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Ramalingam Kalirajan |6302 Answers |Ask -Follow

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 - Jun 22, 2024Hindi

Hi, I am 39 yrs old and doing business. My monthly avg income is 3 to 3.5 lakhs (its annual average and monthly varies). I have almost zero debt and invested in land / plot which i will sell to take care after retirement expense (current market value of Rs 60 Lakhs). Apart from this as of todays rate I can get rental income of Rs80k minimum from other properties. I have one daughter 8yrs old and Son 1 yrs old. My question are below 1. How much cash / saving should be there to maintain a avg lifestyle. I.e. Children education + 50k monthly expense, assuming I am retiring between 45 to 50yrs. 2. I dont belive and invest in shares/MF, so whether investment should be made in Gold or property or any other alternative. Pls advice, Thanks

Ans: Hi, your financial status looks good. Monthly income of Rs 3 to 3.5 lakhs is impressive. Zero debt and invested in land is a strong foundation.

Evaluating Your Current Investments
Your land investment worth Rs 60 lakhs is valuable. Planning to sell it for retirement expenses is a wise decision. Additionally, the rental income of Rs 80,000 monthly is a great passive income source. This rental income can help maintain your lifestyle post-retirement.

Planning for Children's Education
You have two young children. Education costs will rise over time. Your daughter is 8, and your son is 1. For quality education, you need to start planning now. Higher education can be expensive. Consider inflation and future costs.

Monthly Expenses and Savings Needs
You mentioned monthly expenses of Rs 50,000. Let's break down your savings needs:

Children’s Education: Assuming higher education expenses start at 18. Your daughter will need funds in 10 years. Your son in 17 years. Estimate costs based on current fees and inflation rates.

Lifestyle Maintenance: Rs 50,000 monthly expense equals Rs 6 lakhs annually. For 30 years post-retirement, you need a substantial corpus.

Cash and Savings for Retirement
Retiring between 45 to 50 years means early retirement. You need to ensure enough savings. Here’s a breakdown:

Emergency Fund: At least 6 months of expenses. With Rs 50,000 monthly expense, save Rs 3 lakhs in a liquid fund.

Retirement Corpus: Assuming Rs 50,000 monthly expense, you need Rs 6 lakhs annually. For 30 years, you need around Rs 1.8 crores. This is a simplified estimation without accounting for inflation.

Investment Options: Evaluating Gold and Property
You prefer gold and property over shares or mutual funds. Let’s explore these:

Gold Investment
Pros: Gold is a hedge against inflation. It's a tangible asset. Easy to buy and sell.

Cons: No regular income from gold. Prices can be volatile. Storage and security concerns.

Property Investment
Pros: Regular rental income. Property value generally appreciates over time. Tangible asset.

Cons: Requires significant capital. Maintenance and legal issues. Not easily liquidated. Property prices can be volatile.

Alternative Investments
While gold and property are traditional investments, consider diversifying. Here are some alternatives:

Fixed Deposits (FDs)
Pros: Safe and secure. Guaranteed returns. Easy to manage.

Cons: Returns are lower compared to other investments. Interest is taxable.

Public Provident Fund (PPF)
Pros: Tax benefits. Safe investment. Compounded returns.

Cons: Lock-in period of 15 years. Limited flexibility.

National Pension System (NPS)
Pros: Retirement-focused. Tax benefits. Partial equity exposure.

Cons: Long lock-in period. Annuity purchase on maturity.

Risks and Diversification
It's important to diversify your investments. Putting all your money in one asset class increases risk. Diversification helps in balancing risk and returns.

Advantages of Diversification
Risk Management: Spreads risk across different asset classes.

Potential for Higher Returns: Different assets perform well at different times.

Liquidity: Access to funds when needed.

Power of Compounding
Compounding is powerful. It’s earning returns on your returns. The earlier you start, the more you benefit. Even small, regular investments grow significantly over time.

Empathy and Understanding
Your cautious approach towards investments is understandable. Everyone has different risk appetites. It’s important to choose what you're comfortable with.

Certified Financial Planner Insight
As a Certified Financial Planner, I recommend having a balanced portfolio. While you prefer gold and property, consider some exposure to other safe investments. Diversification can protect and grow your wealth.

Assessing Investment Options
Gold: Good for hedging, not for regular income.

Property: Good for rental income, but requires management.

FDs and PPF: Safe, but lower returns.

NPS: Good for retirement, but with a lock-in.

Final Insights
Balancing your investments is key. Keep a mix of safe and growth-oriented assets. Plan for children’s education early. Ensure you have enough savings for retirement. Diversify to manage risks.

Your proactive approach to retirement and children's education is commendable. It's great you’re planning ahead. Make sure to reassess your financial plan regularly.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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