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Am I on the right track with my investments at 34?

Ramalingam

Ramalingam Kalirajan  |6958 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 17, 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
Sanju Question by Sanju on Jul 13, 2024Hindi
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I am 34 now. Currently invested 27000 K in Nippon small cap, sbi long term equity, Parag flexi cap fund, motilal oswal next 50 index fund, hdfc elss fund, sbi contra fund. I have invested 5K in ppf and 4K in life insurance policy. Will this work as proper investment??

Ans: You are 34 and have invested in various mutual funds and savings plans. Let's review your investments and provide recommendations.

Mutual Fund Investments
Small Cap Fund
Potential: High growth potential in small companies.
Risk: High due to volatility.
Recommendation: Good for long-term growth if you can handle high risk.
Long-Term Equity Fund
Tax Benefits: Provides tax benefits under Section 80C.
Returns: Moderate returns with a three-year lock-in period.
Recommendation: Good for tax-saving and long-term goals.
Flexi Cap Fund
Flexibility: Invests across large, mid, and small cap companies.
Risk: Balanced risk with good growth potential.
Recommendation: Suitable for diversified growth.
Index Fund
Disadvantages: Passive management, may underperform actively managed funds.
Recommendation: Consider switching to actively managed funds for better returns.
ELSS Fund
Tax Benefits: Provides tax benefits under Section 80C.
Returns: Good returns with a three-year lock-in period.
Recommendation: Good for tax-saving and long-term goals.
Contra Fund
Strategy: Invests in undervalued stocks with potential for recovery.
Risk: Moderate risk with good growth potential.
Recommendation: Suitable for long-term growth.
Savings Plans
Public Provident Fund (PPF)
Security: Safe investment with guaranteed returns.
Returns: Moderate, tax-free returns.
Recommendation: Good for long-term savings and tax benefits.
Life Insurance Policy
Security: Provides financial security to your family.
Returns: Lower returns compared to mutual funds.
Recommendation: Evaluate the policy to ensure it meets your insurance needs.
Diversification and Risk Management
Portfolio Diversification
Importance: Diversify investments across asset classes to reduce risk.
Strategy: Mix of equity funds, debt funds, and savings plans.
Regular Review
Importance: Review your portfolio regularly to ensure it meets your goals.
Strategy: Adjust investments based on performance and market conditions.
Disadvantages of Index Funds
Passive Management
Risk: May underperform actively managed funds in volatile markets.
Recommendation: Actively managed funds offer professional management and potential for higher returns.
Disadvantages of Direct Funds
Lack of Expertise
Risk: Requires active monitoring and management.
Recommendation: Investing through a Certified Financial Planner provides professional guidance.
Complexity
Risk: Managing direct funds can be complex.
Recommendation: Regular funds through a CFP simplify the investment process.
Tax Efficiency
Long-Term Capital Gains Tax
Strategy: Plan investments to minimize tax liability.
Benefits: Equity funds held for more than a year are taxed at 10% on gains above Rs 1 lakh.
Emergency Fund
Importance
Liquidity: Maintain an emergency fund for unexpected expenses.
Strategy: Provides financial security and peace of mind.
Final Insights
Your current investments are diverse and well-placed. However, consider the following:

Switch from Index Funds: Move to actively managed funds for better growth.
Review Insurance Needs: Ensure your life insurance policy meets your needs.
Regular Review: Continuously monitor and adjust your portfolio.
By following these recommendations, you can achieve a balanced and growth-oriented investment portfolio.

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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Asked by Anonymous - May 07, 2024Hindi
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I would like to know whether my investment are appropriate or need any changes. My investment plan is for long term (20 - 30 years) Current age is 30. My Investments: 1. Monthly SIP 30k (Large & Index: 30%, Mid: 40%, Small: 30%). Increment of 10% annually. 2. PPF: Yearly 1.5 lacs 3. EPF: 35k/month (Employee + Employer) 4. LIC: 20 lacs sum isnured whole life 5. Term Insurance: 1 crore 6. Mediclaim: 20 lacs 7. Fixed Deposit: 1 lac/month 8. Share: 10k/month I dont have any asset or any liability at present.
Ans: You've put together a well-rounded investment plan with a focus on long-term wealth accumulation. Let's assess your current investments and see if any adjustments are needed:

