Hello sir , I am 40 years old , I have below investment. No EMI No Loan. FD - 60 lacs. Mediclaim - 15 lacs ( 20K per year) NPS - 50K Per year ( Since last 5 years) PPF - 150K Per Year ( Since Last 5 years) I am investing in below mutual funds through SIP. ( 32K Total) - Since last 3 Years ICICI balanced Advantage 2K HDFC Balanced Advantage 3K Tata Midcap and Largecap 3K Nippon India Small Cap 2K Motilal Midcap 2K ICICI Prudential Commodities 5K Quant Small Cap 5K HDFC Top 100 5K Parag Parikh Flexi 5K Is it good funds for long terms ( Horizon of 8/10 years) ? My income is arround 1.80 lac monthly , no home loan and emi. Shall I increase my SIP and my concern is 60 lacs is in FD ..Please suggest.
Ans: Your financial journey appears strong, with a clear focus on a balanced investment approach. Here’s a comprehensive review of your investments and a few suggestions on how you can further enhance your portfolio.
FD Investment: Evaluating Returns and Diversification
Having Rs. 60 lakh in fixed deposits ensures liquidity and safety, which is beneficial for short-term needs. However, FDs offer limited growth potential due to moderate interest rates, which are typically lower than inflation over the long term. This could affect your purchasing power in the future.
Consider diversifying a portion of the FD funds into options with better long-term returns, such as debt mutual funds or balanced funds. These alternatives can provide capital protection with a slightly higher growth potential than FDs. Debt mutual funds can be more tax-efficient than FDs, especially over extended investment periods.
Mediclaim Coverage: Ensuring Comprehensive Health Protection
Your existing health insurance coverage of Rs. 15 lakh is a good start. With rising healthcare costs, especially during retirement, this might need a boost over time.
If you haven't considered it already, a top-up or super-top-up health policy could be beneficial. It can increase your coverage at a minimal cost, providing greater security against medical emergencies.
National Pension System (NPS): Steady Retirement Planning
Contributing Rs. 50,000 yearly to NPS is a wise move as it provides additional tax benefits and builds a retirement corpus. The lock-in until retirement ensures disciplined savings.
Given your age, consider reviewing your NPS asset allocation between equity, corporate debt, and government bonds. This can help you maintain a balance between growth and stability, especially as retirement nears. Additionally, the NPS tier I account provides tax benefits that can complement your other investments.
Public Provident Fund (PPF): Reliable Long-Term Growth
Your PPF contributions of Rs. 1.5 lakh annually over the past five years are commendable. PPF is one of the most secure investment options for long-term goals due to its tax-free returns and government backing.
Continue with these contributions. PPF works well as a wealth-building tool, especially when held to maturity (15 years), as it compounds tax-free. This aligns well with your retirement planning.
Mutual Fund Portfolio: Assessing Fund Choices and SIPs
You have a well-structured mutual fund portfolio, investing Rs. 32,000 monthly. The diversity in fund types indicates a strong approach to long-term growth, but a few adjustments can maximize returns and stability.
Reviewing Balanced and Hybrid Funds
You’re investing in both ICICI and HDFC Balanced Advantage funds. These hybrid funds are useful for moderating risk, offering a blend of equity and debt.
For an 8-10 year horizon, balanced funds provide stability and moderate growth, which aligns well with your goals. However, ensure that these funds consistently meet your return expectations compared to other funds in the hybrid category.
Small and Midcap Funds: Assessing Growth Potential
Small and midcap funds in your portfolio, such as Quant Small Cap and Motilal Midcap, offer growth but come with higher volatility. Over 8-10 years, these funds can potentially yield high returns, given India’s growth story.
Review the performance of small-cap and midcap funds periodically. It’s beneficial to continue with small cap funds if your risk tolerance allows. Small caps can deliver excellent returns but require patience as they go through market cycles.
Sectoral and Thematic Funds: Weighing Commodities Exposure
Sector-specific funds, like the ICICI Prudential Commodities fund, can add concentrated exposure. These funds can generate strong returns in favorable conditions but may underperform in other periods.
Keep a close eye on the performance and market conditions. If you feel the commodities sector may underperform or add unnecessary risk, you might consider rebalancing this amount to more diversified funds.
Large Cap and Flexi Cap Funds: Ensuring Stability and Flexibility
Investments in HDFC Top 100 and Parag Parikh Flexi Cap provide stability and diversification. These funds cover top-performing large-cap companies and offer flexibility in market exposure.
Continue with these funds, as they create a stable foundation within your equity portfolio. Large-cap and flexi-cap funds offer better risk-adjusted returns, especially over long periods.
Consider Increasing SIPs for Accelerated Wealth Growth
With a monthly income of Rs. 1.80 lakh and no debt, your capacity to invest further is strong. Increasing your SIPs by even Rs. 5,000–10,000 monthly can significantly boost your corpus over the next 8-10 years.
You could allocate additional SIPs toward existing diversified funds or explore other categories like balanced advantage funds, which blend risk management with growth.
Taxation Strategy: Optimizing Post-Tax Returns
Equity Mutual Funds: For equity funds, long-term capital gains (LTCG) above Rs. 1.25 lakh are taxed at 12.5%. If you redeem any funds, consider staggering withdrawals over different financial years to minimize tax impact. Short-term capital gains are taxed at 20%, so holding investments for the long term is more tax-efficient.
Debt and Hybrid Mutual Funds: If you move any funds from FDs to debt mutual funds, be mindful that both long-term and short-term capital gains from debt funds are taxed based on your income tax slab. However, debt funds may still offer better tax-adjusted returns compared to FDs, especially over longer periods.
Final Insights
Your current investment strategy is strong, diversified, and largely aligned with long-term growth goals. With no loans or liabilities, you’re well-positioned to make additional investments. Here are key takeaways for further growth:
Diversify Your FD Holdings: Move a portion of FDs to debt mutual funds for better tax efficiency and returns over time.
Increase SIP Contributions: Consider gradually increasing your SIP contributions to maximize the growth potential of your portfolio.
Periodic Review: Regularly review the performance of sectoral and small-cap funds to ensure they align with your financial goals.
Boost Health Coverage: Consider a top-up health insurance plan for additional coverage at a reasonable cost.
By consistently evaluating and adjusting, you’re set to achieve a well-rounded, growth-focused portfolio with minimized risk exposure.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment