How to strategically invest for your long-term financial goals

I am 34 years old, married and have a three-year-old daughter. I work in the IT sector and plan to buy a new home in five years for which I will need ₹20 lakh. At present, my wife and I save nearly ₹60,000 per month. We have close to ₹20 lakh in bank fixed deposits (FDs) and ₹4 lakh in our employee provident fund (EPF). What steps should I take to have a proper financial plan in place?

—Name withheld on request

Everyone who earns and saves should have a financial and investment plan. The key is to have a structure for your financial goals and invest based on these goals. Based on your query, there are three goals, i.e., your daughter’s education, buying a new home and retirement. As all your goals are long term, you can consider moving around ₹12 lakh out of FDs into equity mutual funds. The rest of the money in FDs can continue to be your contingency fund. The reason for suggesting equity mutual funds is to ensure that your money is managed by experienced and professional fund managers. Mutual funds as investment avenue works for investors across all ages, risk appetite and investment experience. Hence, you can certainly consider mutual funds in your overall investment plan without much concern. 

Coming to your goals, if you invest ₹10 lakh from fixed deposits in equity mutual funds for the next 5 years and assume an average return of 12% per annum (p.a.) then you will have approximately ₹17.62 lakh for buying your home. For the remaining ₹2.38 lakh. you can invest ₹3,000 every month through systematic investment plans (SIPs) for 5 years. For your daughter’s education, if we assume that you want to accumulate a corpus of ₹1 crore, you can achieve this goal by doing an SIP of ₹21,000 for the coming 15 years. 

Similarly, if we assume your monthly expenses to be ₹75,000 and if you plan to retire at the age of 58, you will need approximately ₹6.88 crore at retirement which you can use after retirement for 27 years, i.e., up to the age of 85. To build this corpus for your retirement, you need to invest ₹46,000 every month for the next 24 years. We have not factored in your EPF balance and its future value as we do not have details on your monthly contributions. The fact that you will now be left with ₹36,000 of monthly savings will help you reach the corpus of ₹5.37 crore. The above details are based on some information provided in your query and some assumptions. A personalized financial and investment plan will help you meet your financial goals better.

Harshad Chetanwala is co-founder at MyWealthGrowth.com