your retirement corpus
could grow to `5.2 crore. That is the power of
compounding at play. However, to give a
realistic chance at achieving your goal of
accumulating a retirement corpus of `18 crore,
you will have to increase your monthly
contributions by nearly 10 per cent every year.
Five years later, you plan to buy a house with
www.outlookmoney.com March 2018 Outlook Money
13