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45-Year-Old With No Mutual Funds Knowledge: Best Investments After LIC?

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 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
Asked by Anonymous - Jul 04, 2024Hindi
Money

I am a 45 year old lady with almost zero understanding of mutual funds. My monthly income is approx 2 lac. I have three LIC policy which have been around for almost 10 years now and the yearly premium is 150000 for the three. After calculating all monthly expenses I can still save around 50k a month, so please advice on the best investing options or mutual funds / SIP as I really want to start saving for my retirement.

Ans: First, let's appreciate your commitment to saving and planning for the future. At 45, you're taking a crucial step toward securing your retirement. You have a steady income of Rs 2 lakhs per month, and you manage to save Rs 50,000 monthly after expenses. This is a commendable savings rate. Your LIC policies have been running for 10 years with an annual premium of Rs 1,50,000.

You have good financial habits and a stable foundation to build upon. Let's explore the best ways to invest your savings, focusing on mutual funds and Systematic Investment Plans (SIPs).

Evaluating Your Current Investments
Your LIC policies are traditional insurance products. While they offer a safety net, their returns may not be sufficient for your retirement needs. These policies likely provide a combination of insurance and investment, but their growth potential is limited compared to other investment avenues.

Considering your goal of maximizing retirement savings, it's crucial to evaluate if these LIC policies align with your objectives.

Why Mutual Funds?
Mutual funds pool money from various investors to invest in stocks, bonds, and other securities. They offer diversification, professional management, and potential for higher returns compared to traditional savings options.

Here are key reasons to consider mutual funds:

Diversification: Mutual funds invest in a variety of assets, reducing risk.

Professional Management: Experienced fund managers handle investments.

Flexibility: You can start with small amounts and increase over time.

Liquidity: Easy to buy and sell, offering good liquidity.

Potential for Higher Returns: Over the long term, mutual funds often outperform traditional savings options.

Disadvantages of Index Funds
Index funds track a market index, aiming to replicate its performance. While they are low-cost and passive, they have limitations:

Lack of Flexibility: They cannot adapt to market changes.

Average Returns: They only match market returns, not beat them.

Missed Opportunities: They cannot capitalize on undervalued stocks.

Benefits of Actively Managed Funds
Actively managed funds have professional managers making strategic decisions to outperform the market. They offer:

Flexibility: Managers can adjust portfolios based on market conditions.

Higher Return Potential: Skilled managers aim to exceed market returns.

Risk Management: Active managers can mitigate risks through strategic investments.

Why Avoid Direct Funds?
Direct funds are purchased directly from the fund house, bypassing intermediaries. However, they have drawbacks:

Lack of Guidance: No professional advice for fund selection.

Complex Management: Investors need to track and manage investments themselves.

Potential Mistakes: Without expert help, there's a risk of poor investment choices.

Benefits of Regular Funds Through a CFP
Regular funds involve an intermediary, often a Mutual Fund Distributor (MFD) with CFP credentials. Advantages include:

Expert Advice: Professional guidance in selecting the right funds.

Portfolio Management: Continuous monitoring and adjustment of investments.

Financial Planning: Holistic planning aligning with your financial goals.

Starting with SIPs
Systematic Investment Plans (SIPs) allow you to invest a fixed amount regularly in mutual funds. They offer:

Discipline: Encourages regular savings.

Rupee Cost Averaging: Buys more units when prices are low, averaging out costs.

Compounding: Long-term investments grow through compounding.

Selecting the Right Funds
Given your goal of retirement savings, consider a mix of equity and debt funds. Here's a breakdown:

Equity Funds: Invest in stocks, suitable for long-term growth. They offer high returns but come with higher risk.

Debt Funds: Invest in bonds and securities, providing stability and regular income. Lower risk, but also lower returns compared to equity funds.

Balanced Funds: Combine equity and debt, offering a balanced approach. They provide growth and stability.

Recommended Allocation
Equity Funds: Allocate 60% of your savings. These funds will drive long-term growth.

Debt Funds: Allocate 30% of your savings. They will provide stability and reduce overall portfolio risk.

Balanced Funds: Allocate 10% of your savings. These funds offer a mix of growth and stability.

