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40-Year-Old Aims for 10 Cr in 10 Years: Good ETF Plan or Time for a Change?

Ramalingam

Ramalingam Kalirajan  |8182 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 16, 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 - Sep 15, 2024Hindi
Money

Sir, I am 40 years old and planning to invest my money in following smart beta ETF. Investment in Each ETF will be 10K/month and in Gold ETF will be 50 K/month making a total of 1.4 Lac/month 1)MIDSMALL 2) SMALLCAP 3) NV20IETF 4)ALPHA 5) MOM30IETF 6) ALPL30IETF 7)PHARMABEES 8)ICICB22 9)ALPHAETF 10)GOLDBEES. Also I have kept aside a corpus of Rs 50 lacs to invest in said ETF as and when there is a suitable correction in market in a phase wise manner. Kindly suggest if I should continue to invest as planned or make any changes in terms of number of ETF /investment amount. My goals is achieve a corpus of at least 10 Cr in 10 years.

Ans: Your plan to invest Rs 1.4 lakh per month into various smart beta ETFs, including gold, shows a thoughtful approach towards long-term wealth building. It reflects your ambition to achieve a Rs 10 crore corpus in the next 10 years. Let's break down and evaluate this strategy in terms of asset allocation, risk diversification, and alignment with your financial goals.

Portfolio Diversification
Your current portfolio is highly ETF-centric, which includes allocations to mid-cap, small-cap, pharma, and gold ETFs, among others. While smart beta ETFs offer an innovative approach to investment, it's crucial to assess whether this level of concentration is ideal for your goal of corpus creation.

Overconcentration on ETFs: While ETFs offer cost efficiency and diversification, relying heavily on them could expose you to higher volatility, especially in small- and mid-cap spaces. Consider balancing it with actively managed funds, as they can add a layer of expertise, especially in unpredictable market conditions.

Gold Allocation: Investing Rs 50,000 per month in Gold ETFs, about 35% of your total monthly investment, is quite significant. Although gold acts as a hedge, it tends to perform well only in specific scenarios, such as during economic uncertainties. Maintaining a lower allocation to gold, around 10-15%, would reduce the risk of opportunity loss from other high-growth assets.

Smart Beta ETFs: Advantages and Limitations
You are already aware of the benefits of smart beta ETFs, but they also come with some limitations. Here’s an analysis:

Benefits of Smart Beta ETFs: These ETFs attempt to outperform traditional index funds by focusing on factors like momentum, value, and low volatility. They offer transparency and lower fees compared to actively managed funds.

Limitations: Smart beta ETFs can sometimes lag in changing market conditions. Unlike actively managed funds, they do not adjust quickly to market trends. This can be a limitation in times of market correction or when there's a downturn in a particular sector.

Since your plan focuses on ETFs, I would suggest supplementing this with some actively managed funds to make your portfolio more adaptable to changes in the market.

Disadvantages of Index Funds
Index funds, while popular for passive investing, have inherent drawbacks in certain contexts:

Limited Growth Potential: Index funds generally track the market. This can limit the potential for significant outperformance during high-growth phases. Over-reliance on them can cap your upside.

Less Flexibility: Unlike actively managed funds, index funds do not have the flexibility to react to market changes. This rigidity can work against you in a dynamic market, especially when pursuing long-term growth targets like yours.

Thus, while ETFs are cost-effective, introducing more actively managed funds could boost performance over time.

Corpus of Rs 50 Lakh for Market Corrections
Your approach of keeping Rs 50 lakh aside for investing during market corrections is prudent. Here are a few suggestions to optimise the deployment of this corpus:

Phased Investments: Avoid timing the market too aggressively. Consider deploying the Rs 50 lakh corpus through a Systematic Transfer Plan (STP) over 6-12 months, especially during volatile phases. This approach reduces the risk of investing all at once at a market peak.

Diversified Deployment: Distribute the Rs 50 lakh across equity and debt funds. This will allow for growth opportunities while ensuring some stability. High exposure to equity ETFs alone may not serve the purpose during downturns.

Opportunities Beyond ETFs: A part of this corpus can be allocated towards actively managed mutual funds with proven track records. Funds focusing on large-cap and multi-cap categories could help enhance stability during corrections.

Risk Analysis and Asset Allocation
Your current allocation leans heavily toward equities, with a substantial focus on mid-cap, small-cap, and sector-specific ETFs like pharma. While this has a high growth potential, it increases your portfolio’s risk profile. Here are some observations and recommendations:

Sector-Specific Risk: Allocating to sector-specific funds like pharma ETFs adds concentration risk. The performance of such sectors can be cyclical, and being too heavily invested in one sector may limit your ability to recover during downturns.

Volatility of Small and Mid-Cap Funds: Small-cap and mid-cap ETFs are known for their volatility. They can offer high returns but can also lead to significant drawdowns. Diversifying your exposure into some large-cap actively managed funds would be advisable.

Gold Exposure: While gold serves as a good hedge, an allocation of 35% is on the higher side. Reducing it to about 10-15% would allow you to allocate more to equity, where you can achieve better long-term returns.

The Importance of Actively Managed Funds
Better Flexibility and Expert Management: Actively managed funds offer professional expertise in stock selection and market timing, which can enhance returns, especially during volatile markets.

Dynamic Strategy: Unlike passive ETFs, actively managed funds can adapt quickly to market conditions. In a volatile or corrective market, this agility can help protect your portfolio while still allowing for significant growth.

Historical Outperformance: Many actively managed funds have outperformed passive strategies over long time periods, especially in the Indian market. These funds can provide higher returns, particularly in equity-heavy portfolios.

Recommendations for Asset Reallocation
To achieve your goal of Rs 10 crore in 10 years, you may need to rethink your allocation and mix it with more actively managed funds:

Lower Gold Allocation: Reduce your gold ETF contribution from Rs 50,000 to Rs 20,000 per month. This allows you to invest the remaining Rs 30,000 into growth-focused mutual funds.

Balance Sector Exposure: Consider reducing sector-specific ETFs like pharma. Reallocate part of it to more diversified funds, focusing on large- or flexi-cap categories.

Increase Actively Managed Exposure: Introduce actively managed large-cap or multi-cap mutual funds into your portfolio. These funds can provide more stability and still offer growth over the long term.

Maintain the Rs 50 Lakh Corpus for Corrections: Continue with your plan to deploy the Rs 50 lakh corpus in phases during market corrections. However, consider a more diversified allocation across equity and debt funds.

Final Insights
You have an ambitious goal of reaching Rs 10 crore in 10 years, and your dedication is evident. However, a more balanced portfolio, with exposure to both ETFs and actively managed funds, will help you navigate market volatility and maximise your returns.

Balanced Allocation: Reassess your allocation to sector-specific and small-cap ETFs, as they can be volatile.

Gold: Reduce your monthly gold allocation and direct more towards equities.

Phased Deployment: Continue with phased deployment of your Rs 50 lakh corpus during market corrections.

Active Funds: Introduce actively managed funds for better market adaptability and potentially higher long-term returns.

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 14, 2024

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I am 34 years old. I started investing in a SIP of 250000 per month from Nov 2023. Will be investing for 15 years to create a corpus of 30cr at 21% XIRR I am investing in 11 funds equally Hdfc mid cap Quant mid cap Motilal oswal mid cap Tata nifty midcap 150 momentum 50 index fund Quant small cap Sbi nifty small cap 250 index Hdfc large and mid cap Icici large and mid cap Quant flexi cap Parag parikh flexi cap Sbi energy opportunities fund Please suggest If I should consider any changes.
Ans: That's a very impressive start to your investment journey! A monthly SIP of Rs. 2,50,000 for 15 years shows great commitment. Let's discuss your portfolio and your ambitious target corpus:

1. Large Investment, Great Potential!

Disciplined Approach! Investing such a significant amount consistently shows discipline. This is a key factor for wealth creation.

Diversified Portfolio: Your portfolio has a mix of Mid Cap, Small Cap, Large & Mid Cap, Flexi Cap, and a Sectoral Fund (Energy). Actively managed funds like these have fund managers who try to outperform the market by picking stocks they believe will grow.

Sectoral funds focus on specific industries, amplifying the risk associated with economic fluctuations and sector-specific challenges. Their narrow investment mandate exposes investors to higher volatility and concentration risk.

Additionally, sectoral funds lack diversification, making them vulnerable to adverse market conditions within the targeted sector. Timing the entry and exit points becomes crucial due to the cyclical nature of industries, increasing the complexity of investment decisions.

Overall, while sectoral funds offer potential for higher returns during sector upswings, they entail heightened risk and may not suit investors seeking broad-based diversification and stability in their portfolios.

Direct funds lack personalized advice and ongoing support, requiring investors to navigate the complexities of the market independently. They may lead to suboptimal investment decisions due to the absence of professional guidance.

In contrast, regular funds, accessed through a Mutual Fund Distributor (MFD) with Certified Financial Planner (CFP) support, offer tailored advice aligned with individual financial goals. MFDs provide valuable insights, portfolio rebalancing, and assistance during market fluctuations, enhancing investor confidence and decision-making.

Regular funds also often provide additional services such as goal planning, tax optimization, and periodic reviews, ensuring a holistic approach to wealth management.

2. Reaching Your Target:

Ambitious Goal! Targeting a Rs. 30 crore corpus in 15 years with a 21% XIRR (internal rate of return) is highly ambitious. Historically, Equity has delivered good returns, but there are no guarantees.

Market Performance Matters! Market fluctuations can significantly impact your final corpus. A 21% XIRR might be difficult to achieve consistently over 15 years.

3. Let's Analyze Your Portfolio:

Multiple Mid Cap Funds: Having three Mid Cap Funds might lead to overlapping holdings. Consider merging some for better diversification.

Actively Managed vs. Index Funds: While actively managed funds have the potential for higher returns, they also come with higher fees. A small allocation to an Index Fund could provide broader market exposure.

4. Seek Professional Guidance:

Role of a CFP: A Certified Financial Planner (CFP) can analyze your risk tolerance, investment goals, and assess your portfolio.

Personalized Strategy: A CFP can recommend an optimized portfolio allocation that balances risk and reward to potentially maximize your returns and reach your goals.

Remember, reaching your financial goals requires a well-defined strategy, discipline, and realistic expectations of market returns. Consulting a CFP can help you create a personalized plan and increase your chances of success.

Here's the key takeaway: You've made a fantastic start! Consider consulting a CFP to fine-tune your portfolio and potentially reach your long-term goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..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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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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