How to build a corpus

By Morningstar |  20-02-19 | 
 

I am a 44-year old NRI. I can invest Rs 1.5 lakh/month. I need Rs 10 crore in 15 years.

Carlyle

I am 27-years old and need a portfolio of Rs 20 crore after 25 years.

- Navneen

I am 22-years old. I want to make Rs 5 lakh by the end of 3 years. Should I increase my SIP or do lump-sum investing? I can save up to Rs 12,000/month. I have a recurring deposit for Rs 5,000, an SIP of Rs 4,000 and I want to know where to invest the balance Rs 3,000.

- Varun

It is advisable to follow an asset allocation-based approach for constructing a portfolio. Optimal asset allocation mix (i.e. the mix of various assets including equity, debt, gold, etc.) is considered as one of the key determinants of the portfolio’s performance, in terms of risk and return. A suitable asset allocation is typically based on one’s investment horizon and risk appetite. Generally, longer the investment horizon and higher the risk appetite, higher would be the allocation to equity.

It is also advisable to invest regularly through the SIP route which offers the benefit of rupee cost averaging in volatile markets.

When selecting funds, it is advisable to consider their long-term performance and consistency in performance. Morningstar's analysts have looked at various funds, you can access the reports here. You can also see the fund performance here.

Finally, we do recommend that each of you consult his/her financial adviser before making investment in mutual funds.

Investment horizon of 15 years

  • Asset allocation: 70% to equity and 30% to debt

As your goal approaches, start shifting your equity allocation to debt in the last three years, around 5% out of equity into fixed income.

  • Fund allocation: Large-cap (55%), mid-cap (10%), and small-cap (5%) funds

The remaining 30% allocation can be in accrual fixed income categories such as banking PSU funds, short-term income funds, corporate bond funds with high credit quality portfolio. Consider investing in an international equity fund, which invests in U.S., European or Asian equity markets. International equities provide exposure to different economic drivers (vis-à-vis Indian equities), thereby helping diversify one’s portfolio.

  • Investments per month

To achieve a corpus of Rs 10 crore in 15 years, you would need to invest Rs 1,50,000 per month, increasing annually by 10%. A static SIP of Rs 2,45,000 per month too would help you reach your goal.

Investment horizon of 25 years

  • Asset allocation: 85% to equity and 15% to debt

As your goal approaches, start shifting your equity allocation to debt in the last five years, around 5% out of equity into fixed income.

  • Fund allocation: Large-cap (55%), mid-cap (20%), and small-cap (10%) funds

The remaining can be in accrual fixed income categories such as banking PSU funds, short-term income funds, corporate bond funds with high credit quality portfolio. Consider investing in an international equity fund, which invests in U.S., European or Asian equity markets. International equities provide exposure to different economic drivers (vis-à-vis Indian equities), thereby helping diversify one’s portfolio.

  • Investments per month

To achieve a corpus of Rs 20 crore after 25 years, you would need to invest around Rs 58,000 per month, increasing annually by 10%. A static SIP of Rs 1,37,000 per month too would help you reach your goal.

Investment horizon of 3 years

  • Asset allocation: 30% to equity and 70% to debt
  • Fund allocation: Large-cap (30%)

The remaining can be in accrual fixed income categories such as banking PSU funds, short-term income funds, corporate bond funds with high credit quality portfolio. You may continue with your recurring deposit instead of the fixed income allocation, if it is offering more than 7% annualized returns. However, mutual funds offer you the benefit of exiting (post the exit load period) without attracting a penalty. Check if you can redeem your deposit before maturity without a cost.

  • Investments per month

To achieve a corpus of Rs 5 lakh in 3 years, you would need to invest Rs 12,000 per month, increasing annually by 5%.

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