Dear Mayank,
I need a raise but my company is not in the financial position to give me one for the last few years.
I have financial difficulties.
May I take projects on the side to raise a little more money without informing my company?
If I do, I might lose my job. But I really need the money.

Ans:

Any increase in compensation will depend on the policy of the company.

You would know whether your colleagues and other employees in the company are getting salary increments.

If they are, then you must immediately approach your management.

Requesting for a salary increase is within an employee's rights and will be taken in the right spirit.

Ans: Given your current financial situation and goals, here's a plan to increase your income and work towards accumulating Rs 2.5 crores by the time your daughter turns 18:

Optimize Existing Investments: Evaluate your current investments, including fixed deposits, mutual funds, and gold. Consider reallocating some of your assets to investments with higher potential returns, such as equity mutual funds or stocks, based on your risk tolerance and investment horizon.

Maximize Returns on Fixed Deposits: Explore options to maximize returns on your fixed deposits (MIC). Consider reinvesting the maturity amount in instruments offering higher interest rates, such as corporate deposits or debt mutual funds.

Review Insurance Policies: Assess your insurance coverage to ensure it meets your family's needs adequately. Consider optimizing your insurance portfolio to reduce premiums while maintaining sufficient coverage. Evaluate the possibility of switching to term insurance for cost savings.

Monetize Unused Assets: Consider selling or renting out the shop to generate additional income. Evaluate the potential rental income compared to the current market value of the property. Utilize the proceeds from the sale or rent to further invest in income-generating assets.

Explore Part-Time Work: Given the uncertainty of your job, consider exploring part-time or freelance opportunities in your field of expertise. Utilize your skills and experience to generate additional income while allowing flexibility in your schedule.

Increase Systematic Investment Plan (SIP) Contributions: If possible, consider increasing your SIP contributions to mutual funds. Focus on funds with a track record of consistent returns and align with your risk profile. Regularly review and rebalance your portfolio to optimize returns.

Create Additional Income Streams: Explore alternative income streams such as rental income from the shop, dividend income from investments, or online business opportunities. Diversifying your income sources can provide stability and resilience against financial uncertainties.

Seek Professional Advice: Consider consulting a financial advisor to tailor a comprehensive financial plan that aligns with your goals and risk tolerance. A professional advisor can provide personalized recommendations and guidance to optimize your financial resources.

By implementing these strategies and consistently reviewing your financial plan, you can work towards increasing your current income and accumulating the desired corpus for your daughter's future needs.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: SIP stands for Systematic Investment Plan. It allows you to invest a fixed amount regularly in mutual funds. SIPs help in disciplined investing and building wealth over time.

SIPs let you invest small amounts periodically. This makes it easier to handle market volatility. The power of compounding in SIPs can grow your wealth significantly over time.

Your aim is to save Rs. 15,000 monthly through SIPs. This is a good decision for long-term wealth creation. Now, let's explore how to choose the right SIPs for your needs.

Categories of Mutual Funds
Mutual funds come in various categories. Each has its own risk and return profile. Understanding these categories will help you make better decisions.

Equity Funds
Equity funds invest in stocks. They can be high-risk but offer high returns. There are subcategories like large-cap, mid-cap, small-cap, and multi-cap.

Large-cap funds invest in big companies. They are relatively stable.
Mid-cap funds invest in medium-sized companies. They offer higher growth potential but come with more risk.
Small-cap funds invest in small companies. They can provide high returns but are very volatile.
Multi-cap funds invest in companies of all sizes. They provide a balanced risk-reward ratio.
Debt Funds
Debt funds invest in fixed-income securities. They are less risky than equity funds. Debt funds include liquid funds, short-term funds, and long-term funds.

Liquid funds invest in short-term instruments. They offer quick liquidity and low risk.
Short-term funds invest in short to medium-term securities. They offer moderate returns with low risk.
Long-term funds invest in long-term securities. They offer higher returns with slightly higher risk than short-term funds.
Hybrid Funds
Hybrid funds invest in both equity and debt instruments. They provide a balance of risk and return.

Aggressive hybrid funds have a higher equity component. They offer higher returns but with more risk.
Conservative hybrid funds have a higher debt component. They offer stability with moderate returns.
Choosing the Right SIPs
To select the best SIPs, consider your risk tolerance, investment horizon, and financial goals. Here's a guide to help you:

Assess Your Risk Tolerance
Understand your risk tolerance. If you can handle market volatility, consider equity funds. If you prefer stability, opt for debt or conservative hybrid funds.

Define Your Investment Horizon
Your investment horizon impacts your fund choice. For long-term goals (5+ years), equity funds are suitable. For short-term goals (1-3 years), choose debt funds or liquid funds.

Align with Financial Goals
Match your SIPs with your financial goals. For example, if you're saving for retirement, consider equity funds for higher growth. For a child's education in the near future, debt funds might be better.

Advantages of Mutual Funds
Mutual funds offer many benefits:

Diversification
Mutual funds diversify your investments across various assets. This reduces risk.

Professional Management
Mutual funds are managed by experts. This ensures better investment decisions.

Liquidity
Mutual funds provide easy access to your money. You can redeem your units anytime.

Transparency
Mutual funds disclose their portfolio regularly. This ensures transparency.

Tax Efficiency
Certain mutual funds offer tax benefits. For example, ELSS funds provide tax deductions under Section 80C.

Power of Compounding
Compounding means earning returns on your returns. In SIPs, compounding works wonders. The longer you invest, the more your money grows.

For example, investing Rs. 15,000 monthly for 20 years can accumulate substantial wealth. The power of compounding accelerates your returns over time.

Actively Managed Funds vs. Index Funds
Actively managed funds are managed by fund managers. They aim to outperform the market. Index funds, on the other hand, track a market index.

Disadvantages of Index Funds
Index funds mirror the market. They do not outperform it. In volatile markets, actively managed funds can perform better.

Actively managed funds offer better returns in the long run. Fund managers use their expertise to make strategic investments. This can lead to higher growth compared to index funds.

Direct Funds vs. Regular Funds
Direct funds are bought directly from the mutual fund house. They have lower expense ratios but lack advisory services. Regular funds are bought through a Certified Financial Planner (CFP). They come with advisory support.

Disadvantages of Direct Funds
Direct funds do not offer professional advice. Without guidance, you might make poor investment decisions.

Benefits of Regular Funds
Regular funds provide access to a CFP. A CFP can help you choose the right funds, monitor your portfolio, and make adjustments as needed. This ensures better financial planning and investment management.

Building a Balanced Portfolio
A balanced portfolio is key to successful investing. Here’s how to build one:

Diversify Across Asset Classes
Invest in a mix of equity, debt, and hybrid funds. This spreads your risk and enhances returns.

Review Your Portfolio Regularly
Monitor your investments periodically. Adjust your portfolio based on market conditions and financial goals.

Stay Invested for the Long Term
Long-term investing maximizes the benefits of compounding. Avoid frequent switching between funds.

Genuine Compliments and Empathy
Your decision to start SIPs shows financial wisdom. It's a great step towards wealth creation. I understand the confusion in choosing the right funds. With the right guidance, you can achieve your financial goals.

Final Insights
Starting SIPs is a smart move for building wealth. Assess your risk tolerance, investment horizon, and financial goals to choose the right funds. Consider the benefits of actively managed funds and regular funds with a CFP’s support.

Mutual funds offer diversification, professional management, and liquidity. The power of compounding in SIPs can significantly grow your wealth over time.

Stay disciplined and invest for the long term. Regularly review your portfolio and adjust as needed. Your financial journey is unique, and with the right approach, you can achieve your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in