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Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 18, 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 - May 12, 2024Hindi
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Hi, I am 40 years old. Is it advisable to buy a flat worth 2cr with 80% bank loan and give it for rent. Expected rent is 60k per month. Or should I build a corpus of 2cr. For my retirement life.

Ans: At 40 years old, you have an important decision to make regarding your financial future. Let's explore the advantages of setting up a Systematic Withdrawal Plan (SWP) in mutual funds compared to buying a flat for rental income.

Setting up an SWP in Mutual Funds
Advantages:
Flexible Withdrawals:

With an SWP, you have the flexibility to withdraw a fixed amount at regular intervals, providing a steady stream of income to support your financial needs, including retirement planning.
Diversification Benefits:

Mutual funds offer diversification across various asset classes, reducing concentration risk and potentially enhancing long-term returns compared to investing solely in real estate.
Professional Management:

Mutual funds are managed by professional fund managers who actively monitor and adjust the portfolio based on market conditions, aiming to optimize returns while managing risk.
Tax Efficiency:

SWP withdrawals from mutual funds may enjoy tax benefits, especially if held for the long term, with certain equity funds qualifying for capital gains tax exemption after a holding period of one year.
Buying a Flat for Rental Income
Advantages:
Stable Rental Income:

Renting out a flat can provide a stable source of income, which may be attractive for covering ongoing expenses or supplementing other sources of income.
Tangible Asset:

Owning real estate provides tangible asset ownership, offering potential capital appreciation over time and serving as a hedge against inflation.
Portfolio Diversification:

Real estate investments add diversification to your overall portfolio, reducing risk by spreading investments across different asset classes.
Disadvantages:
Liquidity Constraints:

Real estate investments are relatively illiquid, making it challenging to access funds quickly if needed, especially during emergencies or market downturns.
High Initial Investment:

Buying a flat requires a significant upfront investment, typically financed through a substantial bank loan, which may strain your finances and limit investment diversification.
Maintenance Costs:

As a landlord, you'll be responsible for ongoing maintenance, repairs, and other associated costs, which can erode rental income and impact overall returns.
Conclusion
Given the advantages of SWP in mutual funds, such as flexibility, diversification, professional management, and potential tax benefits, it may be a more suitable option for generating regular income and building a retirement corpus. However, it's essential to assess your risk tolerance, investment goals, and financial situation carefully before making a decision. Consider consulting with a Certified Financial Planner to develop a personalized financial plan aligned with your objectives and aspirations.

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  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 17, 2024

Asked by Anonymous - May 08, 2024Hindi
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I'm 32 unmarried and earn 4 lakhs per month post tax. My current MF portfolio is 90lakhs. With 20- 25% IRR and pay 50k for rent and 25k for expenses. want to know if should buy a flat worth 2 CR buy doing 50% down payment or should continue paying rent and invest n MF? If I continue with MF investment then when should be right period or financial situation to buy flat worth 2cr in future. PS: I don't see owning an home as an emotional attachnment.
Ans: Evaluating the Decision to Buy a Flat vs. Continue Investing in Mutual Funds
Understanding Your Financial Situation
As a 32-year-old earning 4 lakhs per month post-tax with a substantial MF portfolio of 90 lakhs, you're in a strong financial position. With disciplined spending, paying 50k for rent and 25k for expenses reflects prudent financial management.

Assessing the Rent vs. Buy Dilemma
Considering your high income and investment prowess, the decision to buy a flat worth 2 crores with a 50% down payment warrants careful consideration. Evaluating the financial implications of home ownership versus continued MF investing is essential.

Analyzing Financial Impact
Purchasing a 2 crore flat with a 50% down payment entails significant capital outlay and ties up funds that could otherwise be invested in MFs. Assess the opportunity cost of this decision, factoring in potential returns from MF investments versus home ownership.

Evaluating Long-Term Goals
Given your aversion to emotional attachment to homeownership, prioritize your long-term financial goals and investment objectives. Determine if the potential benefits of home ownership, such as asset diversification and stability, outweigh the opportunity cost of foregone investment returns.

Timing Considerations
Consider the timing of your decision to buy a flat in relation to your financial situation and market conditions. Monitor real estate trends, interest rates, and your MF portfolio performance to identify opportune moments for property acquisition.

Seeking Professional Advice
Consulting with a Certified Financial Planner (CFP) can provide valuable insights and personalized recommendations tailored to your financial objectives. A CFP can help you weigh the pros and cons of buying a flat versus continuing MF investments and devise a strategic plan aligned with your goals.

