40 & Clueless: Rent or Buy with Kids & SIPs?

Ans: It's great to see your proactive approach towards securing your daughter's future and planning for your retirement. Let's break down your financial situation and outline a strategy to achieve your goals.

Currently, you're investing ?48,000 monthly in SIPs and ?12,500 in Sukanya Samriddhi Yojana for your kid's future. Additionally, you have term insurance and a life plan for your child, along with a significant PF balance and regular contributions.

Considering your age and financial goals, it's commendable that you're taking steps to enhance your savings and investments. The upcoming sale of an apartment, along with your existing assets, provides a solid foundation to work with.

To generate a corpus of ?4 crore for your daughter's education, marriage, and your retirement in 8 years, we need to focus on optimizing your investments and maximizing returns.

With the additional funds from the apartment sale, consider increasing your SIP investments gradually to accelerate wealth accumulation. Diversify your portfolio across equity, debt, and other asset classes to mitigate risk and enhance returns.

Since you have a relatively short time frame of 8 years, it's essential to maintain a balanced approach to investing, prioritizing growth while safeguarding capital. Regular reviews with a Certified Financial Planner can help ensure your investment strategy remains aligned with your goals and risk tolerance.

Furthermore, continue contributing to your PF and explore other tax-efficient investment avenues to optimize your savings. Ensure adequate insurance coverage to protect your family's financial well-being in case of unforeseen events.

By staying disciplined in your savings and investments and making informed decisions, you're well-positioned to achieve your financial aspirations for your daughter's future and your retirement.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Ans: You are 40 years old, happily married with two daughters aged 7 and 3. You have real estate worth Rs. 1.50 crores, including two houses (one valued at Rs. 85 lakhs with a monthly rental yield of Rs. 30,000). You have a ULIP with a monthly contribution of Rs. 18,000 for 5 years, with 19 months completed and a corpus of Rs. 4 lakhs. You have just started investing Rs. 50,000 in mutual funds. You can invest Rs. 1.50 lakhs monthly now.

Investment in Mutual Funds
Equity Mutual Funds
Equity mutual funds are essential for long-term growth. They provide high returns over time. You can invest in large-cap, mid-cap, and small-cap funds. Large-cap funds are less risky. Mid-cap and small-cap funds offer higher returns but come with higher risks.

Debt Mutual Funds
Debt mutual funds provide stability to your portfolio. They invest in bonds and government securities. They are less volatile and offer regular returns. You can consider short-term and long-term debt funds based on your investment horizon.

Hybrid Mutual Funds
Hybrid funds invest in both equity and debt. They balance risk and return. They are suitable for moderate risk takers. They provide stability with some growth potential.

Tax-saving Mutual Funds
ELSS funds provide tax benefits under Section 80C. They have a lock-in period of 3 years. They offer good returns and help in tax planning. You can allocate a portion of your investments to these funds.

Selling the House and SWP
Selling the house worth Rs. 85 lakhs can provide a lump sum. You can invest this in a Systematic Withdrawal Plan (SWP). SWP offers regular income from mutual funds. It provides flexibility and better returns compared to rental income. Ensure to consult with a Certified Financial Planner (CFP) to align this with your financial goals.

Investment Strategy
Increase your SIP contributions to Rs. 1.50 lakhs monthly. Diversify your investments across equity, debt, and hybrid funds. Review your portfolio regularly to ensure it aligns with your goals.

Professional Guidance
Seek advice from a Certified Financial Planner (CFP). They can provide a tailored financial plan. Professional guidance helps achieve your financial goals efficiently.

Final Insights
Focus on long-term growth with equity funds. Maintain stability with debt funds. Balance risk and return with hybrid funds. Consider tax-saving ELSS funds. Review your portfolio regularly.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You have a solid foundation in place with investments in mutual funds, PPF, SSY, and NPS. You and your wife have a steady combined income of Rs 1.7 lakh per month, and you are targeting a Rs 10 crore corpus by 2040, which is 16 years away.

The current home loan EMI is manageable, and you're planning to construct a new rental property with an additional loan. Achieving a Rs 10 crore corpus by 2040 will require careful planning and disciplined investment in a diversified portfolio.

Let's evaluate your current strategy and suggest some adjustments to help you reach your goal.

Assessment of Current Investments
SIPs in Mutual Funds:

You are currently investing Rs 20,000 per month across different mutual funds.
With a long-term horizon, mutual funds are a great vehicle for wealth creation.
However, achieving your Rs 10 crore target will likely require increasing your SIPs.
Sukanya Samriddhi Yojana (SSY):

You are contributing Rs 1.5 lakh annually towards SSY for your daughter. This is a good long-term investment, especially for securing her education and future financial needs.
SSY offers tax benefits under Section 80C and has an attractive interest rate, making it a secure investment.
Public Provident Fund (PPF):

Your Rs 1.5 lakh annual contribution to PPF is another tax-efficient, risk-free investment.
PPF provides compounded returns, but the lock-in period means liquidity is restricted.
National Pension System (NPS):

NPS is a good long-term retirement savings tool.
However, only a part of the corpus is tax-free upon withdrawal, and annuity purchase is mandatory, which may limit liquidity in retirement.
Recommendations for Reaching the Rs 10 Crore Corpus
To achieve a Rs 10 crore corpus by 2040, you need to ramp up your SIPs and possibly tweak your investment strategy. Here are a few steps you can take:

