Home > Money > Question
Need Expert Advice?Our Gurus Can Help
Kirtan

Kirtan A Shah  |77 Answers  |Ask -

MF Expert, Financial Planner - Answered on Sep 11, 2023

Kirtan A Shah is a certified financial planner and managing director, private wealth, at Credence Family Office.
He is also a Certified International Wealth Manager and Financial Engineering and Risk Manager.
Shah is the co-author of Financial Service Management and Financial Market Operations, which are used as reference books for Mumbai University.
He is frequently seen on CNBC, Zee Business, ET NOW & BQ Prime as an expert guest.... more
Asked by Anonymous - Sep 10, 2023Hindi
Listen
Money

Hi sir, My age is 43 years. I am currently investing in SIPs in mutual funds, ICICI Prudential Bluechip Fund Growth (RS 2500) and Mirae Asset Emerging Bluechip Fund Growth (Rs 3000), Quant mid cap (RS 3000), Kotak equity emerging (RS 3000) and Parag Parikh flexicap (RS 4000). My risk profile is high and my investment horizon is up to the age of 55 years. I will require approx 1cr for my kid's education after 10 years and for retirement (1 cr) after 12 years. My total investments in SIP is approx 4.3 lakhs and in ppf is Rs 80000. Also I can invest up to Rs 25000/pm in SIPs. I also want to do SIP in small caps, pls suggest. Is my porfolio suitable as per my goal. Pls suggest.

Ans: For 1cr after 10 years, you need an SIP of 45,000
For 1 cr after 12 years assuming 4.3L already accumulated, you need an SIP of 27,000
You can consider SBI Small Cap
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.
Money

You may like to see similar questions and answers below

Omkeshwar

Omkeshwar Singh  | Answer  |Ask -

Head, Rank MF - Answered on Aug 11, 2021

Listen
Money
Below is my portfolio. Would highly appreciate if you can suggest if it is good or any changes required? Total current investment in SIP is Rs 12,000 (Which now I want to make it Rs 15K) kindly advise a good additional SIP for investing 3K monthly. Also let me know if the MF in lump sum are good? Or any changes required. I am now 45 years of age and my total savings as of date is Rs 13 Lacs only. Kindly advise how much more investment would I have to make to collect a good amount for my son's education and retirement - I have 2 son's aged 12 and 8. My current salary is Rs 1.5 Lacs and wife is also working with a salary of 30 K. Also I keep breaking SIP and lumpsum in between for emergency use. Let me know if that will affect my long terms plans of collecting funds SIPs: NAME OF MUTUAL FUND AMT INVESTED PER MONTH - (LONG TERM) Axis Focused 25 - Growth - RS - 2,OOO /- ICICI Prudential Focused Equity - Growth RS - 2,OOO /- HDFC Top 100 - Growth RS - 2,OOO /- Kotak Standard Multicap Fund - Growth RS - 2,OOO /- L&T Midcap - Growth RS - 2,OOO /- Motilal Oswal Multicap 35 - Growth RS - 2,OOO /- LUMPSUM NAME OF MUTUAL FUND AMT INVESTED LUMPSUM - (LONG TERM) DSP Focus - Growth RS - 1 LAC (INVESTED IN APRIL 2016) ICICI Pru Long Term Eq Fund ( Tax Sav) - Growth RS - 1 LAC (INVESTED IN APRIL 2016) Kotak Bluechip Fund - Growth RS - 1 LAC (INVESTED IN APRIL 2016) Nippon India DYNAMIC BOND FUND - Growth Plan RS - 1 LAC (INVESTED IN APRIL 2016) Mirae Asset Focused Fund - Growth RS - 50K (INVESTED IN AUG 2019) Mirae Asset Midcap Fund - Growth RS - 25K (INVESTED IN AUG 2019)
Ans: Prudent approach is to have the family covered for medical and life with pure insurance product.

Post that, create a corpus for emergency fund that should be 6 month of monthly expenses.

Only post that investment is recommended.

Depending upon your cash flows, mode of investment can be SIPs or lumpsums; however, SIPs are recommended.

