How to build a Rs 4cr portfolio

By Mohasin Athanikar |  10-05-21 | 
 
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About the Author
Mohasin Athanikar is an Investment Analyst for Morningstar Investment Adviser India.

I am looking to build a corpus of Rs 4 crore. Time frame: 15 to 20 years. Age: 40. What sort of funds must I hold – equity and debt? How much must I invest to arrive at this?

The shorter the time frame to your goal, the more you need to save.

If you want to accumulate Rs 4 crore in 15 years, start with a monthly SIP of Rs 58,000, and increase it annually by 10%.

If you want to accumulate Rs 4 crore in 20 years, start with a monthly SIP of Rs 27,000, and increase it annually by 10%.

The corpus amount has been computed assuming equity market returns of 10.5% per annum and fixed income returns of 6% per annum.

What must the portfolio look like?

Assuming an aggressive risk profile given the long-time horizon, you may invest with a portfolio mix of about 80% into equities and 20% into fixed income funds. That is the broad-based diversification.

Let us further break down your equity exposure:

  • Large Cap: 50%
  • Mid Cap: 10%
  • Small Cap: 5%
  • Global: 15%

Though equity is more volatile than most asset classes with even possibility of a capital loss over the short-term, the risk of capital loss diminishes as the holding period increases. Do read, 4 reasons you must consider global investing.

For investment in fixed income, 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.

As your goal approaches (2-3 years before retirement), begin to shift money out of equity into fixed-income funds, to reduce risk of future capital loss in the portfolios.

Investors should ideally 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. Read this basic primer on asset allocation.

Some suggestions:

  • To accumulate a higher corpus, it is advisable to top up your investments whenever you have any excess savings or any windfall gains.
  • Evaluate your portfolio at periodic intervals with regards to your stated goals, and make suitable adjustments if needed. 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.

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ninan joseph
May 16 2021 03:41 PM
 Food for thought.
Say, you put 50,000 per month in a recurring deposit for 10 years at 6.75%, you will get a maturity value of 85 lacks. Since your horizon is 20 years on maturity, you will place this 85 lacks in FD, the amount you will get is 1.66 Crore.
(RD is only for 10 years hence this type of calculation).
After the first 10 years, you will continue to put 50,000 on a monthly basis, so from this portion you will get 85 lacks (assuming the rate is 6.75).
So in total if you contribute 50k per month in a RD for 20 years, you will at the end of 20 years get 1.66 c + 85 lacks = 2.51 crore.
This is the true meaning of compounding. However RD should only be placed when the interest rate is high and not at this time when the rates are down and shows signs of increasing.
The point I am trying to make is with 50K per month, you are able to meet 62% of your target i.e 4 crore. So instead of entire funds in equity, do think of FD as well (tax is not considered for the calculatio).
The idea is put a portion in equity and a portion in FDs or any other product as well. ETF is highly recommended.
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