Ramalingam Kalirajan |10906 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 21, 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

Question by Syed on Jun 16, 2024Hindi

Dear Sir, I am 42 years old, a govt employee having net salary 60k and my wife 36 ,is also a govt employee having net salary 42k. I have two daughters aged 9 and 5. I would like to get 1 crore at my 55. I have a loan EMI for 30k . I have been investing 10k SIP in MF for the past 6 months, PPF 5K since 2013, GPF 7K since 2015, stocks 1 lac for 10 years long-term, Sukanya 1K .Is it possible to get 1 crore or I should invest more for my children's education. Please suggest.

Ans: Evaluating Your Current Financial Position
Your financial commitment and disciplined savings are commendable. Balancing a government job, family responsibilities, and consistent investments indicates strong financial awareness. With a combined net salary of Rs 1,02,000 and an EMI of Rs 30,000, your investment capacity is substantial.

You have structured your investments across various avenues such as mutual funds, PPF, GPF, stocks, and Sukanya Samriddhi Yojana. This diversification is wise and shows strategic planning for long-term growth and your daughters’ future.

Analyzing Existing Investments
Mutual Funds
You've been investing Rs 10,000 monthly in mutual funds for six months. While this is a strong start, the duration is short to assess performance. However, continuing and potentially increasing this SIP can significantly contribute to your Rs 1 crore goal.

Public Provident Fund (PPF)
Investing Rs 5,000 monthly in PPF since 2013 is beneficial. PPF offers tax-free returns and a stable interest rate, which is good for safe, long-term savings. However, PPF alone may not suffice for aggressive wealth creation due to its moderate returns.

General Provident Fund (GPF)
GPF contributions of Rs 7,000 monthly since 2015 are solid. GPF provides a secure, long-term savings option for government employees. The returns are decent but not as high as equity-based investments, making it suitable for stability rather than high growth.

Stocks
Investing Rs 1 lakh in stocks for a 10-year horizon is a good strategy. Stocks can provide significant returns if chosen wisely and held long-term. Ensure these stocks are from reliable companies with strong fundamentals to mitigate risks.

Sukanya Samriddhi Yojana (SSY)
Investing Rs 1,000 monthly in SSY for your daughters is prudent. This scheme offers attractive interest rates and tax benefits, specifically aimed at securing your daughters' future education and marriage expenses.

Projecting Future Financial Goals
Reaching the Rs 1 Crore Target
To accumulate Rs 1 crore by age 55 (13 years from now), you need a strategic approach. Your current investments are a strong foundation, but additional steps are necessary. Here's a breakdown:

Step-Up SIP: Increase your mutual fund SIP annually by a certain percentage. This leverages incremental income and the power of compounding, significantly boosting your corpus over time.

Enhanced Diversification: While you have diversified, focusing more on equity mutual funds can yield higher returns. Actively managed funds, guided by a Certified Financial Planner (CFP), can outperform and mitigate risks better than passive funds like index funds.

Regular Review and Adjustments: Periodically review your investment portfolio with your CFP. Adjustments based on market conditions, financial goals, and risk tolerance can optimize returns.

Planning for Children's Education
Education costs are rising, and planning early is crucial. Your current savings and investments, like SSY and GPF, provide a good base, but additional steps can ensure sufficient funds for higher education expenses.

Education Fund: Create a dedicated education fund. Use a mix of equity and debt funds to balance growth and stability. Equity funds provide higher returns, while debt funds offer safety and liquidity.

Increasing Contributions: Gradually increase your contributions to this fund. As your income grows, allocate a higher percentage to this goal.

Using Child Plans: Consider child-specific mutual fund plans that offer benefits tailored to education needs. These plans often have features like automatic asset allocation based on the child's age, aligning investment risk with the time horizon.

Managing Loans and Debts
Your current loan EMI of Rs 30,000 is a significant commitment. Managing this effectively while investing for the future is critical.

Debt Repayment Strategy: Prioritize repaying high-interest loans first. Reducing your debt burden increases your capacity to invest more towards your financial goals.

Avoid New Debts: Limit taking on new loans unless absolutely necessary. Focus on maintaining a healthy debt-to-income ratio.

Enhancing Your Investment Strategy
Importance of Regular Investments
Consistent investing through SIPs is crucial. It inculcates financial discipline and takes advantage of rupee cost averaging, reducing the impact of market volatility.

Benefits of Actively Managed Funds
Actively managed funds, guided by professional fund managers, aim to outperform the market. They adjust portfolios based on market conditions, offering potential for higher returns compared to index funds.

Disadvantages of Direct Funds
Direct funds may have lower expense ratios but lack professional guidance. Investing through a CFP ensures you receive expert advice tailored to your financial goals, maximizing returns and minimizing risks.