Existing funds are okay; for further investment Axis ESG Equity Fund – Growth or UTI Flexi Cap fund – Growth can be considered

..Read more

Ramalingam

Ramalingam Kalirajan  |6343 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 08, 2024

Asked by Anonymous - Apr 15, 2024Hindi
Listen
Money
I am 42 years old and have been investing in SIPs since 2009 when i was 31 YO. My SIP include in 2 mid cap fund (Sundaram Midcap and HDFC Midcap Opportunities) of 4k, 2k in IDFC Flexi cap, 2k in Axis Small Cap, 1k in ABSLI ELSS. Periodic LUMPSUM investments. My investment horizon is till 60 yrs. Please suggest if its good enough or i need to review and add.
Ans: Your disciplined approach to SIP investing is commendable and sets a strong foundation for your financial future. Here's a comprehensive review and some suggestions:
1. Review Existing Portfolio: Evaluate the performance of your current SIPs against relevant benchmarks and peer funds. Ensure that the funds you've chosen have consistently delivered satisfactory returns and align with your risk profile and investment goals.
2. Diversification: While mid-cap and flexi-cap funds offer growth potential, consider diversifying your portfolio further. Include large-cap funds for stability and exposure to blue-chip companies. Additionally, explore thematic or sectoral funds to capitalize on emerging trends or sectors poised for growth.
3. Risk Management: Given your investment horizon until the age of 60, it's crucial to strike a balance between growth and stability. Allocate a portion of your portfolio to debt funds or hybrid funds to mitigate volatility and preserve capital, especially as you approach retirement age.
4. Regular Review: Periodically review your portfolio's performance and make necessary adjustments based on changing market dynamics, fund performance, and your evolving financial goals. Rebalance your portfolio if required to maintain your desired asset allocation.
5. Professional Guidance: Consider consulting with a Certified Financial Planner to assess your current financial situation, align your investment strategy with your long-term goals, and make informed decisions about portfolio optimization and asset allocation.
6. Asset Allocation: Ensure your asset allocation is in line with your risk tolerance and investment horizon. As you approach retirement age, gradually shift towards a more conservative allocation to safeguard your accumulated wealth.
7. Emergency Fund: While focusing on long-term investments, don't forget to maintain an adequate emergency fund to cover unforeseen expenses or financial emergencies without disrupting your investment portfolio.
Overall, your investment approach appears sound, but periodic reviews and adjustments may be necessary to ensure your portfolio remains optimized for achieving your long-term financial objectives.

..Read more

Ramalingam

Ramalingam Kalirajan  |6343 Answers  |Ask -

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

Money
I am 63years old and last month I have invested in SIP for 10 yrs Axissmall cap fund regular plan growth Rs3000 HDFC top 100fund --do-Rs3000 UTI nifty 50index fund growth Rs5000 ICICI prudential value discovery fund growth Rs5000 Sbi contra fund regular plan growth Rs3000 UTI transport and logistics sector growth fund I am a retired having sufficient corpus for old age. The above investment is for my grand children. Can you advise me whether my investment is correct and will you suggest better funds
Ans: I'd be happy to offer some insights and recommendations for your current investment strategy. Investing for your grandchildren is a wonderful gesture and can provide them with a significant financial head start in life. Let's break down your current investments and explore some alternatives that might better suit your goals.

Understanding Your Current Investments
You've chosen a variety of mutual funds, each with distinct characteristics. Here's a brief overview:

Axis Small Cap Fund: Small cap funds invest in companies with smaller market capitalization. These can offer high returns but come with higher risk due to volatility.

HDFC Top 100 Fund: This is a large-cap fund, focusing on stable, well-established companies with a track record of growth and reliability.

UTI Nifty 50 Index Fund: Index funds track a specific index, like the Nifty 50. They offer broad market exposure with lower management fees but lack the potential for higher returns from active management.

ICICI Prudential Value Discovery Fund: Value funds look for undervalued stocks with growth potential. These funds can perform well in different market conditions but may also carry higher risk.

SBI Contra Fund: Contra funds invest in out-of-favor stocks. These can provide high returns when the market corrects itself, but timing and selection are crucial.

UTI Transport and Logistics Fund: Sectoral funds like this one focus on specific sectors, offering higher returns when the sector performs well but also higher risk due to lack of diversification.

Evaluating Your Portfolio
Your investment portfolio showcases a mix of different types of funds, which is generally good for diversification. However, let's delve into some considerations:

Risk Assessment
Small Cap Funds: These funds can be highly volatile. While they offer high returns, the risk might be considerable, especially considering the investment is for your grandchildren and potentially for the long-term. Evaluating whether you need this high level of risk is crucial.

Sectoral Funds: Investing heavily in a single sector can lead to higher returns if the sector performs well. However, this comes with the downside of being overly exposed to sector-specific risks. Diversification across sectors might mitigate this risk.

Active vs. Passive Management
Index Funds: While they provide broad market exposure, index funds lack the potential for outperformance that actively managed funds might offer. The Nifty 50 Index Fund, for example, will mirror the market, which might be less desirable if you're aiming for higher returns over the long term.

