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Ramalingam

Ramalingam Kalirajan  |6266 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 10, 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 03, 2024Hindi
Money

I am 38 years old, self and spouse both earning, 1.50 lakhs in hand. I have created a corpus as below as of Jun-24 and planning to retire at the age of 52 years. Existing portfolios: 1.Mutual funds through CFP invested 30 lakhs current value 42 Lakhs, monthly SIP around 50K and yearly incremental in sip about 10% and avg CAGR is 20% 2.PF savings: 6.5 lakhs and monthly 10K contribution 3.NPS: 3 lakhs, monthly 5K Debts: a.30 Lakhs Home Loan with monthly emi of 26K b.30 Lakhs gold Loan(gold about 800 to 900 grams) at 9% rate paying only interest portion c.10 Lakhs personal Loan with emi of 11K d. Car loan with 7lkahs outstanding emi of 15000 And both are having Medical insurance for 50 Lakhs and corporate insurance for 10 Lakhs and term life for 2.75 Cr and emergency fund of 2-3 months salary always in bank accounts. Goals: 1.Daughter graduation by 2028 - 35 lakhs 2.Daughter graduation by 2033 - 56 Lakhs 3.Daughter marriage by 2033- 45 lakhs 4.Daughter marriage by 2038 -75 lakhs 5.Dream car by 2034- 50 Lakhs 6.Retirement goal by 2038 with corpus of 3 cr and monthly running expenses would be 2.5 Lakhs by the time. What should I alter to achieve this goals without any compromise. Regards, Chandra

Ans: Chandra, you have done an excellent job in building your financial portfolio and planning for your future. At 38, both you and your spouse have a combined monthly income of Rs 1.50 lakhs. Your investments are diversified, and you have clear goals for your daughter’s education, her marriage, and your retirement. Let's break down your current financial status and provide a comprehensive plan to achieve your goals without compromising.

Existing Portfolios and Contributions
Mutual Funds:

Current Value: Rs 42 lakhs
Monthly SIP: Rs 50,000
Yearly Incremental SIP: 10%
Average CAGR: 20%
PF Savings:

Current Value: Rs 6.5 lakhs
Monthly Contribution: Rs 10,000
NPS:

Current Value: Rs 3 lakhs
Monthly Contribution: Rs 5,000
Debts
Home Loan:

Principal: Rs 30 lakhs
Monthly EMI: Rs 26,000
Gold Loan:

Principal: Rs 30 lakhs
Interest Rate: 9%
Paying Interest Only
Personal Loan:

Principal: Rs 10 lakhs
Monthly EMI: Rs 11,000
Car Loan:

Principal: Rs 7 lakhs
Monthly EMI: Rs 15,000
Insurance and Emergency Fund
Medical Insurance: Rs 50 lakhs
Corporate Insurance: Rs 10 lakhs
Term Life Insurance: Rs 2.75 crores
Emergency Fund: 2-3 months' salary
Financial Goals
Daughter’s Graduation:

2028: Rs 35 lakhs
2033: Rs 56 lakhs
Daughter’s Marriage:

2033: Rs 45 lakhs
2038: Rs 75 lakhs
Dream Car:

2034: Rs 50 lakhs
Retirement:

2038: Corpus of Rs 3 crores
Monthly Expenses: Rs 2.5 lakhs
Analysis and Recommendations
Mutual Fund Investments
Your mutual fund investments are performing well with a 20% CAGR. Continue your SIPs with an annual 10% increment. This compounding growth is crucial for achieving your long-term goals. Diversifying within mutual funds, including large-cap, mid-cap, and hybrid funds, can balance risk and return.

Provident Fund (PF)
Your monthly PF contribution of Rs 10,000 is a stable, long-term investment. PF provides security and assured returns. Continue with this contribution to build a substantial retirement corpus.

National Pension System (NPS)
NPS is a good option for retirement savings due to its tax benefits and market-linked returns. Your monthly contribution of Rs 5,000 is beneficial. Consider increasing this amount slightly if possible.

Debt Management
You have significant debts. Prioritizing debt repayment will free up resources for your goals.

Home Loan: The EMI of Rs 26,000 is manageable. Ensure timely payments to avoid penalties.

Gold Loan: Paying only interest on a Rs 30 lakh loan at 9% is costly. Consider repaying the principal gradually to reduce interest burden.

Personal Loan: The EMI of Rs 11,000 should be cleared as soon as possible. Personal loans typically have higher interest rates.

Car Loan: With an EMI of Rs 15,000, focus on repaying this loan to free up cash flow.

Insurance and Emergency Fund
Your insurance coverage is adequate. A term life insurance of Rs 2.75 crores and medical insurance of Rs 50 lakhs offer good protection. Maintaining an emergency fund of 2-3 months’ salary is wise. Ensure this fund is easily accessible.

Daughter’s Education and Marriage
For your daughter’s education and marriage, start dedicated savings. Investing in mutual funds with a mix of equity and debt will ensure growth while managing risk. Use SIPs to build these funds over time.

Retirement Planning
To achieve a corpus of Rs 3 crores by 2038, continue with your current investments and increase contributions wherever possible. Your mutual fund investments, PF, and NPS will play a crucial role. Regularly review your portfolio with a Certified Financial Planner to stay on track.

Dream Car
Plan for your dream car in 2034 by setting aside a specific amount each month in a dedicated fund. Consider a combination of debt and equity investments to balance growth and stability.

Detailed Plan for Achieving Goals
Step 1: Debt Repayment Strategy
Focus on clearing high-interest debts first. Prioritize personal and car loans.
Gradually repay the gold loan principal to reduce the interest burden.
Maintain regular payments on your home loan.
Step 2: Increase Savings and Investments
Incrementally increase your SIPs by 10% annually.
Consider slightly increasing your NPS contributions.
Allocate any surplus income towards your emergency fund and debt repayment.
Step 3: Goal-Specific Investments
Daughter’s Education: Use mutual funds with a mix of equity and debt. Start SIPs dedicated to education.
Daughter’s Marriage: Similar strategy as education funds. Use long-term mutual funds.
Dream Car: Start a dedicated fund for this goal. Use a combination of savings and low-risk investments.
Step 4: Regular Review and Adjustment
Regularly review your financial plan with a Certified Financial Planner.
Adjust your investments based on market conditions and personal financial changes.
Benefits of Actively Managed Funds
Avoid index funds for your goals. Actively managed funds, guided by financial experts, can outperform the market and provide better returns. They offer:

Professional Management: Expertise in selecting investments.
Flexibility: Adjustments based on market conditions.
Potential for Higher Returns: Better performance than index funds over time.
Importance of Certified Financial Planner
A Certified Financial Planner (CFP) can provide personalized advice, ensuring your investments align with your goals. They help in creating a comprehensive plan, monitoring progress, and making necessary adjustments.

Final Insights
Chandra, you have a solid foundation and clear goals. With strategic planning and disciplined investments, you can achieve your financial objectives. Focus on debt repayment, increase savings, and invest wisely. Regular reviews with a CFP 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.
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Ramalingam

Ramalingam Kalirajan  |6266 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 25, 2024

Asked by Anonymous - Jun 20, 2024Hindi
Money
Hello Sir, Me and my wife are both 35 years old. We earn a total of Rs. 3.50L per month. We have a house loan of 15L for which we pay an emi of 15k per month. We both also have ppf accounts with combined amount of 7L and starting july 2024 will be investing 12500 rs in each account. We also have lum-sum mf deposited of Rs. 2L and 3L each (a year back). Currently have a combined SIP of 10000 monthly in equity + debt. We have 2 properties for one receives rental of Rs. 12500 per month and other one we stay. We also have FD of around 20L and have a seperate amount of Rs. 5L kept as emergency fund. Also we have NPS account and per year we invest Rs. 50000 each in our accounts. We have a Term plans for both of us at 1-1cr each. Our company PF balnce combined to be around 25L. We have a 6 year old son. We wish to retire by age of 50 years, with a handsome amount which can generate an income of 1.5-2L. Please help us how can we work towards achieving this goal.
Ans: First, I want to commend you and your wife for being financially proactive and disciplined. Your combined monthly income of Rs. 3.50 lakhs and structured investments show a solid foundation. Your goal to retire by 50 with an income of Rs. 1.5-2 lakhs per month is achievable with strategic planning. Let’s explore how you can optimize your current finances to reach this goal.

Current Financial Snapshot
House Loan:

Outstanding loan: Rs. 15 lakhs
EMI: Rs. 15,000 per month
PPF Accounts:

Combined balance: Rs. 7 lakhs
Monthly investment from July 2024: Rs. 12,500 each (total Rs. 25,000)
Mutual Funds:

Lump sum: Rs. 2 lakhs and Rs. 3 lakhs
Monthly SIP: Rs. 10,000 in equity and debt
Properties:

One rental property generating Rs. 12,500 per month
Primary residence
Fixed Deposits:

Total: Rs. 20 lakhs
Emergency Fund:

Total: Rs. 5 lakhs
NPS Accounts:

Annual contribution: Rs. 50,000 each (total Rs. 1 lakh)
Term Insurance:

Sum assured: Rs. 1 crore each
Provident Fund:

Combined balance: Rs. 25 lakhs
With this strong financial base, let’s assess how to align your assets and investments towards your retirement goal.

Setting Clear Retirement Goals
Your goal is to retire at 50, with a steady monthly income of Rs. 1.5-2 lakhs. To achieve this, we need to:

Estimate Retirement Corpus:

We need to calculate how much you’ll need to generate Rs. 1.5-2 lakhs per month, considering inflation and longevity.
Optimize Current Investments:

Evaluate and adjust your current investments for growth and stability.
Increase Investment Contributions:

Plan to increase your savings and investments to meet the desired retirement corpus.
Estimating Your Retirement Corpus
Assuming you need Rs. 1.5-2 lakhs per month in today’s terms, we must account for inflation. Typically, a 6-7% annual inflation rate is reasonable for long-term planning.

Inflation-Adjusted Income:

Rs. 1.5 lakhs today will be much higher in 15 years due to inflation. For example, at 6% inflation, Rs. 1.5 lakhs will be around Rs. 3.6 lakhs in 15 years.
Corpus Calculation:

To generate Rs. 3.6 lakhs per month, you need a substantial retirement corpus. Typically, using a safe withdrawal rate of 4-5%, you’ll need a corpus of approximately Rs. 9-10 crores.
Optimizing Your Current Investments
To build this corpus, let’s review and optimize your existing investments and strategies.

Paying Off the Home Loan
Low-Interest Priority:

Your home loan of Rs. 15 lakhs with an EMI of Rs. 15,000 is manageable. If the interest rate is low, continue paying the EMI. Use surplus funds for higher growth investments rather than prepaying the loan.
Focus on Higher Returns:

Redirecting extra money towards investments with higher returns than your loan’s interest rate can be more beneficial.
Leveraging PPF Accounts
Consistent Contributions:

You plan to invest Rs. 25,000 per month in PPF. This provides safe, tax-free returns, which is great for a portion of your portfolio. Continue these contributions for stability and security.
Long-Term Growth:

PPF’s tax-free nature and stable returns make it a strong long-term investment. It’s perfect for balancing your riskier investments.
Enhancing Mutual Fund Investments
Review Lump Sum Investments:

Your Rs. 2 lakhs and Rs. 3 lakhs in mutual funds need reviewing. Ensure these funds are aligned with your risk tolerance and goals. Prefer funds with a good track record of consistent returns.
Increase SIPs:

You currently invest Rs. 10,000 monthly in SIPs. To meet your retirement goals, consider increasing your SIPs gradually. Target Rs. 20,000-30,000 monthly as your income allows.
Focus on Growth:

Prioritize equity mutual funds for higher returns, balanced with some debt funds for stability. Actively managed funds can outperform index funds, providing better growth potential.
Fixed Deposits and Emergency Fund
Emergency Fund:

Your Rs. 5 lakhs emergency fund is excellent. It’s crucial to keep this liquid and accessible. This provides security and peace of mind.
Reassess Fixed Deposits:

With Rs. 20 lakhs in FDs, you have stability, but returns may be lower. Consider reallocating a portion to higher-yielding investments, keeping some for short-term needs and safety.
NPS Contributions
Tax Benefits:

Your annual Rs. 50,000 each in NPS is beneficial for tax savings and retirement planning. Continue these contributions for long-term retirement benefits.
Growth Potential:

NPS offers good growth with a mix of equity and debt. It’s a great supplement to your retirement corpus, providing steady growth and tax benefits.
Investment Strategy to Achieve Retirement Goals
To retire comfortably by 50, focus on growing your wealth while managing risks. Here’s a strategic plan:

Maximize Equity Exposure:

At your age, focus on equity investments for higher growth. Increase your SIPs in equity mutual funds and ensure a diversified portfolio.
Rebalance Periodically:

Regularly review and rebalance your portfolio to stay aligned with your goals. Adjust allocations based on market conditions and your risk tolerance.
Leverage Professional Management:

Actively managed funds can provide higher returns through expert stock selection and management. Consider funds with good track records and professional managers.
Increase Contributions Over Time:

As your income grows, gradually increase your SIPs and other investments. Aim to invest a larger portion of your salary towards your retirement corpus.
Utilize Tax-Efficient Investments:

Maximize contributions to PPF and NPS for tax savings. Also, consider tax-efficient mutual funds and equity investments.
Diversify Across Asset Classes:

Balance your portfolio with a mix of equities, debt, and safe instruments like PPF and FDs. Diversification reduces risk and enhances returns.
Managing Risks and Ensuring Stability
Risk management is crucial in your journey towards early retirement. Here’s how you can mitigate risks while pursuing your goals:

Adequate Insurance Coverage:

Your term plans of Rs. 1 crore each provide a safety net for your family. Ensure you have adequate health insurance to cover medical emergencies.
Emergency Fund Maintenance:

Keep your Rs. 5 lakhs emergency fund intact. This protects against unexpected expenses without disturbing your investments.
Regular Financial Check-Ups:

Periodically review your financial plan and investments. This helps in adapting to changing circumstances and staying on track.
Plan for Inflation:

Consider the impact of inflation on your retirement needs. Ensure your investments grow faster than inflation to maintain purchasing power.
Building a Sustainable Retirement Plan
Creating a sustainable retirement plan involves both growing your corpus and planning for a stable income post-retirement. Here’s how:

Target a Diversified Corpus:

Aim for a retirement corpus that includes a mix of equity, debt, and fixed-income investments. This provides growth and stability.
Consider Systematic Withdrawal Plans:

Post-retirement, consider using Systematic Withdrawal Plans (SWPs) from mutual funds to generate a steady income. This allows you to withdraw money systematically while keeping your capital invested and growing.
Explore Annuity Options:

Though not the focus, evaluate annuities for a portion of your retirement corpus for guaranteed income. They provide stability and reduce the risk of outliving your savings.
Maintain a Balance Between Safety and Growth:

As you approach retirement, gradually shift to safer investments to protect your corpus while keeping some exposure to growth assets.
Final Insights
Your goal to retire at 50 with a monthly income of Rs. 1.5-2 lakhs is ambitious but achievable. Here’s a summary of how to work towards it:

Focus on Equity for Growth:

Increase your equity investments through SIPs and lump-sum mutual fund investments. This provides the growth needed to build a large corpus.
Maintain Diversification and Stability:

Balance your portfolio with PPF, FDs, and NPS for stability and tax benefits. Keep your emergency fund intact for security.
Increase Investments Over Time:

Gradually increase your investment contributions as your income grows. This accelerates your wealth-building process.
Leverage Professional Management:

Utilize actively managed mutual funds and the expertise of Certified Financial Planners. They help in optimizing your investments and staying on track.
Regularly Review and Rebalance:

Periodically review your financial plan and investments. Rebalance your portfolio to stay aligned with your goals and risk tolerance.
Starting early and maintaining a disciplined approach will lead you to a comfortable and financially secure retirement at 50. Your proactive steps today will pave the way for a fulfilling and worry-free future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Nitin

Nitin Narkhede  |4 Answers  |Ask -

MF, PF Guru - Answered on Sep 10, 2024

Asked by Anonymous - Sep 06, 2024Hindi
Listen
Money
I am 16 and I want to invest in mutual funds. I get pocket money of Rs 3000 per month. After cutting costs, I save about Rs 1200-1500 per month. Can I invest this in SIPs? My goal is to buy a Yamaha bike In December 2025 for my 18th birthday which costs Rs 1.5 lakh. I have already saved Rs 40,000. Where can I invest so that I can double my savings by next year? Please advice
Ans: Dear
It’s awesome that you’re thinking about investing at such a young age! Your goal of buying a Yamaha bike for your 18th birthday is achievable with the right investment strategy. Let’s break it down:
1. SIP (Systematic Investment Plan) for Your Monthly Savings you can absolutely invest your savings in SIPs. With Rs 1200-1500 available per month, SIPs are a great way to start investing in mutual funds. They allow you to invest small amounts regularly, and over time, you can benefit from compounding and rupee-cost averaging, which means your money can grow steadily. However, since your goal is just over a year away (December 2025), you’ll need to invest in something that balances growth with moderate risk, because mutual funds, especially equity ones, can be volatile in the short term.
2. How Much You Need to Save - Your target is Rs 1.5 lakh, and you’ve already saved Rs 40,000.- So, you need Rs 1.1 lakh more by December 2025. - You have roughly 15 months left, meaning you need to save or grow your savings by about Rs 7333 per month to meet your goal.
3. Investment Options - Given your short time frame, here are a few options to consider: - Hybrid or Balanced Mutual Funds: These funds invest in both stocks (equity) and bonds (debt), providing moderate growth with relatively lower risk than pure equity funds. While they might not double your savings in a year, they can give you better returns than a bank savings account. On average, you could expect returns of 8-10% per year. - Debt Mutual Funds: These are safer compared to equity mutual funds but offer lower returns, typically 6-8% per year. Debt funds might be a good option if you want to minimize risk, though they won't give huge returns in a short time. - Recurring Deposits (RDs): If you’re looking for safety and guaranteed returns, an RD in a bank might be a safer option, though the returns will be around 5-6%. This won’t help double your money, but it’s secure.
4. Doubling Your Money in a Year- While it’s tempting to look for ways to double your money quickly, it’s important to understand that high returns usually come with high risk. Investing in high-risk options like **stock trading** or **cryptocurrencies** could lead to losses, especially over such a short period.
Unfortunately, doubling your money in just over a year is not realistic without taking on significant risk. A better approach is to aim for stable growth and possibly adjust your bike budget or timeframe if necessary.
5. Action Plan - Start a SIP in a **balanced or hybrid mutual fund** with your monthly savings of Rs 1200-1500.
- Continue saving as much as possible to reach your target.
- Be cautious of high-risk investments, as they could hurt your savings in the short term.
So the Conclusion that by investing in SIPs and sticking to a disciplined savings plan, you should be able to get close to your goal. While doubling your money may not happen within a year, steady growth will help you build towards your dream bike.
If you need more personalized advice, consider speaking to a financial advisor to find the best funds for your situation.

Best regards,
Nitin Narkhede
Founder & MD, Prosperity Lifestyle Hub https://Nitinnarkhede.com
Free Webinar https://bit.ly/PLH-Webinar

...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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