Insurance and Risk Management
Separating Insurance and Investment
If you hold LIC, ULIPs, or investment cum insurance policies, consider surrendering them. These often provide suboptimal returns due to high charges and mixing insurance with investment. Reinvesting the proceeds into mutual funds can optimize growth.

Adequate Life and Health Insurance
Ensure you have sufficient life and health insurance. This protects your family from unforeseen events and secures your financial plans. Term insurance is cost-effective and provides substantial coverage.

Leveraging Tax Benefits
Tax planning is essential to maximize your net returns. Utilize tax-saving instruments effectively:

Section 80C Deductions: Investments like PPF, SSY, and ELSS qualify for tax deductions. Plan your investments to optimize tax benefits.

Long-Term Capital Gains (LTCG): Equity investments held for over a year qualify for LTCG, which are taxed favorably compared to short-term gains.

Regular Portfolio Review
Periodic portfolio review with your CFP ensures your investments align with your goals. Adjustments based on market performance, economic conditions, and personal circumstances optimize returns.

Annual Reviews: Conduct detailed reviews annually. Assess performance, rebalance asset allocation, and make necessary changes.

Rebalancing: Rebalance your portfolio periodically to maintain the desired risk-return profile. This involves selling overperforming assets and buying underperforming ones.

Understanding Market Cycles
Equity markets are cyclical, with phases of growth and correction. Understanding these cycles helps set realistic expectations and reduces panic during downturns.

Staying Invested: Stay invested during market downturns. Long-term investors benefit from the market's overall upward trajectory.

Avoiding Market Timing: Trying to time the market often leads to missed opportunities. Consistent investing, regardless of market conditions, yields better results.

Importance of Starting Early
Starting early maximizes the benefits of compounding. Your existing investments in PPF, GPF, and stocks are wise, but increasing your SIP contributions can accelerate growth.

Compound Interest: Compounding works best over time. Even small, consistent contributions grow significantly.

Incremental Increases: Gradually increase your SIP contributions as your income grows, leveraging compounding effectively.

The Emotional Aspect of Investing
Investing involves emotions. Market volatility can cause anxiety. A well-defined plan and professional guidance help stay focused on long-term goals.

Avoiding Impulsive Decisions: Stick to your investment plan. Avoid making changes based on short-term market movements.

Professional Guidance: Rely on your CFP for advice. They provide an objective perspective, reducing emotional biases.

Utilizing Financial Tools and Resources
Leverage financial tools to track and manage investments. Use SIP calculators, portfolio trackers, and financial planning software to stay organized.

SIP Calculators: Estimate future returns and plan contributions effectively.

Portfolio Trackers: Monitor investment performance, rebalance when necessary, and stay aligned with your goals.

Adapting to Life Changes
Financial goals and capacities change with life events like marriage, childbirth, or career shifts. Adapt your investment strategy accordingly.

Adjusting Contributions: Increase contributions during income growth phases. Reduce them if expenses rise temporarily.

Reevaluating Goals: Periodically reassess financial goals. Make adjustments based on evolving needs and circumstances.

Final Insights
Achieving Rs 1 crore by 55 years is possible with a strategic approach. Your existing investments form a strong base. Enhancing your SIP contributions, leveraging actively managed funds, and separating insurance from investment will optimize growth. Regular reviews, understanding market cycles, and adapting to life changes ensure alignment with your goals. With discipline, patience, and professional guidance, you can secure a prosperous future for your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Asked on - Jul 19, 2024 | Answered on Jul 20, 2024

Thank you very much Sir for your valuable suggestions. I am stepping up my SIPS in every 6 months. My mutual fund portfolio is combined with Quant Small cap/2k, Nippon India Small cap/2k, Motilal Oswal midcap fund/1.5k, Nippon India large cap fund/1.5k, Parag Parakh Flexi cap fund/2k, Nippon India IT index fund/1k. Sir please suggest if it is alright. You have told about Debt fund. Which Debt fund is best for investment right now. Should I exit IT index fund? I would love to hear from you Sir.Thank you.

Ans: You are stepping up your SIPs every six months, which is excellent. Here's a look at your current portfolio:

Quant Small Cap Fund: Rs. 2,000
Nippon India Small Cap Fund: Rs. 2,000
Motilal Oswal Midcap Fund: Rs. 1,500
Nippon India Large Cap Fund: Rs. 1,500
Parag Parikh Flexi Cap Fund: Rs. 2,000
Nippon India IT Index Fund: Rs. 1,000
Portfolio Assessment
1. Diversification:

Your portfolio is well-diversified across small, mid, and large-cap funds. This is good for risk management.

2. IT Index Fund:

IT sector-specific funds can be volatile. Consider exiting the IT index fund. Redirect this amount to a more diversified or balanced fund.

