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Should I Sell My 2 BHK in Gurgaon or Rent It Out?

Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 03, 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 - Jul 30, 2024Hindi
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Hi, I have a 2 BHK flat on Golf Course Extension Road Gurgaon coming for possession. It will sell for 2.5 Cr (are the rates here peaked?). Do I put it on rent (Rs 60k/month) or sell it and invest it in MFs for the next 5 years.?

Ans: Deciding whether to rent or sell your 2 BHK flat on Golf Course Extension Road, Gurgaon, is a significant financial decision. Let's break down the pros and cons of each option:

Option 1: Rent the Flat
Pros:
Regular monthly income of Rs. 60,000.
Potential for rental appreciation over time.
You retain ownership of the property, which can be a valuable asset.
Cons:
Tenant management responsibilities.
Potential for property damage.
Loss of opportunity cost on the invested capital.
Option 2: Sell the Flat and Invest in Mutual Funds
Pros:
Lump sum investment in mutual funds for potential higher returns.
Diversification of investments.
No property management hassles.
Cons:
Loss of potential rental income.
Market volatility can impact mutual fund returns.  
No physical asset ownership.
Key Factors to Consider:

Real Estate Market: While Golf Course Extension Road is a prime location, it's essential to assess if property rates are peaking. A potential market downturn could impact your decision.
Rental Yield: Calculate your expected rental yield (annual rent/property value) to compare it with potential mutual fund returns.
Risk Tolerance: Assess your comfort level with market fluctuations. If you're risk-averse, renting might be a safer option.
Tax Implications: Understand the tax implications of rental income and capital gains from property sale.
Financial Goals: Align your decision with your long-term financial objectives. Are you looking for regular income or capital appreciation?
Additional Considerations:

Market Research: Analyze rental and property price trends in the area.
Diversification: Consider investing a portion of the sale proceeds in other asset classes for diversification.
Professional Advice: Consult with a financial advisor to evaluate your specific situation and create a personalized plan.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 06, 2024

Asked by Anonymous - May 30, 2024Hindi
Money
I have a property flat which I have bought in 2014 by 32.63 lakhs . For that property I did not take any loan & slowly investing from 2012 I could able to purchase the property . The registration & mutation cost for property nearly 5 lakhs. The property has a covered garage as well. I am getting rental income 15k per month from that property & one party is inter tested to purchase only the flat as 43 lakhs now excluding the garage . The garage price is expected to be 10-12 lakhs. What is your suggestion sell or rent at this time to optimise gain .
Ans: Assessing Your Property Investment: Sell or Rent?

Your decision to buy a property in 2014 for Rs 32.63 lakhs is commendable. Slowly investing since 2012 to achieve this goal shows your financial discipline and planning. With registration and mutation costs of Rs 5 lakhs, your total investment in the property stands at Rs 37.63 lakhs. You are now earning a rental income of Rs 15,000 per month, and there is interest from a buyer to purchase the flat for Rs 43 lakhs, excluding the garage. The garage price is expected to be around Rs 10-12 lakhs. Let's explore whether you should sell the property or continue renting it out to optimise your financial gain.

Understanding the Current Market Value

The flat alone is being offered at Rs 43 lakhs, and the garage is estimated at Rs 10-12 lakhs. This brings the potential total sale value to around Rs 53-55 lakhs. Given your total investment was Rs 37.63 lakhs, selling now would result in a significant profit.

Calculating the Profit from Selling

Let's break down the financials:

Purchase Price of Flat: Rs 32.63 lakhs
Registration & Mutation Costs: Rs 5 lakhs
Total Investment: Rs 37.63 lakhs
Current Market Value of Flat: Rs 43 lakhs
Estimated Garage Value: Rs 10-12 lakhs
Total Potential Sale Value: Rs 53-55 lakhs
Selling both the flat and garage would yield a profit of Rs 15.37-17.37 lakhs (Rs 53-55 lakhs - Rs 37.63 lakhs).

Assessing Rental Income

You currently receive Rs 15,000 per month from renting the property. Annually, this amounts to Rs 1.8 lakhs. Over the next 10 years, assuming no increase in rental income, you would earn Rs 18 lakhs.

Comparing the Financial Benefits

Selling:

Immediate Profit: Rs 15.37-17.37 lakhs
Lump Sum Amount: Rs 53-55 lakhs
Renting:

Annual Rental Income: Rs 1.8 lakhs
10-Year Rental Income: Rs 18 lakhs
Selling the property provides an immediate lump sum, while renting offers a steady annual income. The decision depends on your financial goals and needs.

Analyzing the Market Trends

Consider the real estate market trends in your area. If property prices are expected to rise significantly, holding onto the property might be beneficial. However, if the market is stable or declining, selling now could be a wise choice.

Tax Implications

Capital Gains Tax:

Selling the property will attract capital gains tax. The property was held for more than 3 years, qualifying it as a long-term capital asset. Long-term capital gains tax is typically 20% with indexation benefits. Calculate the indexed cost of acquisition to determine the exact tax liability.

Rental Income Tax:

Rental income is added to your total income and taxed as per your income tax slab. If you fall in a higher tax bracket, rental income might attract a significant tax.

Reinvestment Opportunities

Selling the property provides a lump sum amount that can be reinvested in various financial instruments. Consulting with a Certified Financial Planner can help identify the best investment options based on your risk profile and financial goals.

Diversification of Investments

Real estate is a significant part of your investment portfolio. Diversifying into other asset classes can spread risk and potentially offer better returns. Consider mutual funds, stocks, or fixed deposits for diversification.

Emotional and Practical Considerations

Owning a property provides a sense of security and stability. Renting offers regular income but involves managing tenants and maintenance. Selling eliminates these hassles but means losing a tangible asset.

Future Plans and Financial Goals

Evaluate your future financial needs and goals. If you require a large sum for another investment, children's education, or retirement, selling might be more beneficial. If you prefer regular income for day-to-day expenses, renting could be better.

Risk Assessment

Rental income provides a steady cash flow but comes with risks like vacancy periods, maintenance costs, and tenant issues. Selling offers a lump sum but involves market risk and finding a good reinvestment option.

Appreciation Potential

Consider the appreciation potential of your property. If the area is developing with upcoming infrastructure projects, the property value might increase. If development is stagnant, selling now could be better.

Inflation and Its Impact

Real estate generally appreciates with inflation, preserving purchasing power. Rental income might not keep up with inflation, reducing its real value over time. Selling and reinvesting in inflation-beating assets could be advantageous.

Professional Advice

Consulting with a Certified Financial Planner can provide tailored advice based on your financial situation and goals. They can help assess the pros and cons of selling versus renting and suggest suitable investment options.

Reinvestment Strategy

If you decide to sell, plan your reinvestment strategy. Diversifying into mutual funds, stocks, or fixed deposits can provide balanced returns. A Certified Financial Planner can guide you on creating a diversified portfolio.

Real Estate Market Analysis

Analyze the local real estate market. If the market is booming, selling now could maximize gains. If it's slow, renting might be more profitable in the short term.

Legal and Administrative Costs

Consider the legal and administrative costs of selling the property. These might include agent fees, legal fees, and transfer charges. Deduct these from your total gain to understand the net profit.

Impact on Your Financial Portfolio

Selling the property will alter your financial portfolio. Assess how this change aligns with your overall financial strategy. Diversifying into liquid assets might improve liquidity and reduce risk.

Emotional Attachment

Sometimes, emotional attachment to property influences decisions. Weigh the emotional satisfaction of owning property against the financial benefits of selling.

Conclusion

Deciding to sell or rent your property requires careful analysis of various factors. Evaluate the financial benefits, market trends, tax implications, and your future goals. Consulting with a Certified Financial Planner can provide professional advice tailored to your situation. Whether you choose to sell or rent, ensure it aligns with your long-term financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Milind

Milind Vadjikar  |358 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Sep 18, 2024

Asked by Anonymous - Sep 17, 2024Hindi
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Hi , I am 45 yr old, two daughters aged 13,10. My asset are a flat worth 1.75 cr, stocks ,85lacs, PPF- 20lacs, PF 40 lacs, MF -5 lacs, and my has a investment of 15 lacs in equity and 10 lacs in MF. We own two parcels of land worth 75 lacs. We don't have any loans and we take home 3.75 lacs. I am moving to tier 2 city, and moving to a rental property. My flat is 20 yr old and it has reached its full value depending on the area. I want to sell my flat and invest the proceedings into MF for a period of 4-5 yrs before buying a house in tier 2 city. Is it advisable to sell it. The flat is tier 1 city and I don't live inthat city
Ans: I propose that you estimate the long term(assumed) capital gain tax liability that may arise after sale of this flat considering indexation or without indexation as is optimal for you. Next consider the future redevelopment potential in the tier-1 city particularly in the area where you have the flat. Another point to be borne in mind is if your daughters need to move to tier-1 city in future for better coaching, education, prospects then this aspect needs to be considered. If you still want to sell the flat then time it in such a way when you want to buy new residential property in tier2 city because you can utilise all your gains here without paying any capital gain tax(Section 54 of Income tax act allows exemption subject to conditions) and/or buying section 54 EC Capital Gain bonds to save LTCG payment(50L per FY limit & 6 months within sale of property subject to eligibility).

Unless you have strong knowledge of markets or an investment advisor to assist you, I would recommend you to redeem your(family) stock holdings(subject to high volatility and needs regular monitoring) of 85L+15L and invest it in a staggered manner into equity savings and value focussed balanced advantage fund for horizon of 4-5 years.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing

You may follow us on X at @mars_invest for updates

Happy Investing!!

..Read more

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Ramalingam Kalirajan  |6544 Answers  |Ask -

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Asked by Anonymous - Oct 08, 2024Hindi
Money
Good evening sir. i am 66year old senior citizen retired last year.wife is 60 years n home.maker.My.investments r as follows..Shares.1.4.cr.Muttual funds.50.lakhs.Sip 75k per month for another 3 years.Real estate plot 1cr.ppf 45 lakhs valid till.2026.Gold around 80 lakhs Daughters married n settled.Son.engineering graduate recently n searching for job.How do i plan for retirement assuming lie span.upto.85.I.have.a family health insurance of 7 lakhs. Looking forward for your valuable guidance.No.liabilities n.own house.
Ans: Your investment portfolio looks quite healthy. You have a variety of assets:

Rs 1.4 crore in shares
Rs 50 lakh in mutual funds
SIP of Rs 75,000 per month for another 3 years
Rs 1 crore real estate plot
Rs 45 lakh in PPF
Rs 80 lakh in gold
You also have a health insurance cover of Rs 7 lakh and no liabilities. With your wife being a homemaker, and your children settled, the focus should be on planning for sustainable retirement income.

Let’s analyse the situation and guide you on how to ensure your funds last throughout your retirement. Your goal is to maintain financial security till the age of 85, which means planning for the next 19 years.

Evaluating Your Current Assets
Shares (Rs 1.4 crore)
This is a substantial part of your portfolio. Shares can provide high returns but are volatile. Since you are retired, you need stability more than high-risk exposure. I suggest reviewing your shareholding and considering shifting a portion of this into less risky assets.

You may continue holding some of these shares for capital appreciation.
Shift part of the portfolio into less volatile instruments for regular income.
Mutual Funds (Rs 50 lakh) and SIPs
You have Rs 50 lakh in mutual funds and an ongoing SIP of Rs 75,000 per month for another three years. This systematic investment is a good approach, as it helps build wealth.

You could switch some of these mutual funds from growth-oriented funds to regular income-oriented funds.
This will ensure a steady stream of income while still enjoying some growth.
Note: Actively managed funds could be a better option for you at this stage of life. They are guided by professional fund managers who adjust the portfolio based on market conditions. Index funds, on the other hand, follow the market passively and can be volatile.

PPF (Rs 45 lakh, Valid Till 2026)
The PPF is a safe investment, giving tax-free returns. With Rs 45 lakh, it serves as a stable part of your portfolio.

You should continue holding it until maturity in 2026.
Upon maturity, reinvesting the proceeds into senior citizen schemes or low-risk instruments can ensure steady income.
Gold (Rs 80 lakh)
Your gold holding is quite significant. While gold can act as a hedge against inflation, it does not generate regular income.

I suggest retaining some portion of the gold.
Consider liquidating part of the gold and shifting the proceeds into low-risk, income-generating investments.
Real Estate Plot (Rs 1 crore)
You have a real estate plot valued at Rs 1 crore. However, real estate is an illiquid asset and may not provide regular income unless rented or sold.

You can explore selling this property if it doesn’t generate regular cash flow.
Reinvest the proceeds into safer, more liquid instruments that provide monthly income.
Retirement Corpus and Monthly Income
At this stage, it's crucial to build a consistent monthly income stream to meet your expenses.

Look at investing a portion of your shares, mutual funds, or real estate sale proceeds into debt instruments.
Debt mutual funds, bonds, or government-backed schemes can provide a steady flow of income without high risk.
You need to evaluate your monthly expenses and match them with the income from investments. Based on your assets, there are several options that offer predictable returns:

Senior Citizens' Savings Scheme (SCSS): Offers regular income, government-backed, and safe.
Debt Funds: These are relatively safe mutual funds focusing on fixed-income securities.
Monthly Income Plans (MIPs): These are hybrid mutual funds designed to give regular income, ideal for retirees.
These options can ensure that you have a regular monthly income to meet your lifestyle needs without depending on volatile assets like shares.

Emergency Fund Planning
You should keep aside 1-2 years’ worth of expenses in a very liquid form. This ensures you are prepared for any unexpected emergencies without liquidating long-term assets.

Liquid funds or bank fixed deposits can be a suitable place to park these emergency funds.
It will give you quick access to money, should the need arise.
Health Insurance Review
You currently have health insurance of Rs 7 lakh. At your age, healthcare expenses can rise, so reviewing your health cover is essential.

I recommend increasing your coverage to at least Rs 15-20 lakh.
You can do this by either upgrading your existing policy or taking a top-up plan.
Healthcare expenses are unpredictable and can put a strain on your savings. A larger health cover can protect your retirement corpus from being eroded.

Plan for Your Wife
Since your wife is a homemaker, it is important to ensure that she has financial security. If anything were to happen to you, she must have access to regular income and health coverage.

You can consider setting up joint investment accounts with your wife.
Ensure that your will and nominations are up to date.
Also, review her health insurance separately. Since she is 60 years old, it’s important that she has adequate cover in case of emergencies.

Structuring Your Retirement Income
Given the wide range of assets you have, structuring them properly is key to meeting your retirement goals. Here's how you can proceed:

Short-term needs (1-3 years): Keep money in highly liquid assets like bank FDs or liquid funds for emergencies.

Medium-term needs (3-10 years): Invest in debt mutual funds, bonds, or SCSS for regular income.

Long-term needs (10-15 years): Keep a portion of your shares and mutual funds invested for growth, but gradually move some into safer instruments.

Inflation Protection
You must also account for inflation in your retirement planning. Inflation will erode the value of your savings over time.

Consider keeping a portion of your funds invested in growth-oriented assets like mutual funds.
Gold also acts as a hedge against inflation, so maintaining some of your gold holdings will help.
Estate Planning
Since you own significant assets, it’s important to ensure a smooth transfer to your heirs.

Create a will if you haven’t already.
Review your nominations in all investment accounts and insurance policies to avoid legal complications.
You should ensure that your son, daughter, and wife are clear about your financial plans. This will help them manage assets if you are no longer able to.

Finally
You are in a strong financial position, but retirement requires careful planning. Diversifying your assets into more stable, income-generating options will give you the peace of mind that your money will last for the rest of your life.

Consider reducing exposure to volatile assets like shares.
Ensure regular monthly income through safer investments like debt mutual funds and senior citizen schemes.
Increase your health insurance cover to protect against rising healthcare costs.
By structuring your investments properly and making adjustments where necessary, you can ensure that you enjoy a comfortable retirement without worrying about outliving your savings.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 09, 2024

Asked by Anonymous - Oct 08, 2024Hindi
Money
I have availed home of 75 lakh. Loan account have over draft facility so I have parked all my savings of 65L in over draft. Plus point I am paying no nterest and amount is accessible in case needed. Please advise shall I start repaying in bulk 5L per year or invest in mf/equities. I am 44 yo working professional , 30L pa salary and looking to create corpus for retirement in next 10years
Ans: At 44, you're a working professional earning Rs. 30 lakh annually. You've availed a Rs. 75 lakh home loan with an overdraft facility and parked Rs. 65 lakh in this account. This setup ensures you're paying no interest while keeping funds accessible. You want to retire in 10 years and build a solid corpus for retirement. Your main question is whether to repay the home loan in bulk or invest in mutual funds (MF) and equities.

Let’s break this down into several key aspects for you to consider.

Overdraft Facility: A Double-Edged Sword

The overdraft (OD) facility is a smart choice in your current scenario. It provides liquidity, meaning you can use the funds anytime, while also saving on interest payments since your Rs. 65 lakh reduces the loan balance. This system gives you flexibility and ensures your funds are working for you by reducing the loan interest.

However, keeping all Rs. 65 lakh parked in the OD may not be the most efficient long-term strategy. This is because the opportunity cost of not investing these funds in potentially higher-return instruments like mutual funds or equities could outweigh the interest savings from the home loan.

Advantages of Keeping Money in the OD Facility:

Interest saved is almost equal to the loan’s interest rate (around 7-9%).

Full liquidity to use your money if any emergency arises.

Disadvantages:

No growth on the Rs. 65 lakh if it stays in the OD account, as the money is not invested in wealth-creating assets.
Should You Repay the Home Loan or Invest in Mutual Funds/Equities?

The next question is whether to repay the loan in bulk or start investing. Since you have already significantly reduced the loan interest by parking Rs. 65 lakh, let’s look at the factors that will help you decide:

Interest Rate Comparison: The home loan interest rate is typically around 7-9%. Historically, mutual funds have delivered returns in the range of 10-12% (depending on market conditions and fund types). Hence, investing in mutual funds could give you higher returns than the savings on your home loan interest.

Your Investment Horizon: You have a 10-year investment horizon before you plan to retire. This is an adequate time frame to take advantage of equity market growth. Equities and equity mutual funds tend to outperform debt instruments and loan interest rates in the long run.

Risk Appetite: Equity investments come with a certain level of risk. If you are comfortable with volatility in the short term and want to maximize returns over the next 10 years, mutual funds and equities are a good option. However, if you are more conservative, consider a balanced approach between debt and equity.

