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Ramalingam

Ramalingam Kalirajan  |7012 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 15, 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
pankaj Question by pankaj on Oct 14, 2024Hindi
Money

Hi Sir,am 41yrs now and am planning to start 2 SIP for 5 yrs of 5k each with an aim to withdraw one after 10- 15 yrs and the other after 5yrs...Kindly advise me few Funds to invest in????

Ans: At 41 years of age, you are planning to invest Rs 10,000 per month in two SIPs for different time horizons. One SIP will be for 5 years, and the other for 10-15 years. This is a well-thought-out plan to balance short-term and long-term financial needs. The key is to select the right type of mutual funds that align with your investment horizon and risk profile.

Let’s explore what kind of funds would work best for each goal.

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The 5-Year SIP Investment Strategy
For your 5-year SIP, safety and moderate growth are important. Since this is a relatively short-term horizon, you should avoid high-risk funds like small-cap or mid-cap funds. Instead, it is best to focus on funds that offer stable growth with controlled risk.

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Why Avoid High-Risk Funds?
High-risk funds can be volatile in the short term. For a 5-year goal, the market may not recover in time to give you good returns if it falls.

Instead, focus on:

Balanced or Hybrid Funds: These funds offer a mix of equity and debt. They provide moderate returns and lower volatility. A Certified Financial Planner can help you pick a suitable one.

Short-Term Debt Funds: If you want capital safety, short-term debt funds offer better returns than FDs. They are more stable and less exposed to market fluctuations.

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The 10-15 Year SIP Investment Strategy
For the 10-15 year SIP, you can afford to take on more risk. The long horizon allows you to withstand market volatility and benefit from equity growth. Equity mutual funds have historically performed well over long periods.

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Why Equity Funds for the Long Term?
Over 10-15 years, equity funds have a good track record of beating inflation and providing strong returns. However, actively managed funds are often better than index funds in this regard.

Actively Managed Funds: These funds offer the potential to outperform the market. The fund manager actively selects stocks, which can result in better returns. Avoid index funds because they only track the market and may not generate enough growth.

Multi-Cap or Flexi-Cap Funds: These funds invest across different market segments (large-cap, mid-cap, and small-cap). This gives a diversified growth opportunity and reduces risk compared to sector-specific funds.

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Disadvantages of Index Funds
Many investors are drawn to index funds for their low cost. However, index funds merely mimic the market. They do not have the potential to outperform, especially in a long-term scenario. Since inflation can erode your returns, actively managed funds are a better choice for long-term wealth creation.

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Regular vs Direct Funds
You may also be considering investing in direct funds. While direct funds save on the expense ratio, they may not be the best choice unless you actively track the market.

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Why Invest Through a Certified Financial Planner?
Investing through a Certified Financial Planner (CFP) ensures that your portfolio is regularly monitored. They provide timely advice and adjustments to maximize your returns. This can make a significant difference in your final corpus.

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Importance of Reviewing Your SIP
No matter which funds you choose, it is important to review your investments regularly. Every year or so, check the performance of your SIPs. A Certified Financial Planner can help rebalance your portfolio if needed.

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Tax Implications for Mutual Fund Investments
Understanding the tax rules is crucial to optimizing your returns. The taxation on equity and debt funds can affect your final returns.

Equity Mutual Funds: Long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%.

Debt Mutual Funds: Both LTCG and STCG are taxed as per your income tax slab. This is why debt funds are often better for short-term goals rather than long-term investments.

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Emergency Fund and Insurance
Before starting your SIP, ensure that you have an emergency fund and adequate insurance coverage. This will protect your investments from being disrupted by unexpected expenses.

Emergency Fund: Keep at least 6 months of your monthly expenses in a liquid fund or savings account.

Health and Life Insurance: Adequate health and life insurance coverage is necessary. This ensures that you and your family are financially secure in case of unforeseen events.

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Final Insights
Your plan to start two SIPs is an excellent decision. It shows you are thinking ahead for both medium-term and long-term goals. For the 5-year SIP, opt for balanced or short-term debt funds. For the 10-15 year SIP, actively managed equity funds will help you achieve better returns.

It’s important to work with a Certified Financial Planner (CFP) who can provide ongoing support and monitoring of your portfolio. This ensures your investments are aligned with your goals and adjusted as needed.

By balancing risk and return, diversifying your portfolio, and understanding tax implications, you will be well-positioned to beat inflation and grow your wealth over time.

