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Ramalingam Kalirajan |10881 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 12, 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 - Jun 08, 2024Hindi

I am a 52 year professional working in a pvt company. I have 2 daughters aged 21 and 14. Currently my savings are as follows. Rs 9 cr worth of shares, Rs 1.8 cr worth of MF, 50 lacs worth of FD and 1.5 cr in PF. I also have 2.6 cr worth of home loan. Two questions that I have to ask. Considering that I have to take care of my daughters edu and marriage and thereafter our retirement how much more savings I need to accumulate? Secondary should I look to restructure my savings?

Ans: You have done an exceptional job of building your financial portfolio. With Rs. 9 crores in shares, Rs. 1.8 crores in mutual funds, Rs. 50 lakhs in fixed deposits, and Rs. 1.5 crores in provident fund, you are in a strong financial position. You also have a home loan of Rs. 2.6 crores. Let's delve deeper into your needs and the steps you can take to ensure your financial security.

Assessing Your Financial Goals
You have mentioned two main financial goals: your daughters' education and marriage, and your retirement.

Daughters' Education and Marriage:

Education: The cost of higher education is rising. For your 21-year-old daughter, you may have immediate expenses if she is pursuing further studies. For your 14-year-old daughter, you have a few years to prepare.

Marriage: Indian weddings can be expensive. You need to plan for significant expenses over the next decade or so.

Retirement:

Lifestyle: Your retirement planning should account for your desired lifestyle. Consider your expected monthly expenses and how they might change over time.
Evaluating Your Current Savings
Your current savings are diversified across various asset classes. Let’s evaluate each component.

Shares (Rs. 9 crores):

Pros: High potential for growth, especially if you have invested in strong companies.
Cons: High risk due to market volatility. It might be prudent to gradually reduce exposure as you near retirement.
Mutual Funds (Rs. 1.8 crores):

Pros: Diversified risk, professional management, and potential for good returns.
Cons: Market risks, though less than direct shares. It’s essential to review the performance periodically.
Fixed Deposits (Rs. 50 lakhs):

Pros: Low risk, stable returns, and liquidity.
Cons: Returns are often lower than inflation, which can erode purchasing power over time.
Provident Fund (Rs. 1.5 crores):

Pros: Stable returns, tax benefits, and low risk.
Cons: Limited liquidity until retirement age.
Calculating Future Financial Needs
Education and Marriage Costs:

Education: For your elder daughter, immediate funds might be needed. Estimate the costs for your younger daughter's education based on current trends.
Marriage: Depending on your preferences, plan for significant expenses. Factor in inflation to estimate future costs.
Retirement Corpus:

To maintain your lifestyle, calculate your monthly expenses post-retirement and estimate the corpus needed. Consider healthcare costs, travel, and inflation.

Steps to Enhance Your Financial Plan
1. Diversify Investments:

While you have a substantial amount in shares, consider diversifying further to reduce risk. This could include reallocating some funds from shares to more stable investments.

2. Review Mutual Funds:

Regularly review your mutual fund portfolio. Ensure you have a mix of equity and debt funds to balance risk and return.

3. Increase Fixed Deposits:

Given the stability they offer, consider increasing your fixed deposit holdings. This can provide a cushion against market volatility.

4. Optimize Provident Fund Contributions:

Maximize your provident fund contributions for tax benefits and stable returns. Consider voluntary provident fund (VPF) if you can afford additional savings.

Restructuring Your Savings
1. Reduce Share Exposure:

As you near retirement, it’s wise to reduce exposure to high-risk assets. Gradually shift some funds from shares to more stable investments like debt funds or fixed deposits.

2. Focus on Debt Funds:

Debt mutual funds can offer better returns than fixed deposits with relatively low risk. They can be a good option for rebalancing your portfolio.

3. Increase Emergency Fund:

Ensure you have an emergency fund equivalent to 6-12 months of expenses. This fund should be in a highly liquid form like a savings account or short-term fixed deposit.

4. Estate Planning:

Create a comprehensive estate plan. This includes writing a will, setting up trusts if necessary, and ensuring all investments and assets are properly documented.

Planning for Daughters' Education and Marriage
1. Education Fund:

Open a dedicated fund for your daughters' education. Invest in a mix of equity and debt funds to balance growth and stability.

2. Marriage Fund:

Create a separate fund for their marriages. Consider investing in long-term debt funds or balanced funds for stability and moderate growth.

Preparing for Retirement
1. Estimate Expenses:

Calculate your expected monthly expenses post-retirement. Include living costs, healthcare, travel, and leisure activities.

2. Create a Retirement Corpus:

Based on your expense estimation, calculate the corpus you need. Ensure it can sustain you through your retirement years considering inflation.

3. Healthcare Planning:

Healthcare costs can be significant in retirement. Consider purchasing a comprehensive health insurance policy that covers a wide range of medical expenses.

Regular Review and Adjustment
1. Annual Review:

Conduct an annual review of your financial plan. Adjust your investments based on performance and changing financial goals.

2. Rebalance Portfolio:

Rebalance your portfolio to maintain the desired asset allocation. This ensures that your risk exposure remains within acceptable limits.

3. Monitor Economic Changes:

Stay informed about economic changes and market trends. Adjust your financial plan accordingly to mitigate risks and seize opportunities.

Working with a Certified Financial Planner
A certified financial planner (CFP) can provide expert advice tailored to your financial situation. They can help you with:

Goal Setting: Defining and prioritizing your financial goals.
Investment Planning: Selecting the right mix of investments to meet your goals.
Risk Management: Identifying and mitigating financial risks.
Tax Planning: Maximizing tax benefits through strategic investments.

You have shown remarkable diligence in building your financial portfolio. Managing the financial needs of your daughters and planning for retirement is complex. Your dedication and foresight are commendable.

Final Insights
Your current savings put you in a strong position. However, careful planning and restructuring can help you achieve your goals with greater certainty.

Diversify your investments, reduce high-risk exposure, and plan for future needs methodically. Regular reviews and adjustments to your financial plan will ensure that you stay on track.

You have built a solid foundation, and with prudent planning, you can secure a financially stable future for yourself and your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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