Action Plan for Your Savings
Review LIC Policies: Assess the returns and coverage. If they don't align with your goals, consider surrendering and reinvesting the proceeds in mutual funds.

Start SIPs: Begin with the Rs 50,000 you save monthly. Allocate according to the recommended allocation.

Monitor Regularly: Keep an eye on your investments. Adjust the allocation based on market conditions and financial goals.

Tax Benefits
Investing in mutual funds also offers tax benefits:

Equity-Linked Savings Scheme (ELSS): Provides tax deductions under Section 80C. It also has the potential for high returns.

Debt Funds: Offer indexation benefits for long-term capital gains, reducing tax liability.

Emergency Fund
Maintain an emergency fund equal to 6-12 months of expenses. This ensures you can handle unforeseen expenses without disrupting your investment strategy.

Insurance
Ensure you have adequate insurance coverage. Life insurance should cover at least 10 times your annual income. Health insurance is equally crucial to cover medical emergencies.

Financial Goals
Define your financial goals clearly. For retirement, estimate the corpus required and time horizon. This will help in planning the investment strategy effectively.

Final Insights
Your proactive approach to retirement planning is commendable. By understanding and leveraging mutual funds, you can maximize your savings and achieve financial security.

Prioritize reviewing your existing LIC policies and consider starting SIPs in a diversified portfolio. Regular monitoring and adjustments, with guidance from a Certified Financial Planner, will ensure you stay on track.

Building a retirement corpus requires a disciplined approach and smart investment choices. With a steady income and the ability to save Rs 50,000 monthly, you are well-positioned to achieve your financial goals.

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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Hi All, My age is 34 years. I need to start with mutual funds SIP having moderate to high risk returns. Monthly SIP planning is 30000 for next 5 years. Can you please let me know how to invest ?
Ans: Yes, Investing in mutual funds through a SIP mode is a good way to start building wealth over the long term. Here's a step-by-step guide on how to invest in mutual funds SIP:

1. Identify Financial Goals: Before investing, determine your financial goals and the time horizon for each goal. This will help you choose the right mutual funds that align with your objectives.

2. Determine Risk Tolerance: Since you mentioned you are looking for moderate to high-risk returns, it's important to assess your risk tolerance. Higher-risk funds have the potential for higher returns but also come with increased volatility.

3. Selection of Mutual Funds: Based on your risk profile and financial goals, select mutual funds that match your investment criteria. The selection should be based on risk and reward factor of the particular mutual fund or you can consult with financial advisor if you feel unsure about making investment decisions.

4. Investment Platform: There are various platforms available on which you can start your investments after completion of KYC. You'll need to provide identity proof, address proof, and other relevant documents as per the guidelines of the platform. This is a one-time process and ensures regulatory compliance. Then, you can start your investments in the selected mutual funds.

5. Monitor and Review: Regularly review the performance of your mutual funds to ensure they are meeting your expectations. However, avoid making impulsive decisions based on short-term fluctuations in the market. Stay focused on your long-term investment objectives.

Remember, investing in mutual funds carries some degree of risk. It's important to understand the risks and potential returns associated with each fund before investing. Also, consider diversifying your investments across multiple funds to mitigate risk.

Disclaimer:
• I have just no idea about your age, future financial goals, your risk profile, other investments and whether you would have the nerves to not get unduly perturbed if stock markets go temporarily down.
• Hence, please note that I am answering your question in absolute isolation to other parameters which should definitely be considered when answering a question of this type.
• I recommend you to also consult a good financial advisor who would look at your complete profile in totality before you act on this advice given by me.

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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 18, 2024

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I am 47 years old now my some investment in lic policy only, now i want to start sip and lumpsums amount in mutual funds for twenty years, so pl suggest good mutual funds
Ans: It's fantastic that you're considering starting SIPs and investing lumpsums in mutual funds at 47. Here's a breakdown of LIC policies and some suggestions for mutual funds, but remember, this is not financial advice:

Understanding LIC Policies:

Limited Growth Potential: LIC policies typically offer guaranteed returns, but these may not always outpace inflation. This can limit your wealth-building potential over the long term.

Lower Liquidity: LIC policies often have surrender charges and lock-in periods, making it difficult to access your invested amount before maturity.

Benefits of Mutual Funds:

Growth Potential: Mutual funds invest in stocks and bonds, which have the potential for higher returns compared to LIC policies. However, they also involve market risk. Actively managed funds involve experienced fund managers who try to pick stocks to outperform the market. Actively managed funds come with higher fees compared to passively managed funds.

Flexibility: SIPs allow you to invest regularly with a fixed amount. You can also invest lumpsums when you have surplus funds. Most mutual funds offer high liquidity compared to LIC policies.

Choosing Mutual Funds:

Investment Horizon: With a 20-year horizon, you can consider a more aggressive portfolio with a higher allocation to equity funds.

Risk Tolerance: Equity funds can be volatile in the short term. Assess your risk tolerance and choose a mix of equity and debt funds that aligns with your comfort level.

Here's a Sample Asset Allocation (you can adjust based on risk tolerance):

60%: Large-cap & Multi-cap Equity Funds for long-term growth.

20%: Mid-cap Equity Funds for potentially higher growth (with higher risk).

20%: Debt Funds (short/medium/long-term) for stability and income generation.

Important to Remember:

Do Your Research: Research actively managed funds and choose those with a good track record and a reputable fund house.

Review Regularly: Review your portfolio (at least annually) to ensure it remains aligned with your goals and risk tolerance.

Seek Professional Guidance: A Certified Financial Planner (CFP) can create a personalized investment plan considering your risk profile, financial goals, and existing investments. They can suggest specific actively managed funds based on your needs.


By moving beyond LIC policies and potentially creating a diversified mutual fund portfolio, you can work towards a more secure financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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T S Khurana

T S Khurana   |197 Answers  |Ask -

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Asked by Anonymous - May 11, 2024Hindi
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Can you please suggest on capital gains as per Indian taxation laws arising in the below two queries : 1) property purchased with joint ownership, me and my wife’s name in 2015 at a cost of 64,80,000, housing improvements done for the cost of 1000000 and brokerages of 200000 paid and sold the same property at 10000000 in Dec 2023? 2) 87% of the proceeds got from the deal i.e 8700000, have been reinvested to pay 25% amount in purchasing another joint ownership property in Dec 2023, 3) I have invested in another under construction property in Nov 2023 by taking housing loan, which is on me and my wife’s name worth 1.4 cr, here the primary applicant is me only while wife is just made a Co applicant in the builder buyer agreement and also on the housing loan . So what are the LTCG tax liabilities arising from the above 3 scenarios for FY 2023-2024 and FY 2024-2025. I intend to sale off the property acquired in (2) by Dec 2024 and use that proceeds to close the housing loan for the property acquired in (3), will this sale of property be inviting any tax liabilities if the complete proceeds received from the sale of the property in (2) would be utilised to close the housing loan taken in Nov 2023 for the property in (3) ? Since in FY 23-24, I would be claiming the LTCG from the sale proceeds of 1) invested in the purchase of property in 2), and I intend to sale off this property in Dec 2024, will the LTCG claim be forfeited on the property sale in (1), should I hold this property at least for further 1 year so that sale of this property in 2) will not invite STCG?
Ans: (A). Let's first talk about F/Y 2023-24 :
You jointly sold a Property during the year for Rs.76.80 lakhs (64.80+10.00+2.00), & sold the same for Rs.100.00 lakhs.
You have jointly also purchased Property No.3 (I suppose it is Residential only), for Rs.140.00 lakhs.
You should avail exemption u/s-54 & file your ITR accordingly. Please disclose all details about sale & purchase in your ITR.
02. Now coming to the F/Y 2024-25 :
You intend to Sell Property No.2, which was acquired in 2023-24. Any Gain on Sale of it would be Short Term capital Gains & taxed accordingly.
Alternatively, you may hold this sale of property no.2 (for 2 years from its purchase) & avoid STCG
You are free to utilize the sale proceeds in a way you like, including paying off your housing Loan.
Please note to avail exemption u/s 54 only from investment in property no.3 & not 2.
Most welcome for any further clarifications. Thanks.

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