Photo: iStock (iStock)
Photo: iStock (iStock)

One way to beat inflation in long term is to hike savings every year

  • The investments can be made in mutual funds by investing through SIPs
  • One way to ensure the targeted goal is inflation protected is to increase the savings every year

I have twin daughters and they are 17 years old now. We intend to get them married when they are 26 or 27. My goal is to create 50 lakh for each wedding. I can invest 60,000 in systematic investment plans (SIPs). Please tell which schemes can I invest in. I am a high-risk investor.

—Ramesh Nair

Your current savings rate of 60,000 per month over the next 10 years will make you accumulate a principal corpus of 72 lakh. At an average return of 13%, the portfolio will become 1.48 crore. At 15% average growth rate, the value will be 1.67 crore. In case the return is lower at 10%, the portfolio value will be 1.23 crore. In all three instances, you are able to meet your targeted sum. The rationale of comparing across different rates of return is due to your higher risk appetite. And while equity as an asset class is expected to do well over the long term, there is an inherent risk and volatility attached to the same. Also, you need to ensure that you start reducing the equity asset allocation as you come close to your financial goal. You may consider reducing the equity exposure and start moving to debt a year before you need the funds. And that can be done in a gradual and systematic manner.

At the same time, the goal created prima facie is not inflation protected. The time value of today’s 50 lakh at 6% inflation 10 years down the line will be equal to 28 lakh. You need to ensure the targeted goal is inflation protected. And one way could be to increase the savings every year. And the advantage you already have is that the corpus being created is higher than the targeted goal which will help you in achieving the goal.

The investments can be made in mutual funds by investing through SIPs. As you are a high-risk investor and the investment horizon is also long, equity can be the preferred asset class. You can diversify your portfolio by investing in a combination of large-, multi-, mid- and small-cap funds. You can consider AXIS Blue chip Fund in the large-cap category, Mirae Asset Emerging Blue chip in the large- and mid-cap space, Franklin Prima Fund and HDFC Small cap in the mid- and small-cap category. You can even consider a balanced fund to add relatively low volatility in the portfolio.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com

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