Conclusion
The decision to buy a flat or continue investing in MFs depends on various factors, including your financial goals, risk tolerance, and market conditions. By carefully evaluating the financial implications and seeking professional guidance, you can make an informed decision that aligns with your long-term financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 06, 2025

Money
Hi Mam, I need your prompt advice as i need to take decision on the same. I am 55 years and have 5-6 Years in retirement. Post retirement have planning and secure. Now coming to the point that i am staying a capital of state where i pay house rent Rs.40000/- PM. My take homme monthly salary is approx 6 Lacs. My organization have policy to pay 50% interest subsidy on interest of Housing loan. I am planning to purchase a flat value 1.25 Cr in which 80 Lacs Banks are ready to give for next 12 Years . monthly EMI will be 85-90 K and out of which approx 28K will be subsidy and 40K my rent and 5K saving of IT in Housing loan interest . Ideally it will cost to me approx. 15-20 K Per month additionally . After retirement i will sell the flat and square off my balance home loan. Please suggest is it worth of taking ....or i should continue to pay House rent and add 20 K liability in Mutual Fund contribution . Urgent reply please
Ans: You are evaluating whether to buy a flat worth Rs. 1.25 crore or continue renting. Let us assess this situation considering financial, practical, and retirement planning aspects.

 

Financial Considerations
1. Monthly Cost Comparison

Current rent is Rs. 40,000 per month.
EMI for the home loan is Rs. 85,000-90,000 per month.
Subsidy from your organisation reduces the EMI cost by Rs. 28,000.
Tax savings on housing loan interest further reduce the cost by Rs. 5,000.
Net additional cost to you is Rs. 15,000-20,000 per month.
 

2. Opportunity Cost of Down Payment

Buying the flat requires Rs. 45 lakh as a down payment (including registration).
Investing this amount in mutual funds for 5-6 years can yield higher returns.
Evaluate if your current mutual fund contributions can bridge this gap later.
 

3. Post-Retirement Loan Liability

Your home loan tenure is 12 years.
After retirement, loan repayments will depend on other income sources.
Selling the flat to clear the loan may not always fetch expected value.
 

4. Rent vs. Ownership Costs

Owning a flat involves maintenance, property tax, and repair costs.
Consider if these costs are affordable post-retirement.
Renting offers flexibility and avoids these additional expenses.
 

Lifestyle and Practical Aspects
1. Stability vs. Flexibility

Owning a flat provides stability and security of residence.
Renting offers flexibility to relocate post-retirement if needed.
 

2. Emotional Value of Owning a Home

Buying a home can give emotional satisfaction and a sense of achievement.
Ensure this decision aligns with your long-term financial health.
 

3. Rental Yield Analysis

Flats often have low rental yields compared to their cost.
You may not earn substantial rental income after clearing the loan.
 

Retirement Planning
1. Impact on Retirement Corpus

Redirecting Rs. 20,000 to mutual funds can grow significantly over 6 years.
This additional corpus can support your post-retirement lifestyle.
 

2. Liquidity Needs Post-Retirement

Flats are illiquid assets and may take time to sell when needed.
Liquid investments ensure easy access to funds during emergencies.
 

3. Alternate Strategies

Continuing to rent and investing in mutual funds may create better retirement wealth.
Combine equity and debt funds for an optimal mix of growth and stability.
 

Tax and Subsidy Considerations
1. Housing Loan Subsidy

The 50% interest subsidy reduces your effective EMI significantly.
This benefit reduces the immediate cost of buying the flat.
 

2. Tax Savings on Interest

Tax benefits under Section 24 further reduce the financial burden.
These savings must be factored into your overall cost analysis.
 

Final Insights
Buying a flat offers stability but increases financial obligations. Continuing to rent allows flexibility and creates additional retirement wealth. Evaluate the long-term implications on your retirement corpus before deciding. Align this decision with your financial goals and retirement needs. Engage with a Certified Financial Planner to create a detailed retirement plan and optimise your investments.

 

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 03, 2025

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Dear Sir, I am 47 years old IT professional. My current salary is 1.5 lakhs per month. I have a daughter who just completed her 10th board exam. My corpus is around 1.6Cr FD&PPF; 30 lakhs in MF & stocks; 50 lakhs in EPF. I have no debt and living in my own house. Please suggest if I can plan for retirement
Ans: Your financial position is strong, and planning for retirement at 47 is a smart decision. Below is a detailed 360-degree approach to assess whether you can retire comfortably and how to ensure financial security.

Understanding Your Current Financial Position
Income: Rs 1.5 lakh per month.

Corpus:

Rs 1.6 crore in Fixed Deposits (FD) and Public Provident Fund (PPF).