Emergency Needs: If you foresee any major financial requirements in the near future, it might be wise to keep part of your funds in the overdraft facility for liquidity. Otherwise, you can allocate a portion of these funds towards investments.

Investment Strategy for Your Corpus Goal

To meet your retirement goal of creating a large corpus, let’s assume you want a combination of regular income and growth.

SIP in Equity Mutual Funds: Systematic Investment Plans (SIPs) in equity mutual funds can help you build wealth consistently over time. If you haven't already, consider investing Rs. 25,000 to Rs. 30,000 monthly in diversified equity mutual funds, small-cap funds, or mid-cap funds based on your risk appetite.

Diversified Equity Portfolio: Having a mix of large-cap, mid-cap, and small-cap funds will give you a balanced exposure to the market, ensuring both stability and growth.

Debt Allocation for Stability: As you move closer to retirement, you should allocate a portion of your portfolio to debt funds. These are safer and provide more stability compared to equities. Starting with around 20-30% debt allocation now and increasing it as you approach retirement will help balance the risk.

Equity Portfolio for Long-Term Growth: Continue to invest in equity mutual funds, as they offer potential higher returns over the long term. Given your 10-year horizon, you can afford to ride out market volatility and benefit from the growth.

Reviewing Current Mutual Funds:

If you're already invested in mutual funds, assess their performance. Replace underperforming funds with more consistent ones. Avoid index funds, as they often underperform actively managed funds in India. Active funds, managed by skilled fund managers, can generate higher returns by picking the right stocks.

Avoid direct funds, as investing through a Certified Financial Planner (CFP) can ensure better fund selection and management.

Creating a Corpus for Your Children’s Education and Marriage

Your daughter is 9 years old, and your son is 4. You’ll need a substantial corpus for their higher education and marriage.

Start Separate SIPs: Consider starting separate SIPs for each child’s education goal. Since you have about 7-9 years for your daughter’s education expenses and about 12-14 years for your son, SIPs in a mix of equity and debt funds can help build the required corpus.

Sukanya Samriddhi Scheme: You’ve already invested Rs. 4 lakh in the Sukanya Samriddhi Yojana for your daughter. This is a great initiative, but you’ll need to supplement this with equity-based investments to meet the rising education costs.

Gold for Marriage: If you're inclined towards traditional methods, you can consider buying small amounts of gold (as part of your overall investment strategy) for their marriages. However, avoid allocating a large portion of your wealth to gold, as its growth potential is limited compared to equities.

Optimizing Tax Benefits

While planning your investment and loan repayment strategy, consider the tax benefits you are already availing from your home loan under Section 80C and Section 24(b) of the Income Tax Act.

Maximize 80C Investments: Ensure that your investments in EPF, PPF, Sukanya Samriddhi Yojana, and life insurance policies help you claim the maximum tax benefit of Rs. 1.5 lakh under Section 80C.

Section 24(b): Interest paid on your home loan is eligible for a deduction of up to Rs. 2 lakh. As you're not paying much interest due to the overdraft facility, the benefit here might be minimal. However, investing the funds instead of repaying the loan could provide better tax efficiency in the long run.

Final Insights on the Path Forward

You have set up a solid base by utilizing the overdraft facility effectively, which is commendable. However, with a 10-year window before retirement, it’s crucial to focus on wealth creation through strategic investments.

Keep a portion of your funds in the overdraft for liquidity and emergencies. However, gradually reduce the excess parked amount and allocate these funds towards mutual funds and equities for better long-term returns.

Continue with your SIPs, and review your mutual fund portfolio regularly. Replace underperforming funds with more consistent performers, but avoid index funds and direct funds. Consult a Certified Financial Planner (CFP) for tailored advice and regular portfolio reviews.

Build separate investment plans for your children’s education and marriage. Ensure a mix of equity and debt to balance growth with safety.

Lastly, revisit your financial plan periodically to ensure you remain on track to achieving your retirement and other financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 09, 2024

Asked by Anonymous - Oct 08, 2024Hindi
Money
Hi Sir , Im currently 43 and Im an NRI with family staying with me. We have 2 kids 13 yrs Boy & 5 yrs Girl. I have couple of questions: 1.I have a housing loan for 25 lakhs with EMI of 25 thousand for another 9 years. Unknowingly I choose the floating interest and it keeps on increasing. What is the best way to proceed, will the interests rate come down? 2. We have retirement polity which will start @ age 55 and have invested little amount in SIP of 2 lahks. I have a lumpsum amount of 15 lakhs and is it advisable to do the one time investment in mutual funds and leave it to grow for the next 15 years. What will be the approx. corpus it will create. Will it reach 2 CR?
Ans: First, let's address your concern about the housing loan. You mentioned that your EMI is Rs 25,000 for 9 more years, and it's on a floating interest rate. This situation can feel frustrating, especially when rates are rising, but there are ways to manage it effectively.

