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Ramalingam

Ramalingam Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 11, 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
supan Question by supan on Jul 11, 2024Hindi
Money

HI SIR i am 38 years old , married, with a 10 year old son. we live in Ahmedabad own loan free flat in ahmedabad around 2 cr value . here is a summary of financial assets : 1.15 monthly invest in mf last 5 year value is around 80 lac policy around lic nd other yearly 13 lac invest other silver Nd gold buy around 70k share invest around 1cr can you pls suggest how we create wealth more

Ans: Great to see your dedication to financial growth. You've done an excellent job so far. Here's how you can create more wealth, step-by-step.

Assessing Your Current Financial Situation
You have a strong foundation. Your loan-free flat worth Rs. 2 crore is a significant asset. This gives you stability.

Your monthly investment of Rs. 1.15 lakh in mutual funds for the past five years is impressive. With a value of around Rs. 80 lakh, you're already on a good track.

Additionally, your yearly investment of Rs. 13 lakh in LIC policies and other instruments shows disciplined saving habits.

Investing in silver and gold for around Rs. 70,000 is a good hedge against inflation.

Shares worth around Rs. 1 crore in the stock market display your willingness to take calculated risks.

Enhancing Your Mutual Fund Investments
Mutual funds are excellent for wealth creation. They offer diversification, professional management, and the power of compounding. However, it's crucial to evaluate your fund choices.

Types of Mutual Funds
Equity Funds: These invest in stocks and have the potential for high returns. They're ideal for long-term goals.

Debt Funds: These invest in bonds and are less risky than equity funds. They provide steady returns and are suitable for short-term goals.

Hybrid Funds: These invest in both equity and debt, offering a balanced approach. They can be a good choice for moderate risk-takers.

Sector Funds: These focus on specific sectors like healthcare or technology. They're risky but can offer high returns if the sector performs well.

Advantages of Mutual Funds
Diversification: By investing in mutual funds, you spread your risk across various assets. This reduces the impact of a poor-performing asset.

Professional Management: Fund managers handle your investments, making informed decisions based on market research.

Liquidity: Mutual funds are highly liquid, meaning you can easily buy or sell them.

Tax Efficiency: Certain mutual funds offer tax benefits under Section 80C of the Income Tax Act.

Risks of Mutual Funds
Market Risk: The value of mutual funds fluctuates with the market.

Credit Risk: Debt funds are subject to credit risk, where the issuer might default.

Interest Rate Risk: Changes in interest rates can affect debt funds' returns.

Actively Managed Funds vs. Index Funds
You mentioned direct funds. While they seem appealing due to lower fees, they have drawbacks. Actively managed funds offer several benefits.

Disadvantages of Index Funds
Limited Growth: Index funds track the market and cannot outperform it. Your returns are capped at market performance.

No Downside Protection: During market downturns, index funds fall with the market. They lack the flexibility to avoid losses.

Missed Opportunities: Index funds cannot take advantage of specific investment opportunities or market anomalies.

Benefits of Actively Managed Funds
Potential for Higher Returns: Fund managers actively select stocks, aiming to outperform the market.

Downside Protection: Fund managers can adjust the portfolio to minimize losses during market downturns.

Flexibility: Active funds can seize market opportunities, potentially increasing returns.

Maximizing Returns from Mutual Funds
Regular Reviews
Review your mutual fund portfolio regularly. This ensures your investments align with your goals and market conditions.

Rebalancing
Periodically rebalance your portfolio. This involves selling some assets and buying others to maintain your desired asset allocation.

SIP (Systematic Investment Plan)
Continue with your SIPs. SIPs provide the benefit of rupee cost averaging, reducing the impact of market volatility.

Diversification
Ensure your mutual funds are diversified across sectors and market capitalizations. This spreads risk and enhances potential returns.

Evaluating Your LIC Policies and Other Investments
Your yearly investment of Rs. 13 lakh in LIC and other policies needs evaluation. Often, traditional insurance policies offer lower returns.

Surrendering Policies
If your LIC policies are investment-cum-insurance plans, consider surrendering them. The returns are usually low compared to mutual funds. Reinvest the proceeds in diversified mutual funds for better growth.

