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Business News/ Money / Calculators/  Use step-up SIPs to increase mutual fund investments with rise in income
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Use step-up SIPs to increase mutual fund investments with rise in income

For long-term goals, fund choices for your portfolio can be aggressive and equity-oriented if not entirely in equity funds

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I am a 35-year-old married man, with a 1-month-old son, dependent parents and wife. My monthly salary is Rs48,000 and yearly bonus is Rs85,000. I don’t have any investments at present. My monthly expenses are Rs30,000, apart from house rent of Rs10,000. I want to start investing in mutual funds through systematic investment plans (SIPs). Can you please help in creating a portfolio for building a corpus of Rs40 lakh in each of the next three decades?

—Arka Ghosh

When you say you would like to build a corpus of Rs40 lakh in each of the next three decades, I am assuming you mean that you would like to have that sum at the end of 10, 20, and 30 years from now. For this, we need to estimate the required amounts of monthly investments you need to make assuming aggressive portfolios and robust long-term returns from such a portfolio.

You would need to invest a total of about Rs24,000 a month, starting today, to fully achieve your targets (assuming 12% annual portfolio return). That breaks down to Rs18,000 for the first target, Rs4,500 for the second, and Rs1,500 for the third. As you can see, the monthly investment required comes down dramatically as you increase your time frame—that is the power of compounding your money with market investments.

However, this does not quite go with your current situation, in terms of income and savings. As of now, you are able to save about Rs8,000 per month.

If you factor in the annual bonus and spread it out over the months for the sake of calculation, we get to about Rs15,000 per month. This still falls short.

There are two ways to approach and solve this problem. One is to realise that your current income is going to grow and along with it your ability to save. So, you can start your investments at your current level (Rs15,000 per month) and increase it annually to a level where you can realise your target. This is called step-up systematic plan (SIP) and can come in handy in such situations.

Another way to look at it is to just lengthen the time frame for your first target by a few years. Assuming it is for your son’s higher education, you can see that it can be moved by about 5 years at least. In that case, you can simply start two portfolios—one for Rs8,000 for this first target, and another for Rs7,000 for the other two targets put together.

Either way, your earliest target would be at least 10 years away. That means the fund choices for your portfolio can be aggressive and equity-oriented if not entirely in equity funds.

I would suggest funds such as Franklin India Prima, Mirae Asset India Opportunities, ICICI Pru Discovery, and HDFC Mid-cap Opportunities for your portfolio to start with. Please review your portfolio regularly to ensure continued growth. You can also refer to Mint’s curated list of 50 funds here: mintne.ws/2ax8SYA.

What happens if I miss my SIP payments for 4 months?

—Arush Gandhi

Different fund houses have different policies with respect to missing SIP instalment payments. Typically, if an investor misses three consecutive payments, the SIP is terminated and no further instalments are debited from the investor’s account. That would mean that the investor would need to restart the SIP with a fresh request in order to continue investing.

Also, whenever the mutual fund tries to debit an amount from your bank account and the transaction fails, the bank is likely to levy a fine on your account for not maintaining sufficient balance. So, the most prudent course of action for an investor would be to either maintain the necessary balance for an SIP instalment, or inform the fund house to stop the SIP (some funds allow you to pause an SIP for a month) when you think you would not have the money.

Is it possible to gift or transmit mutual funds held by me to my son on his 18th birthday next month? I have some funds through a demat account and some are non-demat.

—Romil Ghosh

Gifting or transferring units of mutual funds from one individual to another is not allowed. This can only happen upon the demise of the primary unit holder when the units would be transmitted to the nominee on the folio.

In your case, the best way would be to open a new folio in your son’s name and invest some fresh money in it. You can redeem from your folio to do that, but it will need to go from your account to a bank account in his name, before it’s invested in his name.

Srikanth Meenakshi is co-founder and COO, FundsIndia.com.

Queries and views at mintmoney@livemint.com

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Published: 13 Nov 2016, 11:50 PM IST
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