Switch to a Fixed Interest Rate: One of the simplest solutions could be switching your loan to a fixed rate. Fixed rates provide predictability. You may lose out on lower rates if they drop, but you avoid the stress of rising rates.

Loan Refinancing: You can explore refinancing your loan with a different bank or financial institution that offers a better rate. Many banks offer balance transfer options at competitive interest rates. This could help reduce your EMI and interest burden.

Interest Rates Outlook: Predicting interest rates can be challenging. While rates may decrease over time, there's no certainty. If you're on a floating rate, be prepared for fluctuations. It's often better to make proactive decisions based on your current financial situation rather than wait for rates to drop.

Extra Prepayments: Another option is to make additional prepayments when possible. This can help reduce the principal amount and, consequently, the interest burden over time. Even small prepayments can make a significant difference in reducing your total interest payable.

Tenure Extension: You could consider extending your loan tenure, though this isn't always the best solution. It lowers your monthly EMI, but increases the overall interest payout. If cash flow is tight, this might be a temporary solution.

You might want to consider discussing these options with your lender to find the best possible solution for your current financial situation.

Investment in Mutual Funds for Long-Term Growth
You mentioned having a lumpsum amount of Rs 15 lakhs that you plan to invest for 15 years. This is a great time horizon for wealth accumulation, and mutual funds can be an excellent avenue for long-term growth.

One-Time Investment in Mutual Funds: Yes, investing your Rs 15 lakhs in a mutual fund is a good strategy for long-term growth. Since your investment horizon is 15 years, you can afford to take moderate to high risks, which can yield potentially higher returns.

Growth Potential: Historically, equity mutual funds have delivered around 10-12% annual returns over the long term. While returns are never guaranteed, equity mutual funds tend to outperform other asset classes like fixed deposits or bonds in the long run.

Potential Corpus Creation: Assuming a conservative return of 10% per annum, your Rs 15 lakh one-time investment could potentially grow to Rs 60-65 lakhs in 15 years. This is based on historical data, and actual returns could be higher or lower.

Will It Reach Rs 2 Crore?: Reaching Rs 2 crore with just Rs 15 lakh over 15 years might be challenging with a one-time investment. However, you can achieve this goal by regularly topping up your investment, either through SIPs or additional lump-sum investments. You can also choose more aggressive mutual fund categories to potentially increase your returns, but this comes with higher risk.

Active Mutual Funds Over Index Funds: While many investors prefer index funds, actively managed funds could be a better option for you. These funds are managed by professional fund managers who actively pick stocks based on market conditions. Active funds have the potential to outperform the market, whereas index funds only replicate market performance.

Benefits of Regular Plans Over Direct Plans: If you’re not monitoring your portfolio actively, it's better to invest through a Certified Financial Planner (CFP). CFPs offer you guidance, ongoing support, and help you make informed decisions. Direct plans, while lower in cost, don’t offer this level of expertise or handholding.

Overall, a mutual fund investment could certainly help you achieve a significant corpus over 15 years, but reaching Rs 2 crore will likely require a combination of one-time and systematic investments.

Your Existing Retirement Policy
You mentioned that you have a retirement policy starting at age 55. This policy may provide you with a steady source of income during retirement. However, it’s essential to evaluate its performance periodically.

Policy Performance: Review the policy’s growth rate and see if it aligns with your retirement needs. Often, these policies offer lower returns compared to mutual funds. You might want to consider diversifying your retirement savings by adding mutual fund investments.

Supplementing with Mutual Funds: Since you’re investing in mutual funds through SIPs, this is a good strategy to supplement your retirement policy. SIPs provide the benefit of rupee cost averaging, which reduces the impact of market volatility. Increasing your SIP contributions over time can significantly enhance your retirement corpus.

Additional Considerations for Your Financial Plan
Here are some more suggestions that can help you secure your financial future:

Children’s Education: With two children aged 13 and 5, their education expenses are likely to rise soon. It’s important to start planning for their education costs, which could be substantial in the coming years. You can explore child education funds or set aside a portion of your mutual fund investments for this purpose.

Insurance: Ensure that you have adequate life and health insurance coverage for your family. Health emergencies or unexpected events can derail your financial plans, so having sufficient coverage is crucial. Consider increasing your coverage if needed.

Emergency Fund: It’s essential to have an emergency fund in place to cover at least 6-12 months of living expenses. This provides a financial cushion in case of unforeseen circumstances like job loss or medical emergencies. Keep this fund in a liquid and easily accessible instrument, such as a savings account or liquid mutual funds.