Term Insurance
Ensure you have adequate term insurance coverage. It's affordable and provides financial security to your family.

Direct Funds vs. Regular Funds
While direct funds have lower expense ratios, regular funds through a Certified Financial Planner (CFP) offer advantages.

Disadvantages of Direct Funds
No Guidance: Direct funds lack professional advice. You might miss out on valuable insights.

Time-Consuming: Managing your investments requires time and effort.

No Handholding: During market volatility, professional advice can prevent panic decisions.

Benefits of Regular Funds
Professional Advice: CFPs provide tailored advice based on your financial goals.

Market Insights: CFPs stay updated with market trends, helping you make informed decisions.

Convenience: CFPs manage your portfolio, saving you time and effort.

Strategic Asset Allocation
Asset allocation is crucial for wealth creation. It balances risk and reward based on your financial goals.

Equity Allocation
Given your risk appetite and long-term goals, allocate a significant portion to equity. This could be through mutual funds and direct stocks.

Debt Allocation
To balance risk, allocate a portion to debt funds. They provide stability and steady returns.

Gold and Silver
Continue small investments in gold and silver. They act as a hedge against inflation and diversify your portfolio.

Power of Compounding
The power of compounding is a key advantage of mutual funds. Reinvesting returns generates returns on returns, exponentially growing your wealth.

Long-Term Perspective
Investing with a long-term perspective maximizes the benefits of compounding. Avoid withdrawing from your investments prematurely.

Discipline and Patience
Maintain a disciplined approach and stay invested. Market fluctuations are normal; patience is crucial for wealth creation.

Emergency Fund
Ensure you have an emergency fund. It should cover 6-12 months of living expenses. This provides financial security during unexpected events.

Tax Planning
Effective tax planning enhances your net returns.

Tax-Efficient Investments
Invest in tax-saving mutual funds under Section 80C. Consider the tax implications of your investments.

Capital Gains
Understand the tax treatment of capital gains from mutual funds. Long-term capital gains (LTCG) have favorable tax rates compared to short-term capital gains (STCG).

Estate Planning
Proper estate planning ensures your wealth is transferred smoothly to your heirs.

Will
Create a will to clearly outline the distribution of your assets. This prevents legal disputes and ensures your wishes are followed.

Nomination
Ensure all your investments have nominated beneficiaries. This simplifies the transfer process.

Trusts
Consider setting up trusts for wealth management and asset protection.

Continuous Learning
Stay informed about financial markets and investment strategies. This helps you make informed decisions and adapt to changing market conditions.

Professional Guidance
Seek advice from a Certified Financial Planner (CFP). They provide personalized advice and help you achieve your financial goals.

Regular Reviews
Meet your CFP regularly to review your financial plan. This ensures it remains aligned with your goals and market conditions.

Final Insights
You're on the right track with your investments. Your loan-free flat, disciplined savings, and diverse portfolio show commendable financial acumen.

To create more wealth, focus on mutual funds, strategic asset allocation, and regular portfolio reviews.

Consider surrendering low-return insurance policies and reinvesting in high-growth mutual funds.

Maintain a long-term perspective, harness the power of compounding, and stay disciplined.

Seek professional guidance from a CFP to navigate market complexities and optimize your investment strategy.

With these steps, you'll enhance your wealth and secure a financially sound future.

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 Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 08, 2024

Asked by Anonymous - Apr 12, 2024Hindi
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I am investing 1k in Nippon India small cap fund direct growth and 2k in Kotak small cap fund direct growth. I earn 86k pm and save 20k in savings account. Also I pay 17.5k in rent and electricity. How can I create wealth of 1cr ?
Ans: It's great that you're investing in mutual funds to build wealth. To achieve your goal of accumulating 1 crore, let's outline a plan tailored to your financial situation:
1. Increase Investment Amount: Since you're currently investing a total of 3k per month in small-cap funds, consider gradually increasing this amount based on your risk tolerance and investment horizon. Aim to maximize your investments while ensuring you have sufficient funds for your monthly expenses and emergency savings.
2. Diversify Your Portfolio: While small-cap funds offer potential for high returns, they also come with higher volatility and risk. Consider diversifying your portfolio by investing in a mix of large-cap, mid-cap, and diversified equity funds to spread risk across different market segments.
3. Regularly Review and Rebalance: Keep a close eye on your investments and periodically review your portfolio's performance. Rebalance your portfolio as needed to ensure it remains aligned with your financial goals, risk tolerance, and market conditions.
4. Explore Tax-Efficient Options: Consider investing in tax-saving instruments like Equity Linked Savings Schemes (ELSS) to avail of tax benefits under Section 80C of the Income Tax Act. ELSS funds offer the dual benefit of tax savings and potential wealth creation through equity investments.
5. Optimize Expenses and Savings: Look for opportunities to optimize your expenses and increase your savings rate. Identify areas where you can cut back on unnecessary expenses and redirect those funds towards investments. Maximize your contributions to tax-deferred investment vehicles like EPF, PPF, or NPS to accelerate wealth accumulation.
6. Seek Professional Advice: Consider consulting with a Certified Financial Planner (CFP) to develop a personalized financial plan tailored to your goals, risk tolerance, and financial situation. A financial planner can help you navigate investment decisions, tax planning strategies, and wealth-building techniques to achieve your objectives.
By following these steps and staying disciplined in your investment approach, you can work towards achieving your goal of accumulating 1 crore over time.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 04, 2024

Asked by Anonymous - Jun 04, 2024Hindi
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My husband(36yrs) and I (32 yrs) are government employees but do not have pension. We fall under CPS scheme. We have an own house built this year but the loan goes for 45 lakhs for 15 years. We are investing 5k in mutual funds and 1 lakh in SSA yearly. Since we have put all savings in land purchase to build the house, we do not have any other savings. Our combined monthly income is 1,65,000. How can we built wealth of 5 crore for retirement in 60 years and for two children’s education in 13 years from now.
Ans: Assessing Your Current Financial Situation
You and your husband have a combined income of Rs. 1,65,000 per month. You are investing Rs. 5,000 in mutual funds and Rs. 1,00,000 annually in the Sukanya Samriddhi Account (SSA) for your daughters.

Income and Expenses:

Combined Monthly Income: Rs. 1,65,000
Home Loan EMI: Assuming an interest rate of 8%, your EMI for Rs. 45,00,000 over 15 years would be approximately Rs. 43,000 per month.
Day-to-Day Expenses: Let’s assume monthly household expenses are Rs. 70,000.
Savings: Rs. 5,000 in mutual funds monthly and Rs. 1,00,000 annually in SSA.
Establishing Financial Goals
You have two main financial goals:

Retirement Corpus: Rs. 5 crore by age 60.
Children's Education: Required in 13 years.
Calculating Required Investments
Retirement Corpus:

To accumulate Rs. 5 crore in 28 years (for you) and 24 years (for your husband), you need to invest regularly in equity mutual funds.

Using an assumed annual return of 12%, let's calculate the required SIP.

Children's Education:

You need funds for education in 13 years. Assume an education corpus of Rs. 1 crore.

Using an assumed annual return of 12%, let's calculate the required SIP.

Current Savings and Investments
You are already investing Rs. 5,000 in mutual funds and Rs. 1,00,000 annually in SSA. However, this needs to be increased to meet your goals.

Adjusting Monthly Budget
After accounting for your home loan EMI and expenses, you have Rs. 52,000 available for investments.

Suggested Investment Strategy
1. Increase SIP in Mutual Funds:

Equity mutual funds provide higher returns over the long term. Increase your monthly SIP to Rs. 40,000.

2. Children’s Education Fund:

Invest Rs. 12,000 per month in a dedicated mutual fund for education.

Detailed Financial Plan
1. Retirement Planning:

Increase your SIP to Rs. 40,000 in diversified equity mutual funds.
Consider a mix of large-cap, mid-cap, and multi-cap funds for diversification.
2. Children’s Education:

Invest Rs. 12,000 per month in equity mutual funds dedicated to education.
Use a combination of SIPs and lumpsum investments when possible.
3. Emergency Fund:

Maintain an emergency fund of at least 6 months of expenses (Rs. 4,20,000).
Use liquid funds or a savings account for easy access.
4. Insurance:

Ensure adequate term insurance cover for both you and your husband.
Health insurance coverage should be sufficient for all family members.
Professional Guidance
Seek advice from a Certified Financial Planner (CFP) to tailor your investment strategy.

Regular Review and Rebalancing
Review your investments annually and rebalance to maintain your asset allocation.

Tax Planning
Invest in tax-efficient instruments like ELSS funds, PPF, and SSA to maximize post-tax returns.

Long-Term Commitment
Focus on long-term investments to achieve your goals. Regular and disciplined investing is key.

Conclusion
With disciplined investing and a clear strategy, achieving your financial goals is attainable.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6501 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 29, 2024

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Hello , My age is 30 and have investments as follows: 15 lacs in fd , 15 lacs in nsc, 5.5 lacs in ppf which will go upto 10 lacs in next 3 years (during maturity), 5 lacs in stocks and 2 sip 10k in quant elss tax saver fund & 6k in kotak elss tax fund , 5k/m contribution in nps.I have housing rent which is 35k/m and monthly expense upto ?6k. I am the only one earning at home. I want to generate wealth to cover my childs education and higher studies.
Ans: You have a good start in your investment journey. Your age is 30, and you have a well-diversified portfolio. Your goal is to generate wealth for your child's education and higher studies. Let's analyse your current investments and provide insights for future growth.

Current Investment Overview
Fixed Deposits: Rs 15 lakhs

National Savings Certificate (NSC): Rs 15 lakhs

Public Provident Fund (PPF): Rs 5.5 lakhs (expected to grow to Rs 10 lakhs in 3 years)

Stocks: Rs 5 lakhs

SIPs: Rs 10,000 in ELSS tax saver fund, Rs 6,000 in another ELSS tax fund

National Pension System (NPS): Rs 5,000 monthly

Housing Rent: Rs 35,000 monthly

Monthly Expenses: Rs 6,000

Analysis of Your Current Portfolio
Fixed Deposits and NSC: These are low-risk, but returns are often low. They provide stability but may not keep pace with inflation.

PPF: This is a safe and tax-efficient option. It is a good long-term investment.

Stocks: High-risk, high-reward. Requires careful selection and monitoring.

SIPs in ELSS Funds: These offer tax benefits and potential for good returns. However, avoid duplication in fund choices.

NPS: Good for retirement planning. Offers tax benefits and disciplined savings.

Recommendations for Wealth Generation
Diversify Investments: Avoid putting too much in low-return options. Consider increasing exposure to equity mutual funds for higher growth potential.

Review ELSS Funds: Having two ELSS funds is redundant. Opt for one well-performing ELSS fund. This simplifies management and can boost returns.

Increase Equity Exposure: Allocate more to equity mutual funds. These funds generally offer better returns over the long term.

Regular Fund Investing: Consider investing through regular funds with a Certified Financial Planner. This ensures professional guidance and avoids common investment mistakes.

Avoid Direct Funds: Direct funds lack professional advice. Regular funds with CFP help are better for most investors.

Benefits of Actively Managed Funds
Professional Management: Fund managers actively manage the portfolio for optimal returns.

Flexibility: They can adjust holdings based on market conditions.

Potential for Higher Returns: Actively managed funds often outperform index funds.

Additional Steps for Financial Security
Emergency Fund: Maintain an emergency fund equal to 6-12 months of expenses. This covers unexpected financial needs.

Insurance Coverage: Ensure adequate life and health insurance. This protects your family from unforeseen events.

Regular Portfolio Review: Regularly review and rebalance your portfolio. This keeps your investments aligned with your goals and market conditions.

Final Insights
Your investment portfolio is well-diversified but can benefit from adjustments. Shift some funds from low-return options to equity mutual funds. Simplify your ELSS investments and increase equity exposure. Regular funds with Certified Financial Planner guidance offer better returns and convenience. Maintain an emergency fund and ensure adequate insurance coverage. Regular reviews and rebalancing keep your portfolio on track. This approach will help you generate wealth for your child's education and secure your financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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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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