Even on a modest salary, you can build a decent corpus

By Mohasin Athanikar |  16-12-21 | 
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About the Author
Mohasin Athanikar is an Investment Analyst for Morningstar Investment Adviser India.

I am single. Aged 31. Earning Rs 53,890/month as a teacher.

I put Rs 36,500 per annum in my General Provident Fund (GPF) and Public Provident Fund (PPF).

I have started to put Rs 10,000/month in UTI Nifty Index fund.

Home loan EMI is Rs 15,089/month. Personal loan EMI is Rs 15,064. Jeevan Labh LIC policy since 28/01/2019 with quarterly premium of Rs 11,822.

My goal is to retire in 2050.

Investors should follow an asset allocation-based approach (mix of equity and debt) for investing towards one’s goal. While fixed-income lends stability to the portfolio, equities play a crucial role in wealth generation over the long run with a potential to deliver superior inflation-adjusted returns compared to fixed-income.

Your current monthly allocation is about 77% into domestic equities, that too entirely into a large-cap index fund.

Although, most active funds have underperformed their benchmarks particularly in recent times, the potential for outperformance still exists particularly in segments such as the mid and small cap. It is advisable to invest with a mix of active and passive funds, and have some allocation to the mid and small-cap segment too which offer a higher risk-return trade-off compared to large caps.

Also, one should have some exposure to fixed-income funds which can be accessed during times of need, as provident fund investments only allow partial withdrawals subject to various restrictions.

Finally, do consider global funds. Because international equites offer diversification benefits providing exposure to diverse economic growth drivers, and provide exposure to participate in the growth of some of the leading global companies in the world. They also act as a hedge against rupee depreciation. Do read Why it is time to revisit your home bias.

Suggested portfolio

Given your long investment horizon, here are our recommendations:

  • Equity:Debt allocation be 80:20.
  • The equity allocation can be further broken into large cap (50%), mid cap (10%), small cap (5%) and global (15%). It is advisable to continue to invest in a staggered manner to benefit from the volatility in asset prices. Do read, Why SIP is a psychological hack.
  • The debt allocation of 20% includes the GPF and PPF. You can consider fixed income funds with a high (safer) credit quality portfolio such as Banking & PSU debt funds, Corporate Bond funds, Short duration funds and Medium to long term funds.
  • You may also allocate about 5-10% of your allocation (replacing some of the equity allocation suggested above) to gold as part of your strategic asset allocation. Gold offers a hedge against inflation and a safe-haven asset in times of market drawdowns.

Retirement Corpus

Investing as per the recommended asset-allocation (including current corpus), you may be able to accumulate of Rs 2.3 crore at retirement. Increasing your investment corpus at 10% per annum could help you accumulate Rs 6.5 crore at retirement. Do note, the stated figures are approximations, and have been computed assuming equity market returns of 10.5% and fixed income returns of 6% per annum. To accumulate a higher corpus, it is advisable to increase your investment in line with increase in income, and also top up your investments whenever you have any excess savings or any windfall gains. You can read more on Retirement Planning.


You could consider contributing more towards paying-off your personal loan, as the interest rates (currently upwards of more than 10-11%) are much higher relative to home loan rates. You should ideally have a term plan in place which offers substantial coverage relative to premiums paid in case of any untoward incident. Do read, How to get out of debt.

Emergency Fund

It is recommended to have an emergency corpus in place worth at least 6 months of expenses, and a health cover in place to safeguard your family against any untoward incident. Do read, 4 things an Emergency Fund is not.

Your financial plan

Stick to the asset allocation you have arrived at depending on your risk appetite (ability and willingness to take risk). We have provided you with broad guidelines. Any material over-weight exposure can be re-balanced back to the target weights. You should also evaluate the performance of the funds in your portfolio vis-à-vis that of their respective category peers. If a fund has been delivering below-average performance consistently, you may switch to a more consistent one.

You should revisit your financial plan following any material change in circumstances such as marriage and child birth.

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