Will a Rs 42,500 monthly SIP with a 10% annual step-up help you retire early?

Retiring early is a dream for many investors, but achieving it requires disciplined investing, realistic return expectations and regular portfolio reviews. While investing through Systematic Investment Plans (SIPs) can help build a sizeable retirement corpus over the long term, the amount required depends on factors such as future expenses, inflation, lifestyle and other sources of income. Investors also need to ensure that their mutual fund portfolio remains well-diversified and is not overloaded with too many schemes.

A 35-year-old corporate professional from Hyderabad reached out to ETMutualFunds seeking advice on whether his current SIP portfolio is sufficient to retire in the next 10 years. The investor currently invests Rs 42,500 every month through SIPs, with a 10% annual step-up, and aims to build a retirement corpus of Rs 1 crore or more.

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The investor also plans to shift this retirement corpus of Rs 1 crore or more into a Systematic Withdrawal Plan (SWP) for regular post-retirement income. He wanted to know whether his existing portfolio is on track to achieve this goal or if it requires any changes.

His current investments include Parag Parikh ELSS Tax Saver Fund and ICICI Prudential BSE Sensex Index Fund, where he has been investing Rs 5,500 on a monthly basis for the last two years and two months.

The other investments include ICICI Prudential Technology Fund, ICICI Prudential Multi Asset Fund, HDFC Flexi Cap Fund, HDFC Gold ETF Fund of Fund, Motilal Oswal Midcap Fund, Nippon India Aggressive Hybrid Fund, Nippon India Small Cap Fund, Parag Parikh Flexi Cap Fund, Quant Flexi Cap Fund, Quant Mid Cap Fund, Quant Small Cap Fund and SBI Equity Hybrid Fund where he is investing for the last 11 months. All his investments are in direct plans.

Shivam Pathak, CFP and Founder of Asset Elixir, analysed the portfolio and told ETMutualFunds that achieving a corpus of Rs 1 crore in the next 10 years appears realistic based on the investor's current contribution pattern.

"Based on the current SIP of Rs 42,500 per month along with a 10% annual step-up, accumulating a corpus of Rs 1 crore over the next 10 years appears achievable, assuming the portfolio generates a long-term return of around 12% per annum," the expert said.

However, the expert cautioned that reaching a Rs 1 crore corpus does not necessarily mean the investor is financially ready for retirement.

"Whether Rs 1 crore will be sufficient for retirement is a different question. It depends on factors such as your post-retirement expenses, lifestyle, inflation, life expectancy and other sources of income. Therefore, evaluating your retirement needs well before retirement is equally important," the expert added.

Portfolio has more funds than necessary

Pathak, after analysing the portfolio, said that the investor currently holds 14 mutual fund schemes, which is more than required for an effective retirement portfolio.

"A simpler portfolio with fewer, well-selected funds is generally easier to monitor and manage while still providing adequate diversification," the expert said.

Suggested changes to the portfolio

The recommendations were based on factors such as consistency of performance, portfolio overlap and risk-adjusted returns.

For the midcap allocation, the expert advised the investor to stop fresh SIPs in Motilal Oswal Mid Cap Fund and Quant Mid Cap Fund. Instead, future investments may be directed towards Nippon India Growth Mid Cap Fund.

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For the smallcap allocation, the recommendation was to discontinue fresh SIPs in Nippon India Small Cap Fund while continuing investments in Quant Small Cap Fund. The expert also suggested avoiding fresh SIPs in Nippon India Aggressive Hybrid Fund.

No need to redeem existing investments immediately

In nearly 12 funds, the investor has started investing for the last 11 months, so while recommending changes to future SIPs, the expert advised against making immediate redemptions.

"Existing investments need not be redeemed immediately. It would be prudent to avoid fresh SIPs firstly and then evaluate the capital gains tax implications before taking a phased exit, if required," the expert said.

Portfolio review

The expert also reminded investors that mutual fund performance changes over time and portfolios should be reviewed periodically.

"Today's best-performing funds may not remain tomorrow's winners. Regular portfolio reviews are essential to ensure your investments continue to align with your retirement goals, risk profile and changing market conditions," the expert concluded.

(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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