1. Increase SIP Contributions:
Your current SIP of Rs 20,000 per month is a good start, but to achieve your goal, consider increasing it.
Start with an additional Rs 10,000-15,000 per month and aim for a 10% step-up each year.
This will allow the power of compounding to work in your favour over time.
Invest across different categories like Flexicap, Midcap, and Smallcap funds, which have the potential for high returns over long periods.
2. Portfolio Diversification:
Large Cap Mutual Funds: Consider adding a large-cap fund for stability. These funds invest in well-established companies with a track record of stable performance.
Mid and Small-Cap Funds: Continue investing in mid and small-cap funds as they offer higher growth potential, though with more risk. You can balance risk by allocating less than 30% of your portfolio to these funds.
Debt Funds or Hybrid Funds: To reduce risk, allocate a portion to debt or hybrid funds. These funds offer lower returns but provide stability and reduce volatility, especially as you approach retirement.
3. Home Loan for Rental Property:
You plan to take a Rs 1.3 crore loan to construct a rental property. Ensure the rental income is sufficient to cover the EMI and maintenance costs.
A rental property can offer a stable income stream, but it should not overly strain your cash flow.
Keep in mind that real estate can be illiquid, and capital appreciation is not guaranteed.
4. NPS Allocation:
You are contributing Rs 50,000 annually to NPS. It’s a solid retirement tool, but the mandatory annuity requirement reduces liquidity at retirement.
Consider increasing equity exposure in your NPS portfolio to maximise growth potential.
Evaluating the Real Estate and Loan Impact
While real estate can provide rental income, it has its limitations. Property appreciation is not always guaranteed, and liquidity can be a challenge. The loan you take for constructing a rental property must be balanced against your other financial goals. Be cautious about how much of your income is tied to servicing the loan.

Here are some points to keep in mind:

Rental Yield vs Loan Cost: Ensure that the rental yield (typically around 2-3%) is higher than the loan interest rate (which can be around 7-9%). If rental yield is lower, it could impact your cash flow negatively.
Liquidity Concerns: Real estate is not as liquid as mutual funds or stocks. In case of emergencies, selling property may take time.
Diversification Risk: Too much investment in real estate can lead to a lack of diversification. Consider balancing it with financial assets like mutual funds, PPF, and NPS.
Suggested Adjustments to Your Portfolio
1. Step-Up SIP Contributions:
Start increasing your SIP amount by Rs 10,000 per month, making it Rs 30,000 in total.
Add Rs 5,000 each to a large-cap and hybrid fund to bring stability to your portfolio.
2. Balanced Approach for Long-Term:
Continue with SSY, PPF, and NPS, but ensure you have adequate exposure to equity mutual funds.
Keep increasing your SIPs with the 10% annual step-up strategy. This will allow you to leverage the power of compounding.
3. Prioritise Debt Reduction:
Pay off your existing home loan as planned in 4 years.
For the new home loan, keep a target to prepay aggressively once your income increases or when you get a bonus.
4. Emergency Fund:
With the upcoming construction loan and increasing SIP commitments, ensure you have an emergency fund that covers 6-12 months of living expenses and loan EMIs.
5. Estate Planning:
You mentioned securing your kids’ future after you and your wife. It is essential to have a clear estate plan in place.
Consider writing a will and reviewing life insurance coverage to ensure your children are well taken care of.
Explore the possibility of setting up a trust to manage your assets for your children, ensuring their long-term financial security.
Final Insights
You have a well-balanced portfolio and are already on the right track. To ensure you reach your goal of Rs 10 crore by 2040, increasing your SIP contributions and maintaining a disciplined approach to debt management will be key. Ensure your portfolio is diversified between equity and debt instruments to manage risk effectively.

Consider real estate as a part of your income stream but don’t over-rely on it for long-term growth. Keep a strong focus on mutual funds for long-term wealth accumulation. Also, estate planning is crucial to ensure your children’s financial well-being.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Hello;

You may do a monthly sip of 65 K into following type of mutual funds with the allocation as given:

1. Flexicap type mutual fund: 20 K
For eg PPFAS flexicap fund

2. Large and Midcap type mutual fund: 20 K
For eg Kotak Emerging Opportunities Fund

3. Midcap type mutual fund: 15 K
For eg Sundaram Mid Cap fund

4 Small cap type mutual fund: 10 K
For eg Nippon India Small cap fund

Funds suggested are from the top quartile, in terms of performance, in their respective category.

At the end of 14 years you may expect a corpus of 3.1 Cr assuming modest return of 13%.

After 10-12 years you must periodically transfer your gains to a liquid or ultra short duration debt fund to protect it against market volatility.

Happy Investing!!

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

Ans: Hi,

You should have an emergency fund of 3-6 months worth expenses along with a health insurance as well.

SIP of 35k for 11 years will only give you 1 crore when you turn 50.

You need to invest to your full capacity to achieve an early retirement. Try to invest 50k per month with a step up of 10% to retire at 50.

For kid's marriage, start another SIP of 25000 for next 20 years. You will get 3 crores for marriage goal.

In both cases, choose equity mutual funds.
Your existing choice of 2 funds is not good. Choose large cap and multi cap fund to diversify and refrain from choosing any sectoral fund like thematic FOF. Take a professional guidance as doing it without professional's help can prove otherwise.

Hence do consult a professional Certified Financial Planner - a CFP who can guide you with exact funds to invest in keeping in mind your age, requirements, financial goals and risk profile.

Best Regards,
Reetika Sharma, Certified Financial Planner
https://www.instagram.com/cfpreetika/