I am 35 years old and have two goals—to have Rs 1 crore for my son’s education which is 15 years away and another Rs 1 crore for my retirement which is 20 years from now. What should I do?
Siddharth Singh, Delhi
It is heartening to note the clarity with which you have listed the two important financial goals that you have. Most often people do not list down financial goals with such articulation, especially when the goals are so far away. This discipline will help you in the long run, because early planning will not just help you in creating the desired corpus in a systematic manner but it also ensures you take less risk in doing so and comfortably reach both your goals. By starting early you will benefit from the power of compounding, which you can experience when investing for goals that are 10 years ahead and more.
Start by investing separately for each of the goals, because it will help you keep track on how the investment towards each of them is faring. Moreover, by investing in diversified equity funds regularly through a systematic investment plan (SIP) will help you put aside small sums at regular intervals to achieve your financial goals. The schemes can be decided based on your risk profile from the OLM Elite list, which is a selection of hand-picked funds based on their long-term performance history and track record. The reason to invest in equity mutual funds is the exposure to equities that you will get and the professional fund management that comes with mutual funds that will help you earn returns that meet or beat inflation. You will need to invest about Rs 20,000 every month, if it earns 12 per cent returns to build the corpus for your son’s education. You will need half that sum to build your retirement corpus if you stay invested for 20 years and the investment earns and annualise 12 per cent returns. The power of compounding can be best experienced by you for the corpus you are building for your retirement versus the one for your son’s education.
But do keep track of the investment and the impact of inflation, because when you factor inflation to the corpus you are building, you may need a lot more than the sum you are assuming to be sufficient today. For instance, if inflation is 7 per cent, the value of the retirement corpus of Rs 1 crore in today’s value will be actually worth just Rs 25.84 lakh after 20 years. Similarly, the education corpus will be worth Rs 36.24 lakh. Do not go with the belief that what is sufficient today will be sufficient in the future. Factor inflation and you will realise the need to save and invest for a bigger sum.
