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Photo: iStock
Photo: iStock

Increase your investments every year to reach your retirement corpus early

Equity as an asset class is recommended for creating long-term wealth, and SIP is a good strategy to create that wealth

I am investing via systematic investment plans (SIPs) for the last two years. I invest through SIPs of 1,000 each in Aditya Birla Life Tax Relief 96 Fund, HDFC Mid-Cap Opportunities Fund, Mirae Asset Large Cap and SBI Magnum Multicap Fund. I also have SIPs of 2,000 each in Kotak Standard Multicap, L&T India Value and ICICI Bluechip. All these are growth option funds. The investments are for my retirement, and I want to build a corpus of 1 crore in equity through these funds. Are these funds suitable for my long-term retirement goal, or would you suggest any other investment?

—Agnelo Dsa

Equity as an asset class is recommended for creating long-term wealth, and SIP is a good strategy to create that wealth. In your case, retirement is the goal, which is long term and, hence, the asset class and strategy fits well. The target to achieve 1 crore with a monthly savings of 10,000 will need saving for 23 years, where the cumulative principal savings becomes 27.60 lakh, assuming an average return of 10%. If we assume the average return of 12%, the number of years required to achieve the desired target reduces to 20 years. At the same time, you should try to increase investments every year, as your income also goes up, which will reduce the accumulation period.

For your fund selection, you have a total of seven funds—one equity-linked savings scheme (ELSS), two large-caps, one mid-cap, two multi-caps and one value fund. The portfolio is well diversified within equity. However, you need to keep a check on the performance of the funds. For example, HDFC Midcap has seen an underperformance and you may consider changing the scheme and can consider Axis or DSP Midcap fund instead. Likewise, SBI Magnum Multicap fund has seen a dip in its performance over the last one year, so do keep a watch on the same and continuous underperformance should make you change the scheme.

Surya Bhatia is managing partner of Asset Managers. Send in your queries and views at mintmoney@livemint.com

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