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Ramalingam Kalirajan |6971 Answers |Ask -Follow

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

Hi i am 33 yr old male. With monthly in hand salary of 1.2 lakh. I have mutual fund of 3.5lakh. PF is around 8 lakh PPF is around 1 lakh and NPS of 2lakh. I invest aroud 10k per month in sip and 50k in NPS per year . And PPF varies from 20-40k per year . I have a loan of 36lakh(home loan) . I have a baby boy of 2 yrs. Currently the home i bought is under construction so i need to pay EMI and Rent which is around 48k per month.My monthly expence is around 65K excluding rent and emi . Requesting you to please guide me in How can i manage to create a fund for my child education and manage my retirement fund

Ans: First, let's take stock of your current financial position. You have a monthly salary of Rs 1.2 lakh. Your investments include Rs 3.5 lakh in mutual funds, Rs 8 lakh in PF, Rs 1 lakh in PPF, and Rs 2 lakh in NPS. You also have a home loan of Rs 36 lakh and a young child to support. Your monthly expenses are Rs 65,000, excluding rent and EMI, which are Rs 48,000 combined.

Your commitment to investments is commendable, with Rs 10,000 in SIPs monthly, Rs 50,000 annually in NPS, and varying contributions to PPF.

Prioritizing Financial Goals
To manage your finances effectively, it's crucial to prioritize your goals. Your primary objectives are:

Creating a fund for your child's education.

Building a robust retirement corpus.

Child's Education Fund
Education costs are rising, so planning early is essential. Here's a step-by-step approach:

Estimating Future Education Costs
Estimate the future cost of your child's education. Consider factors like inflation and the type of education you aim for. Generally, education costs double every 7-8 years.

Investment Options for Education Fund
Mutual Funds: Continue with your SIPs. Consider allocating more to equity mutual funds for higher returns, especially if you have a long investment horizon.

PPF: This is a safe investment with tax benefits. Keep contributing, but prioritize higher-return options for long-term goals.

Sukanya Samriddhi Yojana: If you have a girl child, this scheme offers good returns and tax benefits.

Diversification
Diversify your investments. Don't rely solely on one investment type. Balance between equity, debt, and other instruments.

Building a Retirement Corpus
Retirement planning requires a disciplined and strategic approach. Here’s how you can strengthen your retirement fund:

Assessing Retirement Needs
Estimate your post-retirement expenses. Consider inflation, healthcare costs, and lifestyle changes. This helps in setting a realistic retirement corpus target.

Investment Strategies for Retirement
Employee Provident Fund (EPF): Continue with EPF as it offers a secure, long-term investment with tax benefits.

Public Provident Fund (PPF): Maintain your contributions to PPF for its safety and tax benefits.

National Pension System (NPS): Your current Rs 50,000 annual contribution is good. Consider increasing this amount as your income grows.

Mutual Funds: Invest in a mix of equity and debt funds. Equity funds offer higher returns but come with higher risks. Debt funds provide stability.

Systematic Investment Plan (SIP): Increase your SIP contributions gradually. This will help in compounding your investments over time.

Managing Home Loan and Rent
Paying both EMI and rent is a significant financial burden. Here are some suggestions:

Reducing Loan Tenure
If possible, make prepayments on your home loan. This reduces the tenure and interest burden. Use bonuses or windfalls for this purpose.

Budgeting and Expense Management
Review and cut down unnecessary expenses. Create a monthly budget and stick to it. This helps in freeing up more funds for investments.

Insurance and Emergency Fund
Having adequate insurance and an emergency fund is crucial. Here's what you need to consider:

Life Insurance
Ensure you have sufficient life insurance coverage. Term insurance is a good option as it offers high coverage at low premiums.

Health Insurance
Adequate health insurance is essential to cover medical emergencies without dipping into savings.

Emergency Fund
Maintain an emergency fund equivalent to 6-12 months of expenses. This provides a financial cushion during unforeseen events.

Regular Review and Adjustment
Financial planning is not a one-time activity. Regularly review and adjust your investments based on changing goals, market conditions, and personal circumstances.

Annual Review
Conduct an annual review of your financial plan. Assess the performance of your investments and make necessary adjustments.

Consulting a Certified Financial Planner
Consider consulting a Certified Financial Planner (CFP) for personalized advice. They can provide tailored solutions based on your financial situation and goals.

Balancing Risk and Returns
Balancing risk and returns is crucial for a robust financial plan. Here’s how to manage it effectively:

Risk Tolerance
Understand your risk tolerance. Younger investors can afford higher risks for potentially higher returns. As you near your goals, shift towards safer investments.

Diversified Portfolio
Diversify your portfolio across asset classes. This reduces risk and enhances potential returns.

Utilizing Tax Benefits
Leverage tax-saving investment options to reduce your tax liability. Here's how:

Section 80C Investments
Invest in instruments eligible for tax deduction under Section 80C, such as PPF, EPF, and ELSS mutual funds.

NPS Tax Benefits
NPS offers additional tax benefits under Section 80CCD(1B) for contributions up to Rs 50,000.

Avoiding Common Pitfalls
Avoiding common financial mistakes can save you from future troubles. Here are some to watch out for:

High-Interest Loans
Avoid high-interest loans like credit cards or personal loans. Prioritize clearing these debts if you have any.

Impulsive Investments
Avoid making impulsive investments without proper research. Stick to your financial plan.

Encouragement and Appreciation
Your proactive approach to financial planning is commendable. Balancing multiple financial goals while managing a family and loan is challenging, but your dedication is evident. Keep up the good work, and remember, small consistent efforts lead to significant financial stability over time.

Final Insights
Securing your child's education fund and building a retirement corpus requires a strategic, disciplined approach. Prioritize your goals, diversify your investments, and regularly review your financial plan. By following these steps, you can achieve financial stability and ensure a secure future for your family.

Keep up the great work, and feel free to reach out for further guidance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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