Monthly SIP: Your SIP allocation across large, mid, and small-cap funds is balanced and aligned with your long-term investment horizon. The incremental increase of 10% annually demonstrates a commitment to growing your investments over time.
PPF: Investing in PPF provides stability and tax benefits. Your yearly contribution of 1.5 lacs is commendable and will help build a corpus for your future financial needs.
EPF: EPF contributions are mandatory for salaried individuals and provide a secure avenue for retirement savings. Your monthly contribution of 35k, including both employee and employer contributions, ensures a steady buildup of your retirement corpus.
LIC: While having life insurance coverage is essential, the sum insured of 20 lacs may be inadequate considering your long-term financial goals and dependents. You may want to review your insurance needs periodically and consider increasing coverage if necessary.
Term Insurance: Your term insurance coverage of 1 crore is substantial and provides financial security to your loved ones in case of an unfortunate event. Ensure that the coverage amount is sufficient to meet your family's future financial requirements.
Mediclaim: A mediclaim policy with coverage of 20 lacs offers comprehensive health protection for you and your family. Regularly review the policy to ensure it remains adequate as medical costs rise over time.
Fixed Deposit: Investing in fixed deposits provides stability to your portfolio, but the returns may be relatively lower compared to equity investments. Consider diversifying into other asset classes for potentially higher returns over the long term.
Shares: Investing in shares can be rewarding but comes with higher risk. Ensure you have a diversified portfolio and invest based on thorough research or seek advice from a financial expert.
Overall, your investment plan is well-structured and aligned with your long-term goals. However, periodically review and rebalance your portfolio to ensure it remains in line with your risk tolerance and financial objectives. Consider consulting with a Certified Financial Planner (CFP) to fine-tune your strategy and make any necessary adjustments. Keep up the disciplined approach to investing, and you're on track to achieve financial success over the next 20-30 years. Best of luck on your financial journey!

..Read more

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Sir I am 47 years old and want to retire in next 2-3 years. My portfolio is as under FD-22 L MF-22 L. ( SIP of 33000 running) Gold--10 L EPF--24 L and App Gratuity -10 L Equity--10 L Rental Income -25000 per month from 80 Lacs flat. ( No loan pending now) 1 cr term plan and 10 l mediclaim running Parental House -2.5 cr and Land -2.5 cr. My son is studying in second year of engineering. And my monthly hone expense is not more than 30000-35000 per month. Can I afford to retire ?
Ans: It’s commendable that you've accumulated a diverse portfolio with a clear retirement goal. Let's evaluate if your current portfolio aligns with a secure retirement.

Portfolio Review and Income Assessment
Based on your retirement aspirations, let’s consider each component of your portfolio and its potential to generate sustainable income:

Fixed Deposits (FD): Rs 22 lakh
FD interest can serve as a steady income source, though it typically yields lower returns, which may not keep up with inflation over the long term.

Mutual Funds (MF): Rs 22 lakh, with a SIP of Rs 33,000
MFs offer potential growth and help combat inflation. Continuing your SIPs could grow this corpus further, providing higher returns than fixed-income sources.

Gold: Rs 10 lakh
Gold adds stability and can be liquidated if needed. However, it might not be the best primary income source.

Employee Provident Fund (EPF): Rs 24 lakh and Gratuity Approx Rs 10 lakh
EPF and gratuity offer safe post-retirement funds. When you withdraw, they can be used as a source of regular income or reinvested for returns.

Equity Investments: Rs 10 lakh
Your equity investments add growth potential. Over time, this can be a crucial source to combat inflation.

Rental Income: Rs 25,000 per month
Rental income provides a consistent cash flow, covering a large portion of your monthly expenses. This income will be valuable post-retirement to meet regular needs.

Expense and Income Projection
With monthly expenses at Rs 30,000–35,000, and rental income already covering most of these costs, your current lifestyle is well supported. However, to retire comfortably, a buffer for healthcare, travel, and inflation is necessary.

Strategy for Retirement Readiness
Based on your assets and expected needs, here’s a recommended approach to secure a steady retirement income:

Mutual Fund Strategy
Continuing your SIPs for the next 2-3 years will help grow your corpus further. Consider moving part of the equity-based mutual funds into debt funds close to retirement to reduce risk while generating returns.

Systematic Withdrawal Plan (SWP)
At retirement, you can initiate an SWP from your mutual fund corpus, providing a steady income. This strategy allows capital appreciation with controlled withdrawals, reducing the risk of prematurely depleting your funds.

Fixed Deposit Laddering
To maximise interest rates and ensure liquidity, consider a laddering strategy with your FDs. This will help meet emergency needs and take advantage of better rates.

Rental Income
Your rental income of Rs 25,000 is a reliable source. To protect it, ensure the property remains well-maintained and consider lease renewals with trusted tenants to maintain stability.

Contingency for Healthcare and Son’s Education
Health Insurance: Rs 10 lakh
Assess your current health cover, especially considering rising medical costs. A top-up or super top-up plan could add an extra layer of protection.

Son’s Education
Your son’s education may require additional funding. Any shortfall could be met by partial liquidation of non-core assets, like gold or FDs, if needed.

Estate and Legacy Planning
Your parental house and land provide substantial long-term security. Though not income-generating immediately, they offer future flexibility if liquidated or rented.

Final Insights
Your assets, income sources, and low monthly expenses indicate a strong readiness for retirement. With minor adjustments for healthcare and education, you can comfortably meet your goals. Continuing your current SIPs for the next few years and optimising your FD and MF corpus will help sustain your income post-retirement.

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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