Debt Repayment Strategy: Focus on repaying your housing loan, especially if you choose to remain on a floating rate. Clearing your debt early will reduce your financial burden and free up more money for investments. As mentioned earlier, consider making small prepayments when possible.

Estate Planning: It’s also worth considering estate planning to ensure that your assets are distributed as per your wishes in the future. Creating a will or trust can provide peace of mind, knowing that your family is protected.

Key Takeaways
Switch your loan to a fixed rate or consider refinancing it to manage rising interest rates.

A one-time investment of Rs 15 lakhs in mutual funds could yield significant returns over 15 years, but reaching Rs 2 crore may require additional investments.

Evaluate your existing retirement policy and supplement it with mutual fund investments for better long-term growth.

Ensure that you are adequately insured and that you have an emergency fund in place.

Start planning for your children’s education and consider estate planning to safeguard your family's future.

Final Insights
Your overall financial situation seems solid, and you’ve made wise choices by investing in SIPs and planning for your retirement. However, with the fluctuating interest rates on your home loan and your desire to grow your wealth, it’s crucial to make proactive decisions now.

By refining your loan strategy, focusing on growing your mutual fund investments, and securing your family’s future with proper insurance and estate planning, you can build a strong financial foundation. Achieving Rs 2 crore is possible with consistent investment discipline and proper guidance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 09, 2024

Asked by Anonymous - Oct 08, 2024Hindi
Money
Hello Sir, I am 38 now and Planning to retire at 55 with corpus of 4 Cr. I have took home loan of 32 lakh in 2021 which has current interest rate of 9.35% Also have Car loan of Rs 9 lakh took 2 yrs before with interest rate of 10% for 7 year. My take home salary is 1 lakh and rental income of Rs. 12k. Investments current value :- Parag Parikh Flexi cap 4.43 lakh(SIP10K) ICICI prudential Nifty next 50 2.94 lakh(SIP 5K) Kotak Equity opportunities 1.5 lakh Franklin ELSS 70k HDFC Mid cap opportunities 38k(SIP5k) Nippon India Small cap - 5k(SIP 5K) Value of shares in share market is around 9 lakh. Sukanya Samruddhi Yojana 4 lakh PPF 1.5 lakh EPF around 2 lakh I have daughter of 9 year oldand Son of 4 year old Need corpus for Education,Marriage and Retirement Also let me know MF selected are ok or I need to switch??
Ans: You are 38 years old and aim to retire at 55 with a corpus of Rs. 4 crore. Your current salary is Rs. 1 lakh per month, and you have an additional rental income of Rs. 12,000. You have ongoing loans – a home loan of Rs. 32 lakh with an interest rate of 9.35% and a car loan of Rs. 9 lakh with a 10% interest rate.

Your investments include mutual funds, equities, Sukanya Samriddhi Yojana (SSY), PPF, and EPF, and you also have two children (a 9-year-old daughter and a 4-year-old son). You are planning for their education, marriage, and your retirement. Let's evaluate your financial situation step-by-step and provide a detailed strategy to meet your goals.

Evaluating Your Current Loans
Home Loan: You took a Rs. 32 lakh home loan at an interest rate of 9.35%. The current interest rate environment makes your EMI relatively high. Home loans can be long-term commitments, and high interest could be draining a significant portion of your income.

Car Loan: You also have a Rs. 9 lakh car loan with a 10% interest rate. Auto loans are generally high-interest liabilities that depreciate as the vehicle loses value. This is a costly loan that can burden your monthly cash flow.

Recommendation:

Consider prepaying the car loan as early as possible since it comes with a high-interest rate and doesn't offer tax benefits. This will free up cash for other investments.

Look into refinancing your home loan. Check if you can reduce the interest rate by transferring the balance to another lender offering a lower rate. Even a slight reduction can save you a lot over time.

Analyzing Your Current Investments
You have built a good mix of investments in mutual funds, equities, and savings schemes. Let’s evaluate them:

Parag Parikh Flexi Cap (SIP of Rs. 10K): Flexi-cap funds offer the flexibility to invest across market capitalizations. This is a good long-term bet as it gives fund managers the freedom to choose based on market conditions.

ICICI Prudential Nifty Next 50 (SIP of Rs. 5K): You are investing in an index fund, but index funds, especially in the Next 50 category, tend to be more volatile. These funds may not provide as much flexibility as actively managed funds in the long term. Actively managed funds usually perform better during uncertain market conditions.

Kotak Equity Opportunities: Equity opportunities funds can be suitable for investors looking for long-term growth. Ensure this fund is regularly monitored, and stay in touch with your Certified Financial Planner (CFP) to review performance periodically.

