Can a Rs 90 lakh mutual fund portfolio grow to Rs 5 crore in 7 years? Here’s the ideal strategy to consider

Synopsis

A 53-year-old investor aims for a Rs 5 crore retirement corpus in seven years without a pension. Experts suggest increasing monthly SIPs to Rs 1.2 lakh with annual 24% step-ups and shifting to an 80:20 equity-debt allocation. A bucket-based SWP strategy is recommended for post-retirement income, potentially generating Rs 1.67-2.5 lakh monthly.

Many investors approaching retirement often face a critical challenge of balancing wealth creation with long-term financial security. Building a sizeable retirement corpus becomes even more important for individuals without a pension or fixed post-retirement income source. Financial planning during the final working years typically focuses on increasing investments, maintaining the right asset allocation and creating a sustainable income strategy that can support regular expenses after retirement while ensuring the corpus lasts for decades.

A 53-year-old investor who will retire by 2033 reached out to ETMutualFunds to analyse his portfolio details and give recommendations on SWP as he does not have a pension. He has been investing since 2016 and started with Rs 20,000 per month but now invests Rs 80,000 per month in mutual funds through SIP. He wants a corpus of Rs 5 crore by the time he retires. He wants to subsequently use a Systematic Withdrawal Plan (SWP) to generate regular income after retirement.

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Expert Hrishikesh Palve, Director, Anand Rathi Wealth Limited analysed the portfolio details and told ETMutualFunds that the investor currently maintains 100% exposure towards equity investments. While equity remains important for long-term growth, the expert suggested introducing debt allocation into the portfolio to improve stability and liquidity management.

The expert recommended shifting towards an 80:20 allocation between equity and debt as this allows for growth through equity, while the debt serves as a liquidity basket for any short term needs.

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Based on current investment levels, the expert estimated that the investor may fall short of the desired Rs 5 crore retirement target. Assuming a 13% annualised return over the next seven years, the current portfolio and SIP contribution are projected to grow to around Rs 3.18 crore by retirement.

The expert pointed out that with only seven years remaining until retirement, the impact of long-term compounding becomes relatively limited compared to investors with longer investment horizons.

To bridge the gap between the projected corpus and the desired Rs 5 crore target, the expert recommended increasing monthly SIP contributions from Rs 80,000 to approximately Rs 1.2 lakh. Additionally, the SIP amount would need to be stepped up by around 24% every year.

According to the calculations shared by the expert, maintaining the enhanced SIP contributions along with annual step-ups and assuming a 13% return could potentially help the investor reach the Rs 5 crore target corpus by 2033.

SWP plan

On post-retirement income planning, the expert suggested using a bucket-based SWP strategy to manage retirement cash flows more efficiently.

Under this approach, the retirement corpus can be divided into two separate buckets. One portion can remain invested in relatively stable and liquid instruments to meet near-term income and liquidity requirements, while the second bucket can remain invested in growth-oriented assets for long-term appreciation.

The expert explained that over time, funds from the long-term growth bucket can be gradually shifted into the liquidity bucket to maintain regular cash flows while still allowing part of the corpus to continue compounding even after retirement.

Also Read | How should investors rebalance portfolios overloaded with smallcap and thematic funds? Here’s the ideal allocation strategy

According to the expert, a retirement corpus of around Rs 5 crore can potentially generate sustainable monthly income in the range of Rs 1.67 lakh to Rs 2.5 lakh under a withdrawal rate of around 4% to 6%, while still helping preserve the longevity of the corpus over 20 to 30 years.

For equity allocation, the expert recommended a diversified mix of mutual fund categories including largecap, flexicap, dividend yield, midcap and smallcap funds.

The suggested schemes included funds from Quant Mutual Fund, ICICI Prudential Mutual Fund, HDFC Mutual Fund, Kotak Mahindra Mutual Fund and Invesco Mutual Fund across different equity categories.

Palve recommended Quant Large Cap Fund, ICICI Pru Dividend Yield Equity Fund, HDFC Flexi Cap Fund, Kotak Midcap Fund and Invesco India Smallcap Fund.

The expert also stressed the importance of periodic portfolio reviews and disciplined investing, particularly for investors nearing retirement, as market volatility and changing financial needs can significantly impact retirement outcomes over time.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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