Investing in the 30s: Here’s how to create a generous corpus even in your late 30s (2024)

“Start investing as soon as possible”.... This is something you hear from most of the experts in the world of financial investing. However, it is not something that many people follow religiously even today. Everyone lives a different life and has different goals. But by the time a person hits their 30s, they start understanding the value of investing. The feeling of having a safe and secure future is quite comforting than living on the edge. However, investing in your 30s requires strategic planning as you are running against time. A plan that could work effortlessly for a 20-year-old might not suit a 30-year-old, simply because growth in the markets requires time. But with proper strategies and financial planning, anyone could create a decent portfolio.

ETMarkets spoke to Chirag Muni, Executive Director at Anand Rathi Wealth Ltd to discuss the best way to create a portfolio for people in their 30s. Excerpts from the interview:

What is the first step to starting your mutual fund journey?
Chirag Muni: I think the first step is financial planning. You need to first set your goals. Of course, you are starting in your early 30s, so you would have several goals that you would have depending on what stage of life you are in. So, it could be paying for your loans or it could be education, marriage, it could be anything. The first step is to write down those goals (short, medium and long-term), which is when you will be able to then align your strategy to how you want to achieve those goals. You can start with mutual funds, and start small with SIPs which is a very disciplined way of investing.

Considering the age factor, how much a person should allot every month or even as a lump sum amount when it comes to mutual funds and SIPs?
Chirag Muni: First, you need to budget all your expenses to see how much residual money you have each month. Investors should create a budget that takes into account their regular expenses, such as housing, transportation, food, loan repayments, etc. Setting an income-to-investment ratio and an EMI-to-investment ratio can help one see things clearly. There is no thumb rule as such, but one should set aside at least 20% of his/her income for investment purposes. Also, your EMIs should be more than 40% of your total income.

Since we are talking about the mighty 30s, we all know that in the investment world, we always say “Start as soon as possible”. So, if a person is starting RIGHT NOW, how should they go about it? Also, can you give us practical examples to understand better?
Chirag Muni: You can start investing whenever you can. The way you can start is by two ways. One is investing a lump sum amount and the second is a Systematic Investment Plan (SIP). I think an SIP is the most disciplined way of investing in the markets. There are a couple of advantages. You can start small and invest as low as Rs 500 in a mutual fund scheme through SIP. Second, you also get the rupee cost-averaging benefit, which means that you are investing in different market cycles and your cost gets averaged out. The probability of getting higher returns becomes much higher and it is a more disciplined way of forcing yourself to invest for the long term.

Now, for example, the last average 23-year return of Nifty has been about 12-13%. Mutual funds tend to give an alpha (excess return) over and above Nifty. Generally, this is 2 to 3% more. Now in a base case scenario, your money will grow at 14% in an SIP. Even if you start small with a Rs 5000 SIP, in 30 years, you can build almost 2.7 crores, that is the kind of corpus you can build.

With the same SIP, in 20 years, a corpus of Rs 65 lakhs can be built. You can also step up your SIP by 10% every year. You would be surprised that by adding this step - your 2.7 crores in 30 years will become almost 6.2 crores, almost double. With a 10K SIP, you can end up with a 5.5 cr corpus in 30 years. These are small amounts, but as and when they compound, you are going to build a reasonable corpus that can take care of a lot of your goals.

What is the right asset mix for someone new to the stock market?
Chirag Muni: It is best to go for asset classes that have low correlation. For example: Debt and Equity have a low correlation and a mix of both can help one ride volatility. If your goal tenure is long-term, you can go for an 80% vs 20% mix of debt and equity. For the medium term, go for a 70% vs 30% mix of both. When it comes to exposure in different market caps, 50% in large caps, 30% in midcaps and 20% in small caps seems ideal.

Which other types of funds are there when it comes to the debt portion or what other asset types one can add to his or her portfolio?
Chirag Muni: You can explore Arbitrage funds. Arbitrage funds offer returns and stability similar to debt funds, however, they offer taxation which is similar to equity. If you are working and you already have an EPF component in your salary you can treat it as the debt component in your portfolio. For additional investments, you can opt for PPF as well.

Which type of funds can one add to his or her portfolio?
Chirag Muni: Adding a diversified basket of mutual funds to your portfolio makes your portfolio balanced. This is where category selection plays a huge role. You can go as per your risk appetite and investment goals. Do compare the funds to the headline index.

Any suggestions to anyone who is looking to start now in their 30s?
Chirag Muni: Avoid sector funds: Sector funds perform in cycles and vary. It requires tactical allocation. If you enter a sector fund in the wrong cycle, it will unnecessarily draw down your portfolio. You automatically diversify across sectors when you invest via diversified funds.

Build an emergency fund: Young investors should set aside three to six months' worth of living expenses in a liquid fund or an easily accessible account. This protects against unexpected events, such as job loss, medical emergencies, etc.

Manage your debt: Be mindful of managing debt effectively. Whether it's student loans, credit card debt, or other forms of borrowing, understanding the terms, interest rates, and repayment options is crucial. Create a repayment plan, prioritize high-interest debts and accelerate the path to financial freedom.

Buy insurance: Investors should opt for health insurance and term insurance to avoid dipping into their savings or investments during their rainy days. Investors in 30s have the opportunity to build a strong financial foundation by embracing effective financial planning strategies. By setting goals, budgeting, building emergency funds, managing debt, investing wisely, planning for retirement, and committing to continuous learning.