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Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment
Asked on - Oct 15, 2024 | Answered on Oct 15, 2024
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Thank u very much sir,for ur quick response and guidance...however wud be great if I cud name few Funds for 5yrs and 15yrs respectively... And is it advisable if I invest in mutual fund thru my IDFC net banking ....or cud u name few mode thru which I must go about for investment in funds...
Ans: You're very welcome! I'm glad the guidance was helpful. Regarding your question on specific funds, I would recommend discussing fund selection in detail with a Certified Financial Planner (CFP) or a Mutual Fund Distributor (MFD) who can offer personalized advice based on your goals, risk appetite, and time horizon.

For 5 years: Consider debt-oriented or hybrid mutual funds for moderate growth with lower risk.

For 15 years: Look at equity-focused mutual funds, such as diversified large-cap or flexi-cap funds, for long-term wealth creation.

As for the mode of investing, I recommend avoiding investments through your bank relationship manager, as they change frequently and may not offer consistent advice. Instead:

Contact an MFD or CFP who will provide professional guidance and help you tailor investments to your needs.

Using platforms like MF Utility, CAMS, or even direct access via AMCs, with the assistance of an MFD, could be more cost-effective and reliable.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
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 Kalirajan  |7012 Answers  |Ask -

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I am a 34 year old and wants to start investing in Sip a sum of 5000/- per month and I can increase the amount by 1000/- every year. Can u suggest me a funds to invest with an expectation to achieve at least 1 CR after 20 years... I don't want to take big risk ..but a moderate risk can be ok....
Ans: Starting a SIP with a moderate risk tolerance and a goal of reaching 1 crore after 20 years is a prudent approach to long-term wealth accumulation. Here's a suggested investment strategy:

Diversified Equity Mutual Funds: Begin by investing in diversified equity mutual funds that have a track record of consistent performance and a well-diversified portfolio. These funds typically invest in a mix of large-cap, mid-cap, and small-cap stocks, spreading the risk across different segments of the market.
Increasing SIP Amount: Since you're planning to increase your SIP amount by 1000 rupees every year, you can gradually increase your exposure to equities over time. This strategy, known as rupee-cost averaging, allows you to benefit from market volatility by buying more units when prices are low and fewer units when prices are high.
Long-Term Horizon: With a 20-year investment horizon, you have the advantage of compounding working in your favor. By staying invested for the long term and reinvesting dividends, you can harness the power of compounding to accelerate wealth accumulation.
Asset Allocation: Consider maintaining a balanced asset allocation between equity and debt instruments to manage risk effectively. While equities offer higher growth potential, debt instruments provide stability and capital preservation during market downturns.
Regular Review: Periodically review your investment portfolio and make adjustments as needed based on changes in your financial situation, market conditions, and investment goals. Rebalance your portfolio periodically to ensure it remains aligned with your risk tolerance and investment objectives.
Based on your requirements, you can consider investing in a combination of large-cap, multi-cap, or balanced funds with a proven track record of delivering consistent returns over the long term. It's essential to conduct thorough research or consult with a certified financial planner before making any investment decisions to ensure they align with your financial goals and risk tolerance.

..Read more

Ramalingam

Ramalingam Kalirajan  |7012 Answers  |Ask -

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

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Dear Sir, wanted to start an SIP , never before have invested. Have Rs. 5,000.00 to invest .Age is 52 , kindly advice which fund .Investment is not for long term sir
Ans: It’s wonderful that you’re considering starting an SIP investment. At 52, planning your investments is crucial, even if it's not for the long term. Let’s explore the best options for your Rs 5,000 monthly SIP to ensure you achieve your financial goals efficiently.

Importance of Short-Term Investments
Given your age and the preference for a short-term investment, it's essential to focus on funds that provide stability and moderate growth. Your investment should aim to balance between safety and returns, considering the shorter investment horizon.

Evaluating Fund Options
For short-term investments, certain types of mutual funds are more suitable. These include debt funds, balanced funds, and conservative hybrid funds. These funds are designed to provide stable returns with lower risk compared to equity funds, which are more volatile and suited for long-term investments.

Debt Funds
Debt funds invest in fixed-income securities like government bonds, corporate bonds, and other debt instruments. These funds offer more stability and predictable returns, making them ideal for short-term goals.

Advantages:

Lower risk compared to equity funds.
Steady and predictable returns.
Suitable for short-term financial goals.
Disadvantages:

Lower returns compared to equity funds.
Sensitive to interest rate changes.
Balanced Funds
Balanced funds, also known as hybrid funds, invest in a mix of equity and debt instruments. This balance aims to provide moderate returns with controlled risk.

