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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 15, 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 02, 2024Hindi
Money

I am 22 years old with a monthly salary of 36 thousand in hand after deductions i have a health insurance of 5 lacks and for both parents 3 lacks and a family loan of 17 lacks in total. Epf of 40 thousand. My monthly living expenses are around 20 thousand and how can i clear the loans, can it be done by investing, kindly guild me.

Ans: Congratulations on starting your financial journey at such a young age. It’s commendable that you are thinking about clearing loans and planning your investments early. With proper planning and disciplined execution, you can achieve your financial goals. Let's analyze your current situation and explore potential strategies to help you manage and clear your loans effectively.

Understanding Your Financial Position

Let's break down your current financial position:

Monthly salary: Rs 36,000
Health insurance: Rs 5 lakhs
Parents' health insurance: Rs 3 lakhs
Family loan: Rs 17 lakhs
EPF: Rs 40,000
Monthly expenses: Rs 20,000
Assessing Your Loan Situation

Your total family loan stands at Rs 17 lakhs. It's essential to understand the interest rates, tenure, and monthly EMIs for these loans. This will help us determine the best strategy for repayment.

Budgeting for Loan Repayment

You have a monthly income of Rs 36,000 and expenses of Rs 20,000, leaving you with Rs 16,000. This surplus can be utilized for loan repayment and investments.

Creating a Repayment Strategy

Prioritize High-Interest Loans:
Identify which loans have the highest interest rates. Prioritize paying these off first to reduce your overall interest burden.

Debt Consolidation:
If you have multiple loans with varying interest rates, consider consolidating them into a single loan with a lower interest rate. This can simplify your repayments and potentially reduce your interest costs.

Increase EMI Payments:
If possible, increase your monthly EMI payments. This will help you clear the loans faster and save on interest payments.

Emergency Fund

Before aggressively paying off your loans, ensure you have an emergency fund in place. This should cover at least 3-6 months' worth of living expenses. Given your monthly expenses are Rs 20,000, aim for an emergency fund of Rs 60,000 to Rs 1,20,000. This will provide a safety net in case of any unforeseen expenses or loss of income.

Investing While Repaying Loans

Investing while repaying loans can seem challenging, but it’s possible with careful planning.

Start Small:
Begin with a small portion of your surplus, say Rs 5,000 per month. This can be increased as you gain more control over your finances.

Systematic Investment Plan (SIP):
Invest in mutual funds through SIPs. This allows you to invest a fixed amount regularly and benefit from rupee cost averaging.

Diversify Your Investments:
Allocate your investments across different asset classes such as equity and debt. This balances risk and potential returns.

Benefits of Actively Managed Funds

While index funds may seem attractive due to lower fees, actively managed funds offer several advantages:

Expert Management:
Actively managed funds are handled by professional fund managers who make investment decisions based on research and market conditions.

Potential for Higher Returns:
These funds aim to outperform the market index, offering the potential for higher returns.

Flexibility:
Fund managers can adjust the portfolio in response to market changes, potentially reducing risk.

Disadvantages of Direct Funds

Investing in direct funds may seem cost-effective but has drawbacks:

Lack of Guidance:
Direct funds don’t provide access to professional advice, which can be crucial for making informed investment decisions.

Time and Effort:
Managing your own investments requires significant time and effort to research and monitor the market.

Potential for Mistakes:
Without expert guidance, there is a higher risk of making poor investment decisions.

The Importance of Professional Guidance

Working with a Certified Financial Planner (CFP) can offer several benefits:

Personalized Advice:
A CFP can provide tailored advice based on your financial goals, risk tolerance, and current situation.

Holistic Planning:
They consider all aspects of your financial life, including loans, investments, insurance, and retirement planning.

Regular Reviews:
A CFP can help you regularly review and adjust your financial plan to stay on track.

Steps to Clear Loans and Build Wealth

Create a Detailed Budget:
Track your income and expenses meticulously. This will help you identify areas where you can cut back and allocate more towards loan repayment and investments.

Automate Savings and Investments:
Set up automatic transfers for loan EMIs, savings, and investments. This ensures consistency and prevents the temptation to spend surplus money.

Monitor Your Progress:
Regularly review your loan balances and investment portfolio. Celebrate small milestones to stay motivated.

Increase Income:
Look for opportunities to increase your income, such as taking on freelance work, pursuing additional qualifications, or seeking a higher-paying job.

Avoid New Debt:
Refrain from taking on new debt unless absolutely necessary. This will help you focus on clearing existing loans faster.

Maintaining a Balanced Approach

While it’s important to focus on clearing your loans, don’t neglect your investments. A balanced approach ensures you’re not only reducing debt but also building wealth for the future.

Reviewing Insurance Coverage

Your current health insurance covers Rs 5 lakhs for yourself and Rs 3 lakhs for your parents. Ensure this coverage is adequate for potential medical emergencies. If necessary, consider increasing your coverage or adding critical illness insurance.

Exploring Tax Benefits

Take advantage of tax deductions available on loan interest payments and investments. This can reduce your taxable income and increase your savings.

Communicate with Family

Discuss your financial goals and repayment strategy with your family. Their support and understanding can make the journey smoother.

Final Insights

Your financial journey is off to a great start. With disciplined budgeting, strategic loan repayment, and smart investing, you can achieve your goals. Stay committed, seek professional guidance when needed, and regularly review your progress.

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  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 02, 2024

Asked by Anonymous - Jul 02, 2024Hindi
Money
Hi. I am 32 years male earning 82000 monthly. I have 4 members to support at home. I have personal loans of 24 lakh which is need to pay at earliest and save for my child future studies. I currently save 5000 monthly in mutual fund and 50000 yearly in LIC also I have term plan of 2 cr. Please guide how to clear the debt and save for future.
Ans: You’re 32 and managing the financial responsibilities of a family of four while striving to clear a significant personal loan of Rs 24 lakhs. Balancing debt repayment with saving for your child's future and ensuring financial stability can be challenging but achievable. Let’s dive into a detailed plan tailored for you.

Commendable Efforts and Positive Steps
Steady Income: Earning Rs 82,000 monthly provides a solid foundation to work from.
Current Savings: Saving Rs 5,000 monthly in mutual funds is a great start towards long-term growth.
Term Insurance: Having a Rs 2 crore term plan shows a proactive approach to securing your family’s future.
LIC Policy: Contributing Rs 50,000 annually to an LIC policy reflects your commitment to saving.
Assessing Your Financial Situation
To chart a path forward, we need to understand your income, expenses, debt, and current savings in detail.

Income:

Monthly Salary: Rs 82,000.
Expenses:

Household Expenses: Monthly expenses for supporting a family of four.
Loan EMIs: Monthly payments towards the Rs 24 lakh personal loan.
Savings and Insurance: Rs 5,000 in mutual funds and Rs 50,000 annually in LIC.
Debt:

Personal Loan: Rs 24 lakhs which needs urgent attention to clear.
Savings and Investments:

Mutual Funds: Rs 5,000 monthly.
LIC Policy: Rs 50,000 annually.
Term Insurance: Rs 2 crore coverage.
Strategies for Clearing Debt
Eliminating your Rs 24 lakh personal loan quickly should be your top priority. Here’s a structured approach to tackle this debt effectively:

Prioritizing Debt Repayment
Clearing your personal loan should be prioritized to free up cash flow and reduce interest burden.

Steps:

Focus on High-Interest Debt: Personal loans often have high-interest rates. Prioritize this debt to save on interest costs.
Snowball Method: Pay off the smallest debts first to build momentum, then tackle larger ones. This psychological boost can help keep you motivated.
Avalanche Method: Alternatively, pay off the debt with the highest interest rate first to save the most on interest payments.
Budgeting and Expense Management
Creating a detailed budget is crucial to allocate funds effectively towards debt repayment.

Strategies:

Track Your Spending: Monitor all your expenses to understand where your money goes.
Cut Non-Essential Expenses: Identify areas where you can reduce or eliminate spending. Redirect these savings towards loan repayment.
Automate Savings and Payments: Set up automatic transfers for loan payments to ensure timely and consistent payments.
Exploring Additional Income Sources
Boosting your income can accelerate debt repayment and strengthen your financial position.

Ideas:

Part-Time Work: Consider freelance or part-time opportunities that align with your skills and interests.
Sell Unused Items: Declutter your home and sell items you no longer need. Use the proceeds to pay off debt.
Rental Income: If possible, explore renting out a portion of your home or other assets.
Refinancing and Debt Consolidation
Refinancing or consolidating your loans can simplify repayment and potentially lower your interest rate.

Options:

Refinance: Approach your bank to refinance your personal loan at a lower interest rate.
Debt Consolidation: Combine multiple loans into a single loan with a lower interest rate and one monthly payment.
Saving for Your Child’s Future
Simultaneously saving for your child’s education and future while paying off debt requires a balanced approach.

Setting Up an Education Fund
Creating a dedicated fund for your child’s education ensures you’re prepared for future expenses.

Steps:

Estimate Future Costs: Consider the cost of higher education and inflation when planning your savings goal.
Start Early: The earlier you start, the more time your money has to grow.
Regular Contributions: Make consistent contributions to this fund, even if the amount is small initially.
Leveraging Tax Benefits
Take advantage of tax-saving instruments to maximize your savings and reduce your tax liability.

Tax-Saving Strategies:

Section 80C: Utilize investments that offer tax deductions under Section 80C, like certain mutual funds, PPF, and EPF.
Children’s Education Allowance: Claim tax benefits on the education allowance you receive.
Investing in Growth-Oriented Assets
Investing in assets that offer higher returns can help your savings grow faster, though they come with higher risks.

Investment Options:

Equity Mutual Funds: Continue and possibly increase your investments in mutual funds for long-term growth.
Diversified Portfolio: Build a diversified portfolio that includes a mix of equities, bonds, and other asset classes.
Insurance and Risk Management
Ensuring adequate insurance coverage protects your savings and provides peace of mind.

Insurance Strategies:

Term Insurance: Your Rs 2 crore term plan is essential for securing your family’s future.
Health Insurance: Ensure you have comprehensive health insurance to cover medical expenses.
Review and Update Policies: Regularly review your insurance policies to ensure they meet your current needs.
Optimizing Your Financial Plan
A holistic financial plan integrates debt repayment, saving for future goals, and investing for growth.

Balancing Debt and Savings
Striking the right balance between paying off debt and saving for the future is key to financial stability.

Balanced Approach:

Allocate Funds Wisely: Divide your available funds between debt repayment and savings. Prioritize high-interest debt while maintaining savings for emergencies and future goals.
Increase Savings Gradually: As your debt reduces, increase your savings contributions proportionately.
Regular Financial Reviews
Regularly reviewing and adjusting your financial plan ensures it remains aligned with your goals.

Review Strategies:

Annual Reviews: Conduct an annual review of your financial situation to track progress and make necessary adjustments.
Life Changes: Adjust your plan for significant life events, such as changes in income, family needs, or expenses.
Market Conditions: Stay informed about market changes and adjust your investment strategy accordingly.
Seeking Professional Guidance
Engaging with a Certified Financial Planner can provide personalized advice and help you stay on track.

Professional Support:

Personalized Planning: A CFP can tailor a plan based on your specific needs, goals, and risk tolerance.
Regular Check-ins: Schedule regular check-ins with your CFP to review progress and adjust your strategy as needed.
Holistic Advice: Benefit from holistic financial advice covering debt management, investment planning, and risk management.
Final Insights
You are on a commendable journey towards financial stability and securing your family’s future. Clearing your personal loan and saving for your child's education simultaneously requires a balanced and strategic approach. Prioritize debt repayment, manage your expenses wisely, and continue investing in growth-oriented assets. With disciplined planning and regular reviews, you can achieve your financial goals and provide a secure future for your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
T S Khurana

T S Khurana   |197 Answers  |Ask -

Tax Expert - Answered on Nov 23, 2024

Asked by Anonymous - May 11, 2024Hindi
Listen
Money
Can you please suggest on capital gains as per Indian taxation laws arising in the below two queries : 1) property purchased with joint ownership, me and my wife’s name in 2015 at a cost of 64,80,000, housing improvements done for the cost of 1000000 and brokerages of 200000 paid and sold the same property at 10000000 in Dec 2023? 2) 87% of the proceeds got from the deal i.e 8700000, have been reinvested to pay 25% amount in purchasing another joint ownership property in Dec 2023, 3) I have invested in another under construction property in Nov 2023 by taking housing loan, which is on me and my wife’s name worth 1.4 cr, here the primary applicant is me only while wife is just made a Co applicant in the builder buyer agreement and also on the housing loan . So what are the LTCG tax liabilities arising from the above 3 scenarios for FY 2023-2024 and FY 2024-2025. I intend to sale off the property acquired in (2) by Dec 2024 and use that proceeds to close the housing loan for the property acquired in (3), will this sale of property be inviting any tax liabilities if the complete proceeds received from the sale of the property in (2) would be utilised to close the housing loan taken in Nov 2023 for the property in (3) ? Since in FY 23-24, I would be claiming the LTCG from the sale proceeds of 1) invested in the purchase of property in 2), and I intend to sale off this property in Dec 2024, will the LTCG claim be forfeited on the property sale in (1), should I hold this property at least for further 1 year so that sale of this property in 2) will not invite STCG?
Ans: (A). Let's first talk about F/Y 2023-24 :
You jointly sold a Property during the year for Rs.76.80 lakhs (64.80+10.00+2.00), & sold the same for Rs.100.00 lakhs.
You have jointly also purchased Property No.3 (I suppose it is Residential only), for Rs.140.00 lakhs.
You should avail exemption u/s-54 & file your ITR accordingly. Please disclose all details about sale & purchase in your ITR.
02. Now coming to the F/Y 2024-25 :
You intend to Sell Property No.2, which was acquired in 2023-24. Any Gain on Sale of it would be Short Term capital Gains & taxed accordingly.
Alternatively, you may hold this sale of property no.2 (for 2 years from its purchase) & avoid STCG
You are free to utilize the sale proceeds in a way you like, including paying off your housing Loan.
Please note to avail exemption u/s 54 only from investment in property no.3 & not 2.
Most welcome for any further clarifications. Thanks.

...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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