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Sunil

Sunil Lala  |203 Answers  |Ask -

Financial Planner - Answered on Feb 28, 2024

Sunil Lala founded SL Wealth, a company that offers life and non-life insurance, mutual fund and asset allocation advice, in 2005. A certified financial planner, he has three decades of domain experience. His expertise includes designing goal-specific financial plans and creating investment awareness. He has been a registered member of the Financial Planning Standards Board since 2009.... more
Asked by Anonymous - Dec 01, 2023Hindi
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I am 37 I want to retire from job at 40 and start small bussiness. I have made investment as under: MF: 27 lac (by SIP of 15k pm but now increased to 30k from last month.) Share market: approx 18 lac LIC: 3062 per month will get 15 lac on 2031 NPS: 23.00 lac investment of 20k pm directly from salary. Will get when I will be 60 FD of 6.00 lac Loan: 7.5 lac Monthly salary: 75,000/- Expenses: 15-20k Kindly Guide. Target is 60-80k of monthly income after retirement(40).

Ans: To have 80k per month you need a Corpus of approx 1.6 crore
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  |7374 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 22, 2024

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Hi sir Am 46 yr old and my financial investment are as below : 1) recently started SIP with 45k monthly investment. 2) am investing in NPS 20k monthly for last 8 years (currently 25 lacs in nps portfolio) 3) am investing in sukanya 70k annually for past 9 years (currents 8 lacs in portfolio) 4) commercial property worth 1.8 cr generating me rent of 70k monthly 5) 1 flat worth 1.7 cr generating me rent of 40k monthly) 6) 1 floor where am staying worth 1.8 cr has a loan going with emi of 66 k which i plan to close within next 4 to 5 yrs max 7) PF is 22 lacs as of now due to some withdrawals earlier. But am doing additional vpf of 10k monthly apart from 25k which gets invested from my salary 8) my take home salary is 2.7 lacs monthly I want to retire in another 7 to 8 years.pls suggest what i need to do or plan so as to have monthly 3lacs income
Ans: First off, kudos on taking charge of your financial future. You have a diversified portfolio with multiple investments, and that's great. Let's break down your current investments and see how you can reach your goal of Rs 3 lakhs monthly income post-retirement.

Systematic Investment Plan (SIP)
You've recently started a SIP with a monthly investment of Rs 45,000. SIPs are a fantastic way to build wealth over time. By investing regularly, you benefit from rupee cost averaging and the power of compounding. Given your goal, it's important to keep a close eye on the performance of the mutual funds you've chosen.

If you're in actively managed funds, ensure they consistently outperform their benchmarks. If any fund underperforms for an extended period, consider switching to a better-performing one. Actively managed funds, guided by professional fund managers, can potentially offer higher returns than passive funds.

National Pension System (NPS)
You've been investing Rs 20,000 monthly in NPS for the last eight years, with a current portfolio value of Rs 25 lakhs. NPS is a great choice for retirement planning due to its low cost and tax benefits.

However, NPS comes with certain withdrawal restrictions and partial annuitization at retirement. To maximize benefits, regularly review your asset allocation between equity, corporate bonds, and government securities. Adjust it based on market conditions and your risk tolerance. Given your timeline, consider increasing equity exposure slightly to boost potential returns.

Sukanya Samriddhi Yojana (SSY)
You're investing Rs 70,000 annually in Sukanya Samriddhi Yojana for the past nine years, with a current corpus of Rs 8 lakhs. This is a wonderful scheme for your daughter's future, offering high-interest rates and tax benefits. Keep this investment untouched until maturity to fully benefit from its tax-free interest.

Real Estate Investments
You own commercial property worth Rs 1.8 crores, generating Rs 70,000 monthly rent, and a flat worth Rs 1.7 crores, generating Rs 40,000 monthly rent. These provide a substantial passive income, which is excellent.

However, real estate investments come with risks like maintenance costs, tenant issues, and market fluctuations. While they are stable, they aren't very liquid. Keep this in mind as you plan for retirement, where liquidity can be crucial.

Residential Property and Loan
Your home is worth Rs 1.8 crores, and you're paying an EMI of Rs 66,000. Planning to close this loan within 4-5 years is wise. Once the loan is repaid, your cash flow will improve significantly. Until then, ensure you have a buffer to handle EMIs without stress.

Provident Fund (PF) and Voluntary Provident Fund (VPF)
Your current PF balance is Rs 22 lakhs, with an additional VPF contribution of Rs 10,000 monthly, apart from Rs 25,000 from your salary. Provident Fund is a safe and stable investment, offering guaranteed returns and tax benefits. Your regular contributions will compound over time, providing a substantial corpus at retirement.

Take-Home Salary and Expenses
Your take-home salary is Rs 2.7 lakhs monthly. With disciplined savings and investments, you're on a strong path. However, it's essential to ensure that your expenses are well-managed, allowing you to save and invest consistently. Budgeting is key here. Track your spending and identify areas where you can cut back, if necessary.

Setting Clear Retirement Goals
To retire with a monthly income of Rs 3 lakhs, we need to build a significant corpus. Let's look at the broad strategies to achieve this.

Increase SIP Contributions: If possible, gradually increase your SIP contributions. Even a small increase can make a big difference over time due to compounding.

Asset Allocation: Diversify your investments across different asset classes – equities, debt, and gold. Equities can offer higher returns, debt provides stability, and gold acts as a hedge against inflation.

Tax Efficiency: Ensure your investments are tax-efficient. Utilize all available tax-saving instruments to minimize tax liability and maximize returns.

Emergency Fund: Maintain an emergency fund to cover at least 6-12 months of expenses. This ensures you won't have to dip into your investments during a financial crunch.

Insurance: Adequate life and health insurance are crucial. This protects your family and savings from unforeseen medical expenses or financial loss.

Enhancing Your Investment Strategy
Active Management Over Passive
While passive funds like index funds track a benchmark, actively managed funds aim to outperform it. This can lead to better returns if the fund manager makes smart investment decisions. Since you've not mentioned index funds, it's good to focus on active management where fund managers actively select stocks.

Regular Fund Investments
Direct funds might seem cheaper due to lower expense ratios, but regular funds through a certified financial planner can be beneficial. They offer professional advice and help optimize your portfolio. A financial planner provides valuable insights, ensuring your investments align with your goals and risk tolerance.

Monitoring and Rebalancing
Regularly review and rebalance your portfolio. This involves adjusting your investments to maintain your desired asset allocation. For instance, if equities perform well and exceed your target allocation, sell some and reinvest in underperforming assets. This ensures you stay on track to meet your goals while managing risk.

Maximizing NPS Benefits
As you get closer to retirement, consider shifting some NPS funds to safer assets like government bonds. This reduces risk as you near your goal. Also, explore options within NPS to ensure you're getting the best possible returns with minimal risk.

Building a Robust Retirement Corpus
Given your diverse investments, you're well on your way to building a robust retirement corpus. To achieve Rs 3 lakhs monthly income, let's look at the sources:

Rental Income: Your commercial and residential properties already generate Rs 1.1 lakhs monthly. Ensure properties are well-maintained to avoid tenant turnover and vacancies.

NPS and PF: Continue maximizing contributions to NPS and PF. At retirement, these can be significant sources of income.

SIP and Mutual Funds: Regular SIP investments in mutual funds will grow over time. Ensure a mix of equity and debt funds to balance growth and stability.

VPF Contributions: Your VPF contributions add to your retirement corpus, providing a stable and guaranteed return.

Exploring Additional Investment Options
Equity Investments
Equities offer the potential for high returns but come with higher risk. Given your time frame, you can consider increasing equity exposure. Diversified equity mutual funds or blue-chip stocks can be good options. Ensure you have a balanced approach, considering your risk tolerance.

Debt Instruments
Debt instruments like corporate bonds, government securities, and fixed deposits provide stability and regular income. Allocate a portion of your portfolio to these to balance risk. Look for options offering higher interest rates with good credit ratings.

Gold Investments
Gold is a traditional hedge against inflation and economic uncertainty. Consider investing a small portion of your portfolio in gold through ETFs or sovereign gold bonds. This diversifies your portfolio and adds a layer of security.

Planning for Inflation and Taxes
Inflation Protection
Inflation can erode your purchasing power over time. Ensure your investments grow faster than inflation. Equities and real estate generally outpace inflation, while debt instruments may lag. Keep this in mind while planning your asset allocation.

Tax Planning
Tax-efficient investing is crucial. Utilize available tax deductions and exemptions. For instance, investments in NPS, PF, and certain mutual funds offer tax benefits. Consult with a tax advisor to optimize your tax strategy, ensuring you retain more of your returns.

Financial Discipline and Regular Review
Consistent Investments
Stay disciplined with your investments. Regular contributions, even during market downturns, ensure you benefit from compounding and rupee cost averaging.

Periodic Reviews
Regularly review your financial plan and investments. Life circumstances and market conditions change, requiring adjustments to your strategy. A certified financial planner can help with this, ensuring you stay on track.

Emergency Preparedness
Maintain an emergency fund and adequate insurance coverage. This safeguards your investments and ensures financial stability during unforeseen events.

Final Insights
Your diversified investments and disciplined approach are commendable. To retire with a monthly income of Rs 3 lakhs, focus on maximizing returns, managing risk, and maintaining financial discipline. Regularly review and adjust your portfolio, ensuring it aligns with your goals and risk tolerance. By doing so, you're well on your way to a secure and comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7374 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 23, 2024

Money
Hi sir I am 40 YO single women earning 1.10 lacs annually. I wish to retire at 45. My savings and investments - House 75 lacs (loan of Rs 14.50 lacs) Mutual funds total 47 lacs ( SIPs ongoing Rs 25k) PPF 5.84 lacs Gold 11 lacs Car 6 lacs A land 30 lacs ( planning to construct double story for rent purpose - passive income. I want a regular income of atleast 50000/- as I don't have any such liability of parents or kids. I do donations regularly and also pay for my sister's daughter school fees around 1.5 lacs yearly at present ( will paying for another 3-4 years ) Kindly guide me
Ans: I appreciate your detailed information. Let’s dive deep into your current situation and plans, and evaluate the best strategies to ensure a comfortable and financially secure retirement by age 45.

Assessing Current Financial Status
Income and Savings Overview
Your annual income of Rs 1.10 lacs is a crucial factor. It's important to maximise savings and investments. Currently, you have several investments, including mutual funds, PPF, gold, and real estate.

Investments and Liabilities
House: Worth Rs 75 lacs with an outstanding loan of Rs 14.50 lacs.
Mutual Funds: Total of Rs 47 lacs with ongoing SIPs of Rs 25,000 monthly.
PPF: Rs 5.84 lacs.
Gold: Valued at Rs 11 lacs.
Car: Worth Rs 6 lacs.
Land: Valued at Rs 30 lacs, with plans to build a double-story house for rental income.
Expenditures and Commitments
You have regular expenses such as donations and school fees for your sister's daughter. These are commendable commitments that reflect your generosity and family support.

Strategic Financial Planning for Retirement at 45
Evaluating Retirement Goal
Your aim is to retire at 45, which is just five years away. A key part of this goal is to ensure you have a regular income of Rs 50,000 post-retirement. Let’s evaluate how your current investments and potential strategies can help achieve this.

Investments and Their Potential
Mutual Funds
Your ongoing SIPs and mutual fund investments are commendable. These are likely generating good returns, but it's important to regularly review the performance. Actively managed funds can offer better returns compared to index funds, which may not beat the market consistently.

Regularly monitoring your mutual funds with a Certified Financial Planner can help optimize your portfolio. Actively managed funds benefit from expert management, and these experts can navigate market fluctuations better than passive index funds.

PPF
Your PPF account is a secure, tax-efficient investment. It provides steady growth with government backing. Continue investing in PPF, but remember it has a lock-in period. It will be a solid part of your retirement corpus due to its reliability and tax benefits.

Gold
Gold is a good hedge against inflation. However, it doesn’t generate regular income. Consider holding onto gold as a part of your emergency fund or for long-term capital appreciation, but don’t rely on it for regular income.

Managing Real Estate
House and Loan
Your house is a significant asset. Ensure timely repayments of the Rs 14.50 lacs loan to avoid unnecessary interest. Once the loan is cleared, it will be a substantial part of your net worth.

Land Development
Constructing a double-story house on your land for rental income is a smart move. This can provide a steady passive income. However, construction costs and timeframes should be carefully planned. Ensure you have sufficient funds or financing options in place to avoid cash flow issues during construction.

Optimizing Investment Strategies
Mutual Fund Optimization
While you have substantial investments in mutual funds, it’s crucial to review your portfolio regularly. Actively managed funds should be preferred as they tend to outperform index funds due to professional management. They adjust portfolios based on market conditions, unlike index funds that passively follow market trends.

Regular vs Direct Funds
Investing through regular funds with a Certified Financial Planner can be beneficial compared to direct funds. Regular funds provide professional advice, helping you make informed decisions and manage your portfolio effectively. Direct funds might seem cost-effective, but without professional guidance, you might miss out on better opportunities or fail to manage risks properly.

Balancing Risk and Returns
Diversification is key to managing risk. Your current portfolio is diversified across various asset classes. Continue this practice but adjust the proportions as per market conditions and financial goals. For instance, you may want to reduce exposure to riskier assets as you near retirement.

Financial Discipline and Planning
Budgeting and Saving
Ensure you have a clear budget. Track your expenses meticulously. Automate your savings and investments to stay disciplined. This will help in building a substantial retirement corpus over the next five years.

Emergency Fund
Maintain an emergency fund equivalent to 6-12 months of your expenses. This fund should be easily accessible and separate from your retirement corpus. This ensures you’re prepared for any unexpected financial needs without disrupting your long-term goals.

Retirement Income Planning
Passive Income Sources
Your plan to generate rental income from the newly constructed double-story house is excellent. Ensure the property is in a desirable location to attract tenants and secure a stable income stream.

Withdrawal Strategy
Plan a withdrawal strategy from your retirement corpus. Systematic Withdrawal Plans (SWPs) from mutual funds can provide regular income. This approach ensures that your principal continues to grow while you receive regular income.

Additional Considerations
Insurance Coverage
Ensure you have adequate health and life insurance coverage. Health insurance is critical as medical costs can be significant. Life insurance will provide financial security to your dependents if any unforeseen event occurs.

Estate Planning
Consider creating a will and possibly setting up a trust. This ensures that your assets are distributed according to your wishes and can also provide tax benefits.

Monitoring and Reviewing
Regular Reviews
Regularly review your financial plan with a Certified Financial Planner. Markets and personal situations change, and your plan should be flexible enough to adapt. A CFP can provide the necessary expertise to navigate these changes effectively.

Staying Informed
Stay informed about market trends and economic changes. This knowledge can help you make informed decisions and adjust your financial strategies accordingly.

Final Insights
Retiring at 45 is an ambitious yet achievable goal with disciplined financial planning and strategic investments. Your current investments in mutual funds, PPF, and gold provide a strong foundation. However, optimizing your mutual fund portfolio with actively managed funds and professional guidance can yield better returns.

Constructing a rental property is a smart move for passive income, but ensure it’s well-planned financially. Regularly review your investment strategy and stay disciplined with your savings and expenses. With proper planning and execution, you can achieve financial independence and enjoy a comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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How to finish home loan faster
Ans: Paying off your home loan early while building wealth requires strategic planning. A parallel SIP in equity mutual funds can complement your goal by leveraging market growth over the long term. Here's a detailed approach:

1. Start a SIP in Equity Mutual Funds
Invest monthly in a diversified equity mutual fund for a period of 7+ years.
Equity funds historically offer higher returns over long periods, outpacing home loan interest rates.
Align your SIP amount with your financial capacity, ensuring consistency.
2. Time the Loan Closure with SIP Maturity
Use the maturity value of the SIP to make a lump sum prepayment towards your loan.
Ensure the investment horizon of the SIP is long enough to mitigate market volatility.
A 7-10 year SIP period can yield significant growth due to the power of compounding.
3. Continue Regular EMI Payments
Maintain your regular EMIs while running the SIP.
Do not compromise on timely loan payments to avoid penalties.
The parallel strategy reduces your loan tenure effectively when executed with discipline.
4. Focus on High-Interest Loan Years
Prepayments made during the initial years have the highest impact on interest savings.
Coordinate your SIP maturity during this time to maximise loan repayment benefits.
5. Leverage Tax Benefits on Both Ends
Claim tax deductions under Section 80C and Section 24(b) for home loan payments.
Equity mutual funds held for over a year qualify for long-term capital gains tax benefits.
Use the tax savings to either increase your SIP or make additional prepayments.
6. Step-Up Your SIP Amount Annually
Increase your SIP amount by 10-15% every year to match income growth.
A higher SIP contribution accelerates wealth accumulation for loan repayment.
7. Avoid Premature Withdrawal from SIP
Do not redeem SIP investments prematurely unless used for loan closure.
The longer you stay invested, the higher the growth potential.
8. Track Loan Tenure and SIP Performance
Regularly review your loan outstanding and SIP performance.
Align your repayment strategy with market conditions and financial goals.
9. Focus on Financial Discipline
Avoid new liabilities while managing your home loan and SIP.
Stick to a budget that prioritises both EMI payments and SIP contributions.
10. Plan for Surplus Investments
Channel any bonuses, tax refunds, or additional income into either SIPs or loan prepayments.
Small additional investments can significantly enhance your repayment capability.
Final Insights
Starting a parallel SIP in equity funds while paying regular EMIs creates a structured pathway to close your home loan early. Over time, the compounded growth from your SIP can ease the financial burden of a lump sum loan prepayment. This balanced strategy ensures financial growth and reduced debt simultaneously.

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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