Actively Managed Funds: These funds, like HDFC Top 100 and ICICI Prudential Value Discovery, aim to outperform the market through strategic stock selection. The expertise of fund managers can potentially lead to higher returns, justifying their higher management fees compared to index funds.

Potential Improvements and Suggestions
Given your investment goals for your grandchildren, let’s look at some potential adjustments:

Diversification
While your portfolio is diversified, you might want to consider reducing exposure to high-risk and sector-specific funds. Instead, opt for more balanced and multi-cap funds which offer diversification across market caps and sectors.

Balanced Fund Choices
Balanced Advantage Funds: These funds dynamically adjust between equity and debt based on market conditions. This provides a balanced approach, managing risk while aiming for reasonable returns.

Multi-Cap Funds: These funds invest across large-cap, mid-cap, and small-cap stocks. They offer the potential for higher returns with a balanced risk profile compared to investing solely in small caps or sectoral funds.

Long-Term Growth with Stability
Flexi-Cap Funds: These funds have the flexibility to invest across various market capitalizations, offering growth potential while maintaining a diversified portfolio.

Focused Funds: Investing in a limited number of high-conviction stocks, these funds can provide significant returns. The risk is higher due to the concentrated portfolio, but the potential rewards might align with your long-term goals.

Reviewing Your Specific Choices
Axis Small Cap Fund
This fund can offer significant growth, but it comes with higher risk. You might consider reducing exposure to this fund and reallocating to more stable options.

HDFC Top 100 Fund
A solid choice for stability and consistent returns. Large-cap funds like this can anchor your portfolio, offering lower risk and steady growth.

UTI Nifty 50 Index Fund
While index funds are cost-effective, actively managed funds might better serve your goal of maximizing returns for your grandchildren. Consider reallocating to an actively managed fund with a good track record.

ICICI Prudential Value Discovery Fund
Value funds are great for long-term growth. This fund is a good choice, as it can perform well in various market conditions.

SBI Contra Fund
Contra funds can offer high returns but require good timing. If you're comfortable with the risk, it can stay in your portfolio. Otherwise, consider switching to a more diversified option.

UTI Transport and Logistics Fund
Sectoral funds are risky due to lack of diversification. Consider reallocating to a more broadly diversified fund to mitigate sector-specific risks.

Implementing Changes
Reduce High-Risk Investments: Consider reducing your allocation in small-cap and sectoral funds. Instead, invest in balanced advantage or multi-cap funds for a more stable growth trajectory.

Increase Stability: Boost your investment in large-cap and diversified equity funds. These provide more stability and consistent returns.

Consider Actively Managed Funds: Given your long-term horizon and the goal of maximizing returns, actively managed funds could be a better fit than index funds.

Regular Review and Adjustment: Periodically review your portfolio with a Certified Financial Planner. Adjust based on market conditions and your evolving financial goals.

Power of Compounding
Investing for your grandchildren allows you to harness the power of compounding. The longer the investment horizon, the greater the potential for exponential growth. Ensure that your portfolio includes funds that can compound effectively over the long term.

Tax Efficiency
While planning investments, consider the tax implications. Long-term capital gains on equity funds are taxed at a lower rate compared to short-term gains. Structuring your investments to minimize tax liabilities can enhance net returns.

Final Insights
Your current investments show a thoughtful mix of different types of mutual funds. However, balancing risk and reward, especially for long-term goals like investing for grandchildren, is crucial. By reducing exposure to high-risk and sector-specific funds, and increasing stability through balanced and diversified funds, you can create a robust portfolio. Regularly reviewing and adjusting your investments with a Certified Financial Planner ensures alignment with your financial goals and market conditions.

Investing wisely today sets the foundation for a secure and prosperous future for your grandchildren.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |6343 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 19, 2024

Listen
Money
Hi, Thank you for your continue guidance. I wish to create corpus of 1 crore after 12 years from now. How much I have to invest in SIP monthly. If I have to put money in bulk how much I have to put considering appreciation of 15-18%. Please guide.
Ans: To create a corpus of Rs 1 crore in 12 years, let’s focus on more realistic expectations based on market returns. While you mentioned 15-18%, it's important to note that these returns are not consistently sustainable. A return of 12% is a more reliable assumption for long-term planning.

SIP Calculation (12% Return)
To accumulate Rs 1 crore in 12 years via a Systematic Investment Plan (SIP), here’s what you need:

SIP at 12% return: You will need to invest approximately Rs 43,000 per month for 12 years.
This assumes a 12% annual rate of return compounded monthly.
Lump Sum Calculation (12% Return)
For a lump sum investment, if you want to achieve Rs 1 crore in 12 years, the amount required is:

Lump sum at 12% return: You will need to invest approximately Rs 35 lakhs today.
This also assumes a 12% annual rate of return.
Why 12% is Realistic
While it’s tempting to expect higher returns of 15-18%, they come with higher volatility and risk. Historical returns in equity markets tend to average around 10-12% over the long term, which provides a balance between risk and return.

Key Takeaways
SIP at 12% return: Invest Rs 43,000 monthly for 12 years to reach Rs 1 crore.
Lump sum at 12% return: Invest Rs 35 lakhs today to reach Rs 1 crore after 12 years.
Final Insights
Focusing on a 12% return for your SIP or lump sum investment is more realistic for long-term wealth creation. It balances the potential for growth with a sustainable level of risk. Both approaches—SIP and lump sum—have their advantages, and you can choose based on your cash flow and risk tolerance.




Best Regards,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6343 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 19, 2024

Money
Namaskar. Sir I am 36 year old having two daughters 9years and 5 years old, i have near about 1 cr as gold, 3 lac in share market, 5 lac in mutual funds and 3 lac in EPF. working in private company salary is 50000 rs per month. now my question is that i want early retirement in age of 50 and want to do a world tour, how i can plan all this. I have no need of any loan in future also. thanks in advance
Ans: At 36 years old, you have set a clear goal of early retirement at 50 and a desire to travel the world. This is a great plan and can be achievable with the right financial strategy. You already have some solid assets:

Rs 1 crore in gold
Rs 3 lakhs in the share market
Rs 5 lakhs in mutual funds
Rs 3 lakhs in EPF
You also have a monthly salary of Rs 50,000 from your private job and no loans to worry about. Having a financial goal is the first step, but the challenge is ensuring that your investments grow steadily to meet your retirement and lifestyle aspirations.

Let’s look at a comprehensive approach to achieve this.

Define Your Financial Goals
You mentioned two key goals:

Early Retirement at 50: This means you have around 14 years to build your corpus. After retirement, you need to ensure that you generate enough income to cover your living expenses.

World Tour: This is a great ambition, but it requires careful planning. World travel costs can vary greatly, so having an estimate in mind will be important.

Now, considering your current savings and earnings, you will need a larger corpus for both retirement and travel. This means that your savings and investments must grow faster than inflation and be sufficient for both goals.

Building a Retirement Corpus
To retire at 50 and sustain your lifestyle, you’ll need a corpus that can generate enough passive income. Here’s how you can plan:

Invest More Aggressively: Currently, you have Rs 3 lakhs in the share market and Rs 5 lakhs in mutual funds. With your goal of early retirement, it would be beneficial to increase your investment in equity mutual funds. Equity has the potential to provide higher long-term returns compared to traditional options.

EPF Contributions: You have Rs 3 lakhs in EPF, which is a good base for retirement. EPF offers stable returns, but it may not grow fast enough to match your early retirement plan. Consider increasing contributions if possible, but don’t rely solely on it for long-term growth.

Gold Holdings: You have Rs 1 crore in gold, which is substantial. While gold is a good asset, it doesn’t generate income and can be volatile. You might want to consider reducing your gold holding over time and reallocating that into more income-generating investments, such as mutual funds or fixed-income instruments. This can provide you with both growth and security.

Increase SIP Investments: Start or increase your systematic investment plan (SIP) in equity mutual funds. SIPs in equity funds over a long period can help in building wealth. Actively managed funds, as opposed to index funds, can provide better growth with professional fund managers making the decisions.

Managing Risks in Investment
You have expressed concerns about market-linked investments like stocks and mutual funds. These concerns are valid, but they can be managed with proper diversification and long-term focus.

Stock Market: While you only have Rs 3 lakhs in the stock market, consider increasing this exposure but with diversification. A well-diversified portfolio can reduce risk while allowing for potential growth. Avoiding high-risk, speculative stocks is key; focus on blue-chip stocks or large-cap companies with strong fundamentals.

Mutual Funds: Investing through mutual funds rather than directly in stocks can also help. Opting for regular mutual funds with the help of a certified financial planner (CFP) ensures that an expert manages your money. Active fund management allows the flexibility to adapt to market changes and potentially achieve better returns.

Tax-Efficient Investment Strategies
One of the key aspects of planning for retirement and travel is minimising tax liability. Here are some strategies you could consider:

Equity-Linked Savings Scheme (ELSS): ELSS investments are tax-saving mutual funds that can help you save on taxes while growing your wealth. The returns from these funds are subject to long-term capital gains (LTCG) tax, which is generally lