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Sunil Lala  |201 Answers  |Ask -

Financial Planner - Answered on Feb 11, 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 - Jan 29, 2024Hindi
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I am 38 and my wife is 36, we have a child and live in Mumbai with my parents.I have started the following 4 SIPs 4 months back 1. PPFAS Flexicap- 15k 2. Nippon Small Cap- 15k 3. SBI Magnum Midcap-15k 4. Kotak Emerging Equities-15k Apart from that me and wife have around 80-82 lakhs in equity and around 7-8 lakhs in PPF and EPFO. Our goal is to have enough funds for our sons education and retirement by 50. Our monthly expenses right now are around 1.5 Lakhs. Are the above funds good enough to achieve these goals and would you recommend any other fund intead of the ones listed above. My aim is to generate maximum returns.

Ans: Your fund selection is good
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  |6958 Answers  |Ask -

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

Asked by Anonymous - Nov 04, 2024Hindi
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I am 44 years old and will retire at age of 58 yrs. Have 2 children of 14 and 7 yrs.Pllaning to get around 50 lakhs fund for their higher education and would require 5 Cr corpus by my retirement.inesting in PPF yrly 150,000. Current balance is 20lakhs. Own house no loan. currently I have monthly SIPs of 30K with current valuation 20lakhs. SBI Magnum gilt fund direct growth (5000),SBI equity hybrid fund regular growth (10000),SBI blue chip fund (2500),SBI Nifty index fund regular plan(5000),ICICI PRUDENTIAL focussed equity fund direct plan growth (5000), ICICI PRUDENTIAL BALANCED adv fund direct plan growth (5000).Kindly let me know if these funds are good and it these help in gaining my goals.plz suggest in case of any changes required
Ans: Let's dive into your investment strategy for building the targeted Rs. 5 crore retirement corpus and Rs. 50 lakh education fund. You are already taking commendable steps, such as investing consistently in mutual funds and PPF, holding an equity-heavy portfolio, and managing with zero debt. Let's assess and optimize your current plan for maximum impact.

 

Current Investment Review
Your SIP portfolio is well-diversified with a mix of equity, hybrid, and debt-oriented funds. Here’s a quick assessment of the types of funds you hold and some pointers to optimize them further:

Equity and Focused Funds
These funds offer growth potential, which aligns well with your long-term goals. Equity funds generally have higher returns over time, making them essential for building wealth. However, focusing more on actively managed funds could bring in a higher return than index funds over the long term. This would support your goals more robustly than passive funds like index funds.

Hybrid Funds
Hybrid funds provide a balance between growth and stability, which helps reduce volatility. Including them in your portfolio is beneficial as it helps diversify across asset classes. However, actively managed equity or hybrid funds could be more advantageous over passively managed options.

Debt and Gilt Funds
While gilt funds can provide stability, they’re not always optimal for long-term goals due to their lower returns compared to equity. If your risk tolerance allows, consider re-allocating part of this investment to high-growth funds to support your corpus goals.

 

Suggested Adjustments to Your Portfolio
To maximize your chances of reaching your goals, a few changes are recommended:

Shift to More Active Funds
Actively managed funds are designed to outperform their benchmarks, unlike index funds. By investing through a Certified Financial Planner, you can benefit from personalized fund management, allowing for better potential growth aligned with market conditions.

Reallocate from Gilt to Equity-Based Funds
Since your retirement horizon is 14 years, a higher equity allocation may suit your portfolio better. Consider moving a portion from gilt to diversified equity funds for greater growth.

Increase Monthly SIPs Gradually
To build the Rs. 5 crore corpus and fund your children’s education, increasing your monthly SIP contributions with an annual increment (say 5-10%) will boost your corpus significantly.

 

Education Fund Planning
Your goal of Rs. 50 lakh for children’s education in 4-8 years is achievable by focusing on medium-term investments. Here’s a suggested approach:

Equity Funds with a Defensive Mix
A combination of large-cap and balanced funds would suit this goal, providing both growth and some stability. These funds are resilient during market downturns and typically perform well in medium to long term, helping achieve your educational goal.

Hybrid or Dynamic Asset Allocation Funds
Hybrid funds can automatically adjust equity-debt allocation based on market conditions, offering a balance between risk and return. This strategy aligns well with your shorter horizon for education funding needs.

Consider Lump Sum Investments
If you have any spare cash flow or bonuses, consider making lump-sum contributions into education-specific funds. This can give a boost to your target corpus for educational needs.

 

Long-Term Retirement Planning for Rs. 5 Crore
Building Rs. 5 crore in 14 years requires consistent investments and an increased focus on equity. Here’s how to further align your portfolio:

Increase Equity Exposure Gradually
To achieve high growth, increasing your equity allocation is essential. Equity-oriented funds have historically shown robust performance over 10-15 years, aligning well with your retirement timeline. These funds offer a balanced risk-reward approach and should be prioritized in your SIP contributions.

Systematic Transfer Plan (STP)
In the final 3-4 years before retirement, consider moving investments systematically from equity to safer debt funds. This STP will help safeguard your accumulated corpus against market volatility.

Avoid Over-Reliance on PPF
While your PPF contributions add safety, their returns may be limited compared to equity funds. A balanced approach with equity SIPs as a major component can yield better results.

 

Understanding the Impact of Direct vs. Regular Funds
Although direct funds have lower expense ratios, working through a Certified Financial Planner (CFP) using regular plans can add significant value to your portfolio. Here’s why:

Customized Strategy and Guidance
A CFP provides tailored advice on fund selection, asset allocation, and market timing. Regular plans enable access to this professional support, often translating to better overall performance.

Ease of Management and Rebalancing
With regular plans, your CFP can help rebalance your portfolio based on market conditions, aligning it with your goals without additional effort on your part.

 

Addressing Index Funds in Your Portfolio
Index funds may be low-cost, but they are also passively managed, limiting their ability to respond to changing market trends. For long-term goals like retirement, actively managed funds could be more effective due to their potential to generate alpha.

Growth Potential of Actively Managed Funds
Actively managed funds can yield higher returns as fund managers actively select high-potential stocks. This is especially beneficial for aggressive goals like building a Rs. 5 crore retirement corpus.
 

Tax Implications of Mutual Fund Investments
It’s important to understand the taxation on mutual fund gains to make informed decisions.

Equity Mutual Funds
Long-term capital gains (LTCG) over Rs. 1.25 lakh are taxed at 12.5%. Short-term gains (within 1 year) are taxed at 20%. For your long-term goals, LTCG taxation may be more favorable as your SIPs will benefit from long-term growth.

Debt Mutual Funds
Both LTCG and STCG on debt funds are taxed based on your tax slab. For high-income individuals, debt funds might incur a higher tax, so equity-heavy SIPs are generally more tax-efficient over time.

 

Emergency Fund and Risk Management
Your existing investments are growth-oriented, but maintaining liquidity for emergencies is crucial.

Emergency Fund
Ensure you have at least 6-12 months of expenses in a high-liquidity instrument like a savings account or liquid fund. This way, you’re covered for unexpected needs without disrupting your long-term plans.

Insurance Cover
Ensure adequate health and life insurance coverage to protect your family’s future. This acts as a safety net, ensuring your retirement and education funds remain untouched even in emergencies.

 

Final Insights
Your investment portfolio and approach are well-aligned with your goals. By making minor tweaks, such as increasing equity exposure, transitioning to actively managed funds, and incrementing SIP contributions annually, you can achieve both the Rs. 50 lakh education fund and the Rs. 5 crore retirement corpus comfortably.

These adjustments, along with strategic planning for taxation and risk, can bring you closer to your financial goals. Continue investing consistently, stay disciplined, and reassess your portfolio every 1-2 years for optimal growth.

 

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

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Asked by Anonymous - Nov 05, 2024
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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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