Let’s fly from the present value of money to the future value. We will require lumpsum or regular investible funds with periodic investments taking into account periodic or monthly investments. And to reach the destination on time, we need to get the interest rate right (return on investment i.e., KMPH). If the speed of your vehicle is 60 KMPH, then a distance of 60 KM can be covered in 60 minutes. Can be achieved in N (time years), if the ROI R% of the portfolio is defined.
Declaration of Financial Independence: Ladies and Gentlemen, please direct your attention towards creation of funds for retirement, education fund, wedding expenses, property purchase, emergency fund, holidays and more. There are six emergency exits (financial goals) on this plane (Journey of Life). ) Take a minute to explore all of your goals. Get rate for achieving all these goals. And yes, retirement planning is like an oxygen mask that will drop down from the top of your seat. Make sure you plan this fund first before helping other goals.
Have you ever started your vehicle and gone somewhere? A much awaited holiday trip was called off or abandoned just because there were few stops, traffic jams or repairs, more likely! Financial goals are just like that. Traveling with a destination is always the insight and speed that guides you to reach that destination. Always reminds you to stay on course, stay focused, invest and be disciplined. In investing, KMPH is exactly the speed or rate of return at which you will need to achieve all your financial goals.
Understanding one’s profile (conservative, liberal, aggressive) is at the forefront of investing. There are many tools and studies that will help here. Next, choose a financial goal (based on present value, future value) and understand how much funds need to be built. Also, prioritize them, allocate and then diversify your portfolio into different investment avenues to achieve those goals and review it from time to time.
Let us look at an example where savings and periodic investments are planned.
Present age 35 years
retirement age 55 years
Life expectancy 80 (accumulation stage is 20 years, disbursement up to 25 years)
Today’s current lifestyle Rs 50000
EST. Inflation rate 5%
Current PM Savings Rs. 10000
Saved for your retirement Rs. 50000
East. Pre-retirement ROI 10%
East. ROI after retirement 6%
(Now that it’s KMPH, invest in such ROI-driven paths in your profile)
Result:
- 20 years left to retire
- Monthly household expenses after retirement 1.32 lakh
- Targeted savings at 55 retirement age: Rs 3,56 crore
- Amount accumulated with current monthly savings: 76.56 lakh
- Existing savings will increase: 33.63 lakh
- Total savings at the time of retirement: 1.10Cr
- Shortfall in savings: 2.46 crores.
- SIP required to meet shortfall: Rs 33,955
Source: Financial Calculators
Did you notice the ROI of 10% and 7%. KMPH needs to be maintained by correct asset allocation and portfolio diversification (velocity)
Submission of various asset class returns as on October 23, 2021: (This is the average return from 25 schemes).
One of the essential parts of goal based journey is your KMPH, which is going to decide how soon or on time or late, you are going to achieve your goals.
Your financial goals can be a mix of short, medium or long term. These goals, in turn, determine the amount of savings you can create and with the right guidance you will know where you invest (Equity, Bond, Hybrid, Commodity etc.). One can diversify within this asset class under large cap, midcap, global, theme, long, short-term bonds. Since everything is becoming more expensive, investing in traditional tools may not live up to your expectations. This is where different investment avenues can be beneficial. Whatever your goals, there is an investment plan for everyone to help you meet them.
Knowing the KMPH of your investment plays a vital role in various aspects, it provides a path towards your goals or dreams. You can identify your finances for the future. Also you will know what kind of returns you need to fulfill all the goals of life. Good luck investing with your speed and velocity.
Ideas are personal: The author is Madhu Menon, Founder & CEO OxygenFin.com from Ahmedabad
Disclaimer: The views expressed are those of the author and are personal. TAML may or may not subscribe to it. The views expressed in this article/video are in no way intended to predict or time the markets. The views expressed are for informational purposes only and are not meant to be any investment, legal or taxation advice. Any action taken by you based on the information contained herein is your sole responsibility and Tata Asset Management will not be liable in any way for the consequences of such action by you.
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