Switch to debt funds two years before goal1 min read . Updated: 02 Sep 2019, 10:39 PM IST
As the investments are meant for long term, you need to consider equity as an asset class (invest via SIPs in equity-based mutual funds)
I earn around ₹3 lakh per month and plan to invest around ₹1.5 lakh a month for the next 10 years. I want to accumulate ₹80 lakh for my son’s higher education abroad. I also want to invest up to ₹30,000 for the next 15 years for my retirement. How should I go about it?
— Name withheld on request
The plan to invest ₹1.50 lakh per month for the next 10 years will make you accumulate a principal corpus of ₹1.80 crore. As the investments are meant for long term, you need to consider equity as an asset class (invest via systematic investment plans or SIPs in equity-based mutual funds). The corpus accumulated can be partially switched to a debt portfolio after seven or eight years of accumulation (you can consider short-term debt funds for that); the switch out should be for every year of education expense. This will ensure you transfer an education fund to the debt pool at least two years in advance of every year’s expense. This is to ensure protection of capital and reduce volatility in times when you need the funds. If the corpus grows at an average rate of 10%, the principal corpus will grow to ₹3.10 crore. If the growth rate is 12%, the corpus becomes ₹3.50 crore.
If you are planning to invest another ₹30,000 per month for 15 years, the principal accumulation will be ₹54 lakh. At a 10% average growth rate, this will become ₹1.26 crore and at 12%, it becomes ₹1.5 crore. This corpus can be invested in equity as the investment horizon is even longer and you will be using the same spread over a long period of time.
Surya Bhatia is managing partner of Asset Managers. Queries and views at email@example.com