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Investing with a Target

I am planning to invest Rs 5,000 every month in equity funds. My primary aim is to build an asset base of around Rs 25 to 30 lakh in the next 10 to 15 years. Is it achievable?-Satish M

I am a 30-year-old, married software professional and planning to invest Rs 5,000 every month in diversified equity and ELSS funds through SIP. I have already invested in HDFC Long Term Advantage and Reliance Tax Saver funds. My primary aim is to build an asset base of around Rs 25 to 30 lakh in the next 10 to 15 years. Is it achievable? How should I allocate my portfolio so that I can achieve my target and form a balanced portfolio? Do I need to allocate some percentage of my portfolio to debt funds? -Satish M

To accumulate a corpus of Rs 25 lakh after 15 years by investing Rs 5,000 per month throughout this period, you would need an annualized return of about 12.6 per cent. If we go by the past performance of some of the older diversified equity funds, then it should not be a problem to achieve that much of returns. Even though past performance can never be taken as a guarantee, your target still looks quite achievable. Here is the reason. A fixed deposit with a nationalised bank can provide you with returns of around 6 per cent, which can be considered as a risk-free rate. If we add a risk premium of 100 per cent for the equities over this, the return comes to 12 per cent, which is close to the return that you require. Though nothing can be said with certainty, maintaining discipline by not losing your cool during the bull runs and as well as the extreme bear phases is more likely to ensure that you reach your target.

Given your time horizon of investment and your targeted returns, you can maintain an all equity portfolio. Please note that it is bound to be more volatile than it would be if you invest in debt funds also, but investing regularly over such a long term should ensure that you earn handsome returns despite the ups and downs of the market.

Select a few good diversified equity and ELSS funds for your portfolio. But you must keep a track of your funds regularly. If any of your funds starts to underperform on a consistent basis, you might need to look for other options in the same categories. A simple way could be to choose from the five- and four-star rated funds. If the rating of any of your funds drops to three-star, keep a close track of it for the next few months. And if it falls further to two- or one-star, consider exiting the fund for some better options.

One issue that we hope you have considered is inflation. It is likely that what Rs 25 lakh can buy today will need Rs 50 lakh to buy 15 years later (at an inflation rate of 5 per cent). Do take this into account while setting your target.

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