A 32-year-old working professional earning ₹20 lakh annually is currently investing ₹25,000 per month via SIPs and has a surplus of ₹10–12 lakh to deploy. In the current volatile market environment, how should they allocate this lump sum and optimize their SIP strategy to build a long-term corpus of ₹10–15 crore? Additionally, what asset allocation and risk management approach would you recommend for someone in this income bracket?
– Name withheld on request
The Indian stock markets have underperformed recently, but despite this India still offers a lot more than other countries in terms of a much more diversified nature of GDP, very low concerns on curbs on withdrawing capital back, a consistent growth, healthy corporate balance sheets and a strong demographic state.
Emotionally, there is lot of negativity all over and for new investors surely it could be a period that might test your patience.
However, usually these are the times that investing bears the best fruits and hence I would recommend that the lump sum amount you hold i.e. ₹10-12 lakh be invested as follows:
Lump sum plan
Invest 4 lakhs into a balanced advantage fund that will get you a 50-60% equity allocation right away, ₹2 lakh into equity savings funds (this has approximately 20-35% into equities with an eq taxation), and ₹2 lakh into a multi-cap fund.
The remaining ₹4 lakh gradually through a systematic transfer plan into a flexi cap fund ( ₹1 lakh), international funds ( ₹1 lakh), and multi asset funds ( ₹2 lakh).
SIP strategy
Now coming to the monthly deployment of 25,000, considering your current capital and a presumed step up of 10% of the SIP every year, you should be well in stead to reach a corpus of around ₹10 crore in approximately 25 years assuming a net post tax return of 10% annually.
The monthly SIP can be a little more aggressive in approach as its for a longer period and also benefits from higher volatility as it averages your purchase price.
For the SIP we would recommend:
- 30% allocation to flexi cap funds
- 30% to multi cap funds
- 10% each into mid and small cap index funds
- 10% into international investments
- Rest into multi asset allocation funds
Risk cushion
Apart from this you should buy yourself a health insurance, a life term cover and also ensure at least six months of lifestyle expenses are in a liquid fund or bank deposit which helps you not panic or dip into your investments in case of any unforeseen event of job uncertainties etc.
Apart from this please maximise other investments like PPF and EPF. Lump sum amounts if received in the form of bonuses can be invested into balanced advantage or equity saving funds where we play a more moderate approach while taking on volatility from the monthly investments.
Vivek Banka is the founder of GoalTeller, a wealth tracking platform