Rs 30 lakh in mutual funds and stocks.

Rs 50 lakh in Employees' Provident Fund (EPF).

Liabilities: No debts.

Assets: Own house, ensuring no rent or EMI burden.

Family Responsibility:

Daughter has just completed the 10th board exam.

Higher education expenses need to be planned.

Key Considerations Before Retirement
Expected Retirement Age

If you plan to retire early (before 55), corpus sustainability needs careful assessment.

If you work till 60, it will provide a larger financial cushion.

Post-Retirement Expenses

Living expenses, healthcare, travel, and lifestyle costs must be considered.

Inflation will increase future expenses.

Daughter’s Education

Higher education costs are significant.

Corpus should cover both education and retirement without compromise.

Medical Expenses

Health costs increase with age.

A high health insurance cover is essential.

Wealth Growth vs. Safety

A mix of equity and debt investments ensures growth while preserving capital.

Excessive reliance on FDs and PPF may limit long-term wealth accumulation.

Assessing If You Can Retire Comfortably
Current Corpus Size

Rs 2.4 crore (excluding house) is a strong starting point.

But, inflation will reduce its real value over time.

Expected Corpus Growth

Investments in mutual funds and stocks should continue to grow.

PPF and EPF offer stable but lower returns.

Withdrawals Post-Retirement

Sustainable withdrawals should not deplete the corpus too soon.

A balanced investment strategy is required.

Gaps in Planning

Heavy reliance on FDs and PPF may not be ideal.

More equity exposure can ensure inflation-beating returns.

Steps to Strengthen Your Retirement Plan
1. Optimising Investment Strategy
Continue investing in mutual funds with a mix of large-cap, mid-cap, and flexi-cap funds.

Reduce dependence on FDs for long-term needs.

Equity mutual funds help counter inflation and grow wealth.

Avoid index funds as they provide average returns without active management.

Regular funds through a Certified Financial Planner (CFP) offer expert monitoring.

Diversify investments between equity, debt, and fixed-income products.

2. Planning for Daughter’s Education
Higher education costs can be Rs 30-50 lakh in the next 5-7 years.

Separate this goal from your retirement plan.

Increase equity investment to build an education corpus.

Avoid withdrawing from retirement savings for education.

3. Building a Healthcare Safety Net
Health insurance should cover at least Rs 30-50 lakh.

Consider super top-up plans for additional coverage.

Maintain an emergency medical fund to cover non-insured expenses.

Review insurance policies periodically.

4. Creating a Sustainable Withdrawal Plan
Avoid withdrawing a large portion of the corpus in early retirement years.

Keep at least 5 years of expenses in liquid assets.

Equity exposure should reduce gradually as retirement progresses.

Use dividends and interest income before selling assets.

Final Insights
Retirement is possible, but adjustments are needed for long-term security.

Continue investing aggressively for the next few years.

Ensure daughter's education is planned separately.

Review investments and insurance regularly.

Keep flexibility in withdrawal strategy post-retirement.

A structured plan will ensure a financially secure and comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 03, 2025

Asked by Anonymous - Apr 03, 2025Hindi
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My employer offers a salary sacrifice scheme for pension contributions, but I don't fully understand how it works. What are the potential advantages and disadvantages of joining such a scheme, and how does it affect my take-home pay and long-term financial planning?
Ans: A salary sacrifice scheme for pension contributions allows you to give up a portion of your salary in exchange for increased employer contributions to your pension. It has tax and National Insurance (NI) advantages but also some potential drawbacks.

How Salary Sacrifice for Pension Works
You agree to reduce your gross salary by a chosen amount.

Your employer contributes this amount directly to your pension.

Since your taxable salary is lower, you pay less income tax and NI.

Your employer also saves on NI and may pass on some or all of this saving to your pension.

Advantages
1. Tax and NI Savings
You don’t pay income tax or NI on the sacrificed amount.

Your employer saves on NI (currently 13.8%) and may increase your pension with these savings.

2. Higher Pension Contributions
Since more money goes into your pension, your retirement corpus grows faster.

Compounding over time enhances long-term wealth.

3. Increased Take-Home Pay
Although you sacrifice part of your salary, the NI savings may offset some of the reduction.

Depending on employer policies, your net pay may not drop significantly.

4. Potential Employer Matching
Some employers pass their NI savings into your pension, increasing your total contributions.

Disadvantages
1. Reduced Gross Salary
A lower salary means reduced future pay rises if they are percentage-based.

Life cover, sick pay, and redundancy pay linked to salary may be affected.