Adding Debt Funds
1. Stability:

Debt funds provide stability to your portfolio. They are less volatile compared to equity funds.

2. Recommended Debt Funds:

Choose debt funds with a good track record and lower expense ratio. Look for funds investing in high-quality debt securities.

Final Suggestions
1. Exit IT Index Fund:

Reallocate the Rs. 1,000 from the IT index fund to a debt fund.

2. Add a Debt Fund:

Invest Rs. 1,000 in a suitable debt fund to balance your portfolio.

3. Continue Stepping Up SIPs:

Your strategy of stepping up SIPs every six months is commendable. It will help you reach your financial goals faster.

Your diversified approach is good, but exiting the IT index fund for a debt fund will add stability. Keep stepping up your SIPs and monitor your portfolio regularly for the best results.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Asked on - Jul 20, 2024 | Answered on Jul 22, 2024

Thank you very much Sir for your valuable suggestions. I will exit the IT index fund and switch the money into a debt fund. Some of the things which I have not mentioned are .... I have been purchasing gold digitally for the last one and half years with an SIP amount of Rs. 800/month. I have a health insurance of Rs. 5 lakhs. My loan tenure is remaining for the next four years only. Sir please tell me whether these are sufficient for reaching my goal. Or is there anything else that you want to suggest me? Sir please let me know. Thank you.

Ans: For a more tailored and specific plan, we recommend consulting with a financial planner.

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.

MoneyReply

Ans: At 35 years old, your focus on saving towards a corpus of Rs. 1 crore in the next 10–15 years is both practical and achievable. Let us go through a structured, 360-degree plan to increase your savings, optimise investments, and create a clear path to your goal.

Understanding Your Current Financial Position
Here is a concise breakdown of your current finances:

Monthly Income: Rs. 75,000 (salary) + Rs. 3,000 (widow pension) = Rs. 78,000

Home Loan: Rs. 10 lakh remaining, EMIs of Rs. 30,000 per month for 3 years

Annual School Fee: Rs. 90,000

Flat Maintenance: Rs. 60,000 per year

Fixed Deposits: Rs. 45 lakh in SBI FD + Rs. 4 lakh in another FD

Liquid Fund: Rs. 2 lakh

Recurring Deposit: Rs. 2,500 per month at Post Office

SIPs: Started two SIPs of Rs. 10,000 each per month

Monthly Savings Surplus: About Rs. 15,000 after expenses

You have commendable investments and savings in place. You have loan, insurance, corpus, and savings clarity. Now, we will focus on improving savings by optimising these assets, curbing expenses where possible, and ensuring every rupee works for your Rs. 1 crore target.

Building a Healthy Budget and Cash Flow Plan
Breakdown of monthly outflow

EMI: Rs. 30,000

Flat maintenance + school fees average out to Rs. 12,500/month

Household expenses take up the remaining Rs. 20,500 approximately

This leaves you with Rs. 15,000 in savings

Look for expense savings

Can school and flat expenses be crunched? Evaluate each line item

Is there scope to reduce utilities, groceries, or subscriptions?

Even saving Rs. 3,000–5,000 monthly helps boost investible amount

Accelerating current SIP setup

You are investing Rs. 20,000 monthly in mutual funds

Aim to increase this to Rs. 30,000 by gently reducing less productive instruments

Optimising FD and liquid investments

FDs earn low interest and lack tax efficiency

TDS is deducted regularly, reducing liquidity

Liquid and short-term funds can give better post-tax returns

Instead of immediately breaking all FDs, start by allocating future maturing FD amounts smartly

You are already saving; now let us direct savings more efficiently toward your Rs. 1 crore target.

Short-Term Goal: Clear the Home Loan Smartly
The home loan EMI of Rs. 30,000 per month occupies a large space. You will complete it in 3 years, but you can accelerate and free this cash flow.

Use part of your large SBI FD corpus to prepay the loan if it is cost-effective

A reduction in loan principal shortens tenure and interest outflow

Even a small prepayment annually reduces burden and interest

Once EMI ends, redirect freed-up funds toward your mutual fund goals

By clearing the loan earlier, you free up cash flow that can dramatically speed up reaching Rs. 1 crore.

Emergency Fund and Liquidity Safety
Your deposit of Rs. 2 lakh in a liquid fund is a good start. Post-Office RD can also act as reserve.

Maintain an emergency buffer equal to 6–9 months of expenses including EMI

That means Rs. 2.5–3 lakh should be accessible quickly

Keep this amount in liquid or ultra-short-term funds

Avoid locking this money in FDs or instruments with penalties

This buffer ensures you can handle crises without derailing your investment plan.

Reallocating Existing Fixed Deposits More Productively
You currently hold over Rs. 49 lakh in FDs.
This amount is generating low interest and losing purchasing power due to inflation and tax.

