The good news is that despite a delayed start, with mutual funds, you not only get to meet emergency expenses but also systematically and methodically prepare for short and medium term needs like buying a home. Even more gratifying is the fact that investments in certain mutual fund categories can help you cross the line in time for major goals that require substantial money be it children’s higher education or retirement. But to do all these things and more, you first need to develop your comeback gameplan..

Your Comeback Gameplan

Determine and redefine financial goals A late start means lesser time for financial goals and less headroom for course correction. Also, many financial goals now may have short time gaps between them. For instance, your second child’s higher education may well coincide with your retirement. These ground realities call for realistic re-evaluation of financial goals. For example, to balance needs of other goals should you seek a slightly smaller apartment in new city suburbs?

Prioritise your goals With multiple claims on your investible funds it helps to prioritise financial goals. For instance, experts suggest that you accord higher priority to retirement over children’s higher education. The reason: any funding gap can be bridged by personal loan that can be repaid by the child on getting employed and avail tax deductions on interest payments under Section 80E.

Determine savings needed for each goal This will provide you the savings target and the time at hand. You can take the help of online tools such as retirement planning calculator and retirement corpus calculator to arrive at the regular investment amount for each goal.

Keep wealth creation focus A late start often might spur people to look for high paying jobs and even job hop. A far more effective and less frenetic way is to look for work options that help create wealth such as jobs with multiple retirement benefits like provident fund, gratuity, superannuation besides benefits like stock options and access to home loan deals.

Make realistic assessment of work life Traditional work life lasted till age 58 or 60. However, with a special talent, expertise and experience you can consider extending your work life. This will help you compensate for the lost time and provide money more time to grow.

Create an effective home budget A delayed start does not mean leading the life of a hermit. Make money smartly work for you with the help of a home budget which ensures that the largest portion of pay is first invested before meeting any expense. This portion also needs to increase periodically.

Avoid consumption loans Your financial diet now does not allow you to take expensive loans like personal loans and revolve credit card debt whose repayment burden typically reduces capability to invest.

Ensure adequate protection This can happen with adequate insurance cover for life, health, income and big ticket assets like home and car. Financial protection from insurance coverage can be supplemented with adequate emergency fund for meeting emergency expenses like parts of hospitalisation expenses not covered by health insurance. Money equivalent to 3-6 months of expenses can be deployed in bank savings account, short term fixed deposits (FD) and liquid mutual funds for this purpose.

Earmark investments for different goals Here, mutual fund investments can help make regular investments with Systematic Investment Plans (SIP).

Address housing needs urgently An early decision on home acquisition is essential as one typically needs a home loan for it and this needs to be repaid well before retirement. Also, one needs time to raise the down payment. In the current situation, EMIs should ideally be 35% of take home pay or less. Of course, under the Old Tax System one is eligible for annual tax deductions for principal repayments of up to Rs 1.5 lakh under Section 80C and for interest payment of up to Rs 2 lakh for self-occupied goals under Section 24(b).

Select investments based on time horizon For needs like home down payment 3-4 years away, consider SIPs in debt mutual funds like medium duration debt funds.

Needs like children’s higher education, if 6-8 years away, consider SIP in equity-oriented hybrid funds such as balanced advantage funds. Such investments have potential for long term growth and manage risks from equities with investments in debt and derivatives.

For goals more than 8-10 years away, say, retirement, consider SIP investment in an index fund based on large cap index like Sensex, Nifty 50 and Nifty Next 50 and Nifty 100. Supplement it with SIPs in large cap mutual funds. Limited time at hand may not allow you to handle setbacks in higher risk investments like mid cap mutual funds and small cap mutual funds. To make appropriate investments consider engaging an experienced mutual fund advisor.

Increase regular retirement investments Apart from taking steps like extending work life, periodically increase regular investments to take retirement savings on a higher gear. This can be easily done by directing a large portion of annual pay hikes.

Mutual funds allow you to do this conveniently with the help of Step Up SIPs. Here, the regular investment amount is increased periodically by a fixed percentage, say, 10% annually. Let us illustrate this with an example.

Assuming a person starts saving Rs 5,000 per month from the day he turns 40, in an investment growing by 12% annually. The retirement savings at age 60 would be Rs 49.96 lakh. Starting with the same monthly investment in an SIP with 10% annual increase in SIP amount, the person accumulates Rs 99.44 lakh at 60, or more than double the savings.

Invest lump sums Step Up SIP investments can be supplemented by investments of lump sums that a person receives from time to time like bonus, commissions, and incentives. This can be conveniently done in mutual fund investments with Systematic Transfer Plans (STP). Here, the lump sum is parked in a low risk fund like a liquid fund and followed up by regular investments in investments such as equity mutual funds.

In the marathon of life, being the late off the blocks need not necessarily be a disadvantage. With the right moves and financial discipline, you can still be home in time. It is never too late to get started.