Franklin ELSS: This is a tax-saving option. Equity Linked Saving Schemes (ELSS) also provide decent returns over the long term, with a lock-in period of three years. This fund category should remain part of your portfolio for tax saving and wealth creation.

HDFC Mid Cap Opportunities (SIP of Rs. 5K): Mid-cap funds have the potential to offer high returns but come with higher volatility. With 17 years to retirement, mid-caps can give you a good risk-reward balance if you have a long-term horizon.

Nippon India Small Cap (SIP of Rs. 5K): Small-cap funds have a higher risk but also potential for high returns. Keep this as a part of your long-term investment portfolio but ensure that the exposure to small-cap funds doesn't exceed 10-15% of your overall portfolio.

Shares: You have Rs. 9 lakh in direct equity investments. Equities are excellent for long-term growth, but you must monitor them regularly and stay updated on company performances. Direct equities can be riskier than mutual funds, so ensure diversification.

Sukanya Samriddhi Yojana (SSY): This is a great option for your daughter’s education and marriage, offering guaranteed returns and tax benefits under Section 80C. SSY should remain a core part of your financial planning for her future.

PPF (Rs. 1.5 lakh): PPF is a safe, tax-saving option that also provides good long-term returns. Continue investing in PPF for guaranteed, risk-free returns.

EPF (Rs. 2 lakh): EPF is another safe, long-term retirement saving option. It provides a steady, assured return and should continue to be a part of your retirement corpus.

Recommendation:

Actively managed funds may be a better option compared to index funds. They give fund managers flexibility to make strategic choices, potentially offering better returns, especially in volatile markets.

Continue your investments in mid-cap and small-cap funds but limit their proportion in your portfolio to avoid excessive risk.

Direct equity investment should be carefully monitored or handled through a CFP to avoid risk concentration.

Planning for Children's Education and Marriage
You have a 9-year-old daughter and a 4-year-old son. Education and marriage are significant future expenses that need careful planning.

Education: With education costs rising, start building a dedicated education fund for each child. You may need to allocate a specific portion of your SIPs or open a separate mutual fund portfolio for this goal. Plan for both higher education and school-related expenses.

Marriage: Marriage costs can be unpredictable. You could create a separate investment for marriage-related expenses in a balanced fund or a combination of fixed-income instruments and equities to ensure safety with some growth potential.

Recommendation:

Start allocating a portion of your income towards a dedicated education fund. This could include child-specific schemes like SSY or child-focused mutual funds.

Consider keeping marriage funds in low-risk, medium-return instruments to ensure they grow steadily without much risk exposure.

Assessing Your Retirement Plan
You aim to retire at 55 with a corpus of Rs. 4 crore. This is achievable with disciplined investing and strategic planning.

Current Investment Strategy: You are already investing in mutual funds, equities, and long-term savings plans like PPF and EPF. However, you need to ensure that your asset allocation is aligned with your retirement goals.

Debt Management: Your current loans should be repaid before retirement to avoid carrying financial liabilities post-retirement. Prepaying your car loan and refinancing your home loan could help you save significant amounts, which can then be redirected to investments.

Recommendation:

Focus on building a balanced portfolio of equity and debt to ensure your portfolio grows while also offering stability. Equity should dominate your portfolio in the early stages, while debt instruments can gradually take over as you approach retirement.

Increase your SIP contributions whenever your income increases. Aim to invest 25-30% of your monthly income towards retirement planning.

Evaluating Your Financial Goals and Future Course
You need to address three major goals: retirement, children's education, and marriage. Each goal requires a dedicated plan to ensure adequate corpus growth.

Recommendation:

For retirement, ensure that at least 60-70% of your portfolio is in growth-oriented instruments like equity mutual funds for now. As you approach retirement, gradually shift to debt funds for stability.

For your children's education, use a mix of equity mutual funds and child-specific investment schemes to ensure the corpus grows in line with education inflation.

For marriage expenses, opt for lower-risk instruments that offer predictable growth, such as balanced funds or a combination of equity and debt.

Final Insights
Loan Repayment: Focus on prepaying your high-interest car loan as soon as possible. This will free up cash flow for investments. Consider refinancing your home loan to reduce the interest burden.

Mutual Fund Strategy: You have a well-diversified portfolio. However, avoid index funds, as actively managed funds can provide better returns over the long term. Continue SIPs in flexi-cap, mid-cap, and small-cap funds but limit small-cap exposure.

Children's Future: Start separate SIPs for your children's education and marriage. SSY is a great option for your daughter’s future, but you may also need equity mutual funds for higher growth.

Retirement Corpus: With consistent investment and discipline, a Rs. 4 crore corpus is achievable. Aim to increase your SIP contributions periodically, keep monitoring your mutual fund performance, and consult with a CFP regularly to review your progress.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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