Here is how to phase it out efficiently:

Do not break all FDs at once
Sudden breakup triggers liquidity loss or breakup penalties

Review maturity dates
Let smaller FDs mature in next 1-2 years

Upon maturity, allocate sums into:

Low-cost liquid/ultra-short-term funds (for emergencies and short-term needs)

Short/mid-duration debt funds (for medium-term security)

Balanced/hybrid equity mutual funds (for longer-term wealth building)

Tax advantage
Liquid and debt funds incur gains taxed at slab rates, but shifting earlier begins compounding

This gradual reallocation reduces risk and improves returns over time.

Validating Your Insurance Coverage
You said all insurance needs are met. Let us ensure in detail:

Life Insurance: Term cover should be at least 10–12 times your current income

Health Insurance: Cover yourself and your child adequately

Loan Insurance: Already in place for the home loan—good

At age 35 and as a single parent, you must ensure multipliers are sufficient. Revisit cover every few years.

Educating Investment Allocation for Rs. 1 Crore Target
You aim to build Rs. 1 crore in 10–15 years. This is an achievable goal with disciplined investing.

Why mutual funds are ideal:
Equity mutual funds offer inflation-beating returns in long term

Active funds adjust strategy with market cycles, protecting you in downturns

Index funds simply copy market performance and don’t guard in declines

Direct plan investing may reduce costs, but lacks behavioural guidance

You already have two SIPs of Rs. 10,000 each. Increase them to Rs. 30,000 monthly within the next few months.

Suggested Investment Architecture:
Rs. 30,000 per month for 10–12 years

70% in diversified equity mutual funds

30% in hybrid equity-oriented funds

Staggered top-up from exiting FD

Add Rs. 20,000–30,000 monthly once FDs mature

Rebalance every year to maintain equity-debt mix

RD continued

Rs. 2,500 per month is fine, acts as reserve

Consider swapping RD to mutual fund SIP after emergency buffer is secure

Use Systematic Investment Plans through regular mutual funds to spread risk and improve discipline.

Aligning Investment Strategy with Your Time Horizon
You seek Rs. 1 crore in 10–15 years. Investment strategy should suit timeline:

First 5 years: High equity exposure (75–80%) to grow corpus

Years 5–10: Maintain equity, add hybrid funds to reduce volatility

Last 2–3 years: Shift gradually to debt/hybrid to protect capital

This dynamic allocation secures growth and reduces potential loss as the target nears.

Systematic Rebalancing and Monitoring
Review your portfolio annually

If equity component grows beyond 75%, shift excess to hybrid or debt

This controls risk and smooths returns

Your CFP will help with tracking and analysis

Regular plans make rebalancing easier through consistent guidance

Without discipline, portfolio could drift too risky or too safe. Regular oversight is key.

Optimising Tax Efficiency
You will face capital gains taxes along the journey:

Equity funds: LTCG above Rs. 1.25 lakh taxed at 12.5%

Short-term gains aggregate taxed at 20%

Debt and hybrid taxed as per normal slabs

Keep investments long-term to minimise tax. Avoid frequent switching. CFP can optimise redemption timing and tax liability.

Potent Supplement: Increasing Income Streams
Your monthly savings capacity is limited by your income. With time and planning, you can increase capacity:

Boost salary savings

Any salary increment should go into investment

Tax-free components and EPF contributions can help

Monetise unused skills

Freelancing or tutoring could bring Rs. 5–10k/month

This directly strengthens SIP capacity

Use rent or asset income (if applicable)

Reallocate bonus or any irregular income to investment

These boosts may accelerate your path to Rs. 1 crore.

Managing Risks and Contingencies
Keep home and term insurance valid through the period

Extend health insurance to your child

Update beneficiary nominations

Maintain liquidity buffer so you don’t withdraw during market crashes

Avoid investing in unregulated schemes, gold, or cryptocurrencies

Your CFP will help you stay disciplined during emotional market swings and sudden life changes.

Tracking Your Progress Over Time
Maintain a goals tracker with details:

SIP contributions, NAV history, and fund performance

Total corpus accumulated vs goal amount

Time remaining and required monthly investment

Adjust SIP contributions annually based on performance and income changes

This transparency helps you stay confident and focused on your target.

Final Insights
You are on strong footing with clear goals, disciplined saving, and safety covers. Now, redirect FD savings gradually into equity and hybrid mutual funds. Boost monthly SIP to Rs. 30,000 and plan to increase further as income grows or home loan ends. Keep a robust emergency buffer, maintain insurance coverage, and re-balance annually. By staying goal-oriented and maintaining discipline, you can build a corpus of Rs. 1 crore in 10–15 years.

Act-driven steps today will yield peace and security tomorrow for both you and your child.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment