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Should I invest in mutual funds with a newborn and a 30,000 monthly investment?

Ramalingam Kalirajan |7122 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 23, 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

Question by B on Jul 13, 2024Hindi

Sir i am 29 ,had a new born baby, planning yo invest in mutual funds but has no idea how much to invest where to invest ,i am capable of 30000/month to invest,kindly advice me where and how to invest sir...

Ans: Congratulations on the new addition to your family! With a newborn, financial planning becomes more crucial. Your goal is to invest Rs. 30,000 per month, and it's essential to align this with both short-term and long-term objectives.

Consider your goals, such as:

Child’s Education
Retirement Planning
Emergency Fund
Investing systematically now will secure these goals.

Understanding Your Risk Appetite
At 29, you have a long investment horizon. This allows you to take moderate to high risks. Your risk appetite determines your investment strategy.

Consider:

Age:
Being young, you can afford more equity exposure.

Responsibilities:
With a newborn, a balance between growth and stability is vital.

Suggested Investment Strategy
Given your monthly capacity of Rs. 30,000, here's a balanced strategy:

Equity-Oriented Funds:
Allocate 60% to equity funds. These funds offer high growth but come with market risks. Over 10-15 years, they can outpace inflation and build wealth.

Balanced Advantage Funds:
Invest 20% in Balanced Advantage Funds. They adjust between equity and debt, providing stability during market fluctuations.

Debt-Oriented Funds:
Allocate 20% to debt funds. These funds provide safety and steady returns. They are less volatile, making them ideal for preserving capital.

Advantages of Actively Managed Funds
Active funds are managed by professionals who aim to outperform benchmarks. Here’s why they might be suitable:

Market Flexibility:
Fund managers adjust portfolios based on market trends. This increases returns compared to passive index funds.

Better Risk Management:
Active funds aim to protect your capital during downturns. This is essential, especially with a newborn’s future in mind.

Disadvantages of Index Funds
While index funds are low-cost, they may not fit your profile. Here’s why:

No Active Adjustment:
Index funds mirror the market. They don’t adjust for risks, which can be a problem if markets decline.

Limited Return Potential:
Index funds provide market-average returns. Actively managed funds, however, strive to outperform, especially over the long term.

Disadvantages of Direct Mutual Funds
Direct funds may seem cheaper, but consider these points:

Lack of Expert Guidance:
Direct investing requires constant monitoring. Without a Certified Financial Planner, you might miss critical adjustments.

Complexity:
Managing investments, rebalancing, and tax planning can be overwhelming without professional help.

Recommended Allocation Strategy
Given your ability to invest Rs. 30,000 per month, here’s a suggested allocation:

Equity Funds: Rs. 18,000 (60%)
Invest in a mix of large-cap and multi-cap funds. This offers a balance between growth and stability.

Balanced Advantage Funds: Rs. 6,000 (20%)
These funds manage risk by shifting between equity and debt.

Debt Funds: Rs. 6,000 (20%)
Debt funds protect your investment from market volatility.

SIP: The Best Approach
Systematic Investment Plans (SIPs) are ideal for your monthly investment. They offer:

Rupee Cost Averaging:
SIPs invest a fixed amount regularly. This reduces the impact of market fluctuations.

Disciplined Saving:
SIPs ensure consistent investing, helping you achieve your financial goals.

Creating an Emergency Fund
Before investing, build an emergency fund. Set aside 6-12 months of expenses in a liquid fund. This ensures you have money for unexpected needs without disturbing your investments.

Regular Portfolio Review
Work with a Certified Financial Planner to review your portfolio annually. This ensures your investments align with changing financial goals and market conditions.

Tax Efficiency
Consider funds that offer tax benefits, especially under Section 80C of the Income Tax Act. This reduces your taxable income while growing your wealth.

Final Insights
Investing Rs. 30,000 per month is a strong start for your financial journey. With a newborn, focusing on long-term growth, stability, and tax efficiency is key. A well-diversified portfolio with a mix of equity, balanced, and debt funds, coupled with SIPs, will help you achieve your goals. Regular portfolio reviews with a Certified Financial Planner will ensure you stay on track.

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.