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Single parent's financial journey: seeking independence with a 5-year-old daughter

Ramalingam Kalirajan |7122 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Nov 25, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Nov 25, 2024Hindi

I'm single parent of a 5 years old daughter. My monthly income is 1lakh. I'm 35 year old. I'm in Government service. I've 15lakh in mutual fund. 10 lakh in ppf. 5 lakh in gpf, 10 lakh in NSC, and 5 lakh in SSY. I've EMI of 40K monthly for my apartment. Other expenses are almost 40k. Please suggest to improve financial independence.

Ans: Balancing financial independence while securing your daughter’s future is essential. Your steady government job provides stability, and your investments are a strong foundation. Below is a structured approach to help you optimise your finances and achieve greater independence.

Assessing Your Current Financial Position
Income and Savings: Your Rs 1 lakh monthly income and existing investments reflect financial discipline.

Fixed Expenses: Rs 40,000 EMI and Rs 40,000 living expenses leave Rs 20,000 for investments.

Existing Investments: You hold Rs 45 lakh in diversified instruments, ensuring reasonable safety and growth.

Immediate Priorities
1. Emergency Fund

Maintain a fund of 6–12 months' expenses for unforeseen events.

Set aside Rs 5–6 lakh in a liquid mutual fund or savings account.

2. Debt Management

Your Rs 40,000 EMI takes 40% of your income, which is manageable.

Avoid new loans until this EMI reduces significantly.

3. Daughter’s Education and Marriage

Estimate education costs considering inflation over the next 10–15 years.

Begin investing systematically to build this corpus.

Optimising Your Current Investments
1. Mutual Funds

Review your existing Rs 15 lakh mutual fund portfolio with a Certified Financial Planner.

Shift funds to actively managed large-cap, flexi-cap, and hybrid funds for balanced growth.

2. PPF and GPF

PPF and GPF provide safe, steady returns and tax benefits.

Continue contributions but avoid over-allocating, as returns are moderate.

3. NSC and SSY

NSC is a stable option but offers limited growth.

SSY is ideal for your daughter’s future due to tax-free, high returns.

4. Apartment EMI

Owning property ensures security but restricts cash flow.

Prepay EMI with lump sums if feasible, to reduce interest costs and free up funds.

New Investment Strategy
1. SIP in Growth-Oriented Mutual Funds

Invest Rs 10,000–15,000 monthly in equity mutual funds for wealth creation.

Focus on flexi-cap, large-cap, and mid-cap funds for diversified growth.

2. Balanced Advantage Funds

Allocate Rs 5,000 monthly to balanced advantage funds for reduced volatility.

These funds dynamically balance equity and debt exposure.

3. Child-Specific Plans

Invest in mutual funds tailored for children’s education and marriage goals.

Review returns periodically and align them with your daughter’s future needs.

4. Avoid Direct Funds

Direct funds lack professional guidance, which is crucial for your goals.

Use regular funds managed by a Certified Financial Planner for expertise.

Insurance and Risk Management
1. Life Insurance

Ensure adequate life cover of 10–15 times your annual income.

Avoid investment-cum-insurance policies like ULIPs. Instead, opt for a term plan.

2. Health Insurance

Enhance your health cover to Rs 10–15 lakh. Include coverage for your daughter.

Government health schemes may not be sufficient for private hospital expenses.

Tax Efficiency
Maximise deductions under Section 80C with PPF, SSY, and term insurance premiums.

Consider investing in NPS under Section 80CCD(1B) for additional Rs 50,000 tax deduction.

Plan redemptions from mutual funds carefully to minimise LTCG tax at 12.5%.

Steps for Financial Independence
1. Automate Savings

Set up automated SIPs and recurring deposits to ensure disciplined investments.

2. Increase Investments with Salary Growth

Allocate future salary increments towards investments rather than lifestyle upgrades.

3. Avoid Impulse Spending

Track expenses to identify areas for saving. Redirect savings to long-term goals.

4. Regular Portfolio Reviews

Review your portfolio every 6–12 months with a Certified Financial Planner.

Rebalance funds to align with market conditions and your financial goals.

Final Insights
Your financial discipline is impressive, given your responsibilities as a single parent. By optimising existing investments and adopting a strategic SIP approach, you can improve cash flow and achieve financial independence. Focus on long-term growth while ensuring adequate risk coverage for you and your daughter.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

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