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How to create a corpus to clear my home loan in seven years?
I am 31 years old, with a net monthly income of Rs 95,000. I have a home loan along with a couple of durable loans, which will be repaid by the end of this year. The total monthly expenditure, including all the EMIs, is Rs 65,000. That leaves a monthly savings of Rs 30,000. I have invested Rs 23,000 in Axis Long Term Equity Fund, which can be redeemed now. I also have savings of around Rs 80,000 as of now. My home loan takes care of my requirement for tax-saving under Section 80C.
My short-term goal: I want to create a corpus of Rs 25 lakh in the next six to seven years to clear my home loan. How much and in what manner should I invest to achieve this goal?
My long-term goal: To create a corpus of around Rs 1 crore when I am 45 years old and a retirement corpus of Rs 5 crore (without any PF withdrawal) when I am 60 years old. How should I invest to achieve these goals?
Funds I like: SBI Small Cap Fund, Reliance Small Cap Fund, SBI Bluechip Fund, and Mirae Asset Emerging Bluechip Fund
I have a high risk appetite. Please consider an yearly bonus of around Rs 1 lakh with an increment of approximately 10 per cent and an increase of 7,000 in monthly income.
Which mutual fund schemes should I invest? How much should I invest to achieve the above mentioned financial goals?
Argha Narayan De
Deepali Sen, Founder, Srujan Financial Planners, responds:
The key objectives in your case are to create an emergency fund, a corpus for your future goals, and a corpus for clearing the home loan.
Earmark the existing money in mutual funds and savings for emergency needs and replenish it as and when it gets used.
Use the annual increase and the bonus for increasing the EMI and prepaying the home loan every year. In addition, increase your current EMI by another Rs 15,000. The fastest way to repay a loan for a person with monthly inflow (salary) is through increased EMI.
Use the monthly surplus of Rs 15,000 available with you (after increasing the EMI) for investing in diversified equity mutual funds for a long term. You can increase the SIP amount after the home loan is settled. Also, you can use the annual increments and the bonuses for your other goals. You should allocate 65 to 80 per cent of your investment in large and multicap schemes. Invest the rest in midcap and smallcap schemes.
You may consider mutual fund schemes like Aditya Birla Sun Life Frontline Equity Fund, ICICI Prudential Bluechip Fund, and SBI Bluechip Fund in the largecap category. For large and midcap, you may consider schemes like DSP BlackRock Opportunities Fund, Aditya Birla Sun Life Equity Advantage Fund and Mirae Asset Emerging Bluechip Fund. For multicap schemes, you may look at Axis Focused 25 Fund, Aditya Birla Sun Life Equity Fund, and SBI Magnum Multicap Fund. For smallcap schemes, consider the schemes that you have mentioned.
You should try to maintain the asset allocation that I suggested while investing in diversified equity schemes.