Hi sir, I'm 25y old. I have a salary of 55k per month I've started investing in May 2022 in mutual funds through SIP for long term 25-30years. Right now I've 60k of invested amount in MF Portfolio doing SIP of 7k per month. I've an emergency fund in FD of 60k and I've health and term insurance for me and family. I also have a personal loan of 6lakh which I took in December 2022. I'm paying 20k monthly for a loan. Still I need to pay 6.22 lakh in 3 years. I'm also thinking of starting investing 10k per month in chit funds for 2 years(trusted chit fund) assuming an annualized return of 15%. My monthly expenses excluding loan and SIP in MF is 23k. My MF Portfolio: Parag Parikh flexi cap - 2.5k Nippon small cap - 2k Axis bluechip - 2k Navi nifty50 index fund -500 Can you please review my MF Portfolio and guide me how I can clear my debt of 6.22 lakh as soon as possible.

Ans: You are managing a significant loan burden. Clearing this early will offer peace of mind. Your current EMI of Rs. 1.4 lakhs per month is a large portion of your income.

To clear your personal loan and bike loan faster, follow these steps:

Prioritise High-Interest Debt: Focus on your personal loan first. Personal loans often have high-interest rates. Divert any surplus funds to repay this loan.

EMI Boost Strategy: Whenever possible, make lump-sum payments. Even if you increase your EMI slightly, it will reduce the tenure.

Minimise New Loans: Avoid taking on any new loans until you clear the existing ones.

Balance Expenses: Since your EMI is quite high, it’s important to track and reduce any unnecessary expenses. Create a budget and stick to it.

Enhancing Savings for Retirement and Child's Education

It’s wise to think of both short-term debt and long-term goals, like your retirement and your son’s education. You already have a good base of savings in PF, NPS, and mutual funds.

Increase PF and NPS Contributions: Since PF and NPS are long-term and tax-efficient, aim to gradually increase your monthly contributions. This will boost your retirement corpus.

Focus on Child’s Education: Start investing separately for your son’s education. Choose a child-focused investment plan, either through mutual funds or PPF. Avoid mixing education and retirement goals.

Systematic Savings: Consider setting up a recurring deposit or another fixed saving plan to save for short-term needs, like your son’s school fees.

Review of Mutual Fund Portfolio

You are investing Rs. 14,000 monthly in mutual funds, which is a great habit. However, let’s refine your strategy for better results.

Diversify with Caution: You are invested in several funds. While diversification is good, over-diversification may dilute your returns. Consider reducing the number of funds to focus on the best-performing ones.

Actively Managed Funds: Actively managed funds tend to outperform passive index funds. The advantage lies in the fund manager’s ability to beat the market. This is especially important in the long run.

Taxation on Gains: When you sell equity mutual funds, be aware of capital gains taxes. LTCG (Long-Term Capital Gains) above Rs 1.25 lakh are taxed at 12.5%. STCG (Short-Term Capital Gains) is taxed at 20%. Ensure you plan your redemptions wisely to minimise tax liabilities.

Reassessing Debt-to-Investment Balance

Currently, your loan EMIs are significantly higher than your investments. It is crucial to realign this balance over the next five years. Here’s how you can gradually shift the focus from loan repayment to investment:

Debt-Free Timeline: You aim to be debt-free by 2029. It’s realistic, but you should consider accelerating this process. Once you clear your bike loan, redirect those funds toward the personal loan.

Increase SIPs Over Time: As you repay your loans, free up more funds for savings. Gradually increase your SIP amounts. Investing regularly will allow you to take advantage of market growth over time.

Build Emergency Fund: Since your EMIs are high, ensure you have at least 6 months of expenses saved in a liquid fund. This will protect you from unforeseen events.

Life and Health Insurance Adequacy

You have Rs 1 crore health and term insurance cover. That’s commendable for a 38-year-old with a young child.

Review Insurance Coverage: Ensure that your term plan covers your family’s living expenses, education costs, and liabilities. Ideally, your term insurance should be at least 10-15 times your annual income.

Health Insurance Adequacy: A Rs 1 crore health cover is good. Keep reviewing it periodically, as healthcare costs can rise.

Boosting Retirement Savings

Given your age of 38, you still have a good 20-25 years to build a robust retirement fund. Focus on these areas:

PPF Contributions: Your PPF balance stands at Rs 4 lakhs. Continue contributing to it, as it provides guaranteed, tax-free returns.

NPS Contributions: You have Rs 8 lakhs in NPS, which is a strong base for retirement. NPS provides tax benefits and is structured for retirement savings.

Mutual Fund Portfolio: As mentioned earlier, streamline your mutual funds. Continue increasing your SIP contributions. Equity funds will help you achieve long-term growth for retirement.

Final Insights

Your financial planning is on the right track. But there are opportunities to accelerate debt repayment, optimise savings, and fine-tune your investments. Focus on a balance between loan repayment and building a solid financial future for yourself and your family.

Here’s a summary of the steps ahead:

Prioritise high-interest loan repayments, especially the personal loan.

Continue investing in your PF, NPS, and PPF for long-term growth.

Increase your SIP contributions once your debt is under control.

Build a separate education fund for your son’s future needs.

By doing this, you can achieve your debt-free timeline, build savings for retirement, and secure your son’s education.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment