Unrealistic Expectations | Value Research A reader wants to save Rs 3-4 million within a period of 5 years to enable him to start his own business. He asked us for advice on managing his portfolio -Manisha Sood
Ask Value Research

Unrealistic Expectations

A reader wants to save Rs 3-4 million within a period of 5 years to enable him to start his own business. He asked us for advice on managing his portfolio
-Manisha Sood

I am 31 and live in Kuwait. I intend to become an entrepreneur in five years, for which I will need minimum of Rs 30 lakh to Rs 40 lakh. I intend to invest up to Rs 5,000- Rs 7,000 each month. Please advice on what my portfolio should look like and what would be the optimal level of diversification? Can I request my brother in India to invest through my demat account? Is a demat account required for investing in mutual funds?
-Manisha Sood

We hate to be the bearer of bad news but even if you manage to invest Rs 1 lakh per annum for the next five years, this money will have to grow at least six times in five years to yield Rs 30 lakh or more. This is highly unrealistic.

The block of last five years has perhaps been the most profitable one in the history of Indian stock markets, and yet it would have been extremely difficult to make that much of money during these years. And going forward, stock market returns are likely to diminish. Therefore, our advice to you is simple and straightforward- do not rely upon stock markets to accumulate a sum of 30-40 lakh rupees in the next five years. In fact, we will not even recommend you to invest heavily in equities. You should not take excessive risk with your savings, given that you have a clearly foreseeable requirement for money which is not all that far away. You should follow a balanced approach and equities should only form a part of your allocation, which too you should start shifting to safer debt instruments as the time to redeem nears. To make the job of fund selection easier, you could focus on the 5- and 4- star rated funds. As regards diversification, just ensure that none of the funds account for more than 12-15 per cent of your portfolio. But at the same time, don't raise an army of funds either, which makes manageability difficult. Further, you will not need a demat account to trade in mutual funds. Many banks and mutual fund distributors offer an online interface through which you can invest and redeem funds.

In conclusion, we would say that you should only expect returns in the region of 15 per cent per annum (without any downside protection) from the Indian equity market. And therefore, you will have to look for alternate sources of funds- either infuse more of your own money or opt for borrowed capital.


Have a different question in mind? Ask us


Other Categories