Advantages:

Diversification across asset classes.
Moderate risk with potential for decent returns.
Suitable for investors with a medium-term horizon.
Disadvantages:

More volatile than pure debt funds.
Returns are not guaranteed.
Conservative Hybrid Funds
Conservative hybrid funds predominantly invest in debt instruments with a small portion in equities. They aim to provide stable returns with minimal risk.

Advantages:

Higher safety with a small equity exposure for better returns.
Suitable for conservative investors.
Better returns than pure debt funds in some cases.
Disadvantages:

Slightly more risk than pure debt funds.
Limited upside potential compared to balanced funds.
Recommended Investment Strategy
Considering your age and short-term investment goal, a conservative approach with a focus on stability and moderate returns is advisable. Here’s a suggested strategy:

Conservative Hybrid Fund: Allocate Rs 3,000 per month. These funds provide a good mix of safety and moderate growth.

Debt Fund: Allocate Rs 2,000 per month. This ensures stability and predictable returns.

Monitoring Your Investment
Regular Review: It's important to review your investment portfolio regularly, even if the investment horizon is short. This helps in making adjustments as per market conditions and personal financial goals.

Rebalancing: Periodically rebalance your portfolio to maintain the desired asset allocation. This ensures your investments are aligned with your risk tolerance and investment objectives.

Benefits of Actively Managed Funds
Actively managed funds, where fund managers make strategic investment decisions, can provide higher returns compared to passively managed index funds. These funds aim to outperform the market through skilled management and timely adjustments.

Disadvantages of Direct Funds
While direct funds have lower expense ratios, they lack professional guidance. Investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) credential ensures you receive expert advice tailored to your financial situation.

Conclusion
Starting an SIP with a conservative approach is a wise decision, given your short-term investment goal and age. By focusing on conservative hybrid funds and debt funds, you can achieve a balance between stability and moderate returns. Regular reviews and rebalancing are key to maintaining an optimal investment portfolio.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7012 Answers  |Ask -

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

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Hi sir iam 36 yrs right now.i am planning to start sip of around 10000rs per month.please suggest some funds to invest
Ans: starting a SIP is a great decision. It's good to start early and stay consistent.

At 36, you have ample time to build a strong portfolio.

Importance of SIPs
Systematic Investment Plans (SIPs) are powerful.

They help you invest small amounts regularly and build wealth over time.

SIPs also bring discipline and mitigate market volatility.

Categories of Mutual Funds
Equity Mutual Funds
Equity funds invest in stocks.

They offer high growth potential but come with higher risk.

Ideal for long-term goals due to compounding.

Debt Mutual Funds
Debt funds invest in bonds and fixed-income securities.

They provide stable returns with lower risk.

Suitable for short to medium-term goals.

Hybrid Mutual Funds
Hybrid funds combine equity and debt.

They balance risk and reward.

Good for medium-term goals.

Evaluating Your Risk Appetite
Before choosing funds, assess your risk tolerance.

Higher risk can bring higher rewards but also higher losses.

Choose a mix of funds that match your comfort level.

Recommended Fund Types
Large Cap Funds
Large cap funds invest in large, established companies.

They are less volatile and provide stable returns.

Mid Cap Funds
Mid cap funds invest in medium-sized companies.

They offer higher growth potential with moderate risk.

Small Cap Funds
Small cap funds invest in small, emerging companies.

They are high-risk but can give high returns over the long term.

Multi Cap Funds
Multi cap funds invest across large, mid, and small cap stocks.

They offer diversification and balance risk and reward.

Balanced Advantage Funds
Balanced advantage funds adjust between equity and debt.

They provide stability and growth.

Suitable for moderate risk investors.

Steps to Start Your SIP
Define Your Goals

Identify your financial goals.

Is it retirement, children's education, or a big purchase?

Set Your Budget

You mentioned Rs. 10,000 per month.

Make sure it's affordable and sustainable.

Choose Fund Categories

Based on your risk appetite, select a mix of equity, debt, and hybrid funds.

Start Small and Increase Gradually

Begin with Rs. 10,000 and increase as your income grows.

Monitoring and Rebalancing
Regularly review your investments.

Rebalance your portfolio based on performance and market conditions.

This keeps your investments aligned with your goals.

Tax Implications
Understand the tax implications of your investments.

Equity funds held for over a year have lower tax rates.

Debt funds held for over three years benefit from indexation.

Final Insights
Starting a SIP is a smart move.

Your plan to invest Rs. 10,000 monthly is a great start.

Diversify across large cap, mid cap, small cap, and balanced funds.

Monitor and rebalance regularly to stay on track.

With consistency and smart choices, you’ll achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

..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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