2. Lower Borrowing Capacity
Mortgage applications consider salary; a lower reported income might reduce borrowing potential.

3. Impact on State Benefits
If salary drops below certain thresholds, statutory benefits like maternity pay and state pension could be affected.

4. Restricted Access to Pension
The extra pension savings cannot be accessed before retirement (except under specific conditions).

Effect on Take-Home Pay
Your net pay will be slightly lower, but less than the actual amount sacrificed.

The tax and NI savings cushion the impact.

If your employer adds their NI savings, your total retirement savings increase.

Effect on Long-Term Financial Planning
Your pension fund grows faster, improving retirement security.

Short-term disposable income is slightly reduced, so budget planning is important.

Consider how the reduced salary affects other financial goals like buying a house or saving for education.

Should You Opt for It?
If employer NI savings are passed to your pension, it’s highly beneficial.

If you are close to lower tax bands or state benefit thresholds, assess the impact.

If you plan to apply for a mortgage, check how it affects your eligibility.

A Certified Financial Planner (CFP) can help assess your personal situation before making a decision.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 03, 2025

Asked by Anonymous - Apr 03, 2025Hindi
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Hi Sir , Greetings of the day!! hope you are doing well !! I want to do a savings of 50 lacs in as much less time span as possible because I want to buy a property in Gurgaon. My monthly salary is 1 lac 11k and I am currently investing 10k in mutual fund monthly and 50k in nps yearly. Can you please guide me how can I save 50 lacs and in how much time ?
Ans: Your goal of saving Rs 50 lakh for a property in Gurgaon is ambitious but achievable with the right strategy. Below is a structured approach to help you reach your target in the shortest possible time.

Understanding Your Current Financial Position
Your monthly salary is Rs 1.11 lakh.

You invest Rs 10,000 per month in mutual funds.

Your annual NPS contribution is Rs 50,000.

You haven't mentioned any liabilities or existing savings. If you have any ongoing EMIs or debts, they should be factored in.

Key Considerations for Achieving Rs 50 Lakh Target
The speed of reaching Rs 50 lakh depends on savings rate and returns.

High savings rate is the most reliable way to accumulate wealth.

Investment returns are uncertain and depend on market conditions.

A balanced approach is necessary to ensure stability and growth.

Increasing Your Savings Rate
Currently, you are investing Rs 10,000 per month.

If you can increase it to Rs 50,000 per month, you will reach Rs 50 lakh faster.

Cutting discretionary expenses will free up more money for investments.

Consider reducing unnecessary spending on dining out, luxury items, and vacations.

Redirect bonuses, incentives, or salary hikes towards savings.

Choosing the Right Investment Instruments
Mutual Funds for Growth
Actively managed equity mutual funds can generate better returns than fixed deposits.

A mix of large-cap, mid-cap, and small-cap funds can balance risk and reward.

Mid-cap and small-cap funds have higher growth potential but also higher volatility.

Avoid index funds as they provide average returns and lack active risk management.

Debt Investments for Stability
Fixed deposits, debt mutual funds, and PPF provide stability.

These should be used for short-term parking rather than long-term growth.

Debt mutual funds are taxed based on your income tax slab.

Avoid locking too much money in low-return instruments.

Balancing Risk and Return
Investing entirely in equity mutual funds can generate high returns but comes with volatility.

A mix of 80% equity and 20% debt can provide stability.

As your target nears, shift more funds towards safer instruments.

Avoid speculation and high-risk investments like cryptocurrency.

Role of NPS in Your Goal
NPS is good for retirement but not ideal for short-term goals.

Partial withdrawal is allowed only under specific conditions.

Do not rely on NPS for your property purchase.

Managing Tax Efficiency
Equity mutual fund LTCG above Rs 1.25 lakh is taxed at 12.5%.

Short-term capital gains (STCG) are taxed at 20%.

Debt mutual fund gains are taxed as per your income slab.

Investing in tax-efficient instruments will maximize returns.

Estimating the Timeframe
If you invest Rs 50,000 per month, you can accumulate Rs 50 lakh in about 7-8 years with moderate returns.

If you invest Rs 75,000 per month, you can reach Rs 50 lakh in about 5 years.

The faster you increase your savings, the sooner you will achieve your goal.

Final Insights
Increase your monthly investment to at least Rs 50,000.

Focus on actively managed equity mutual funds.

Keep a small portion in debt for stability.

Avoid unnecessary expenses and invest salary increments.

Do not depend on NPS for this goal.

Monitor and adjust your portfolio as needed.

Stay disciplined and patient to achieve your target.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

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Dr Dipankar Dutta  |1092 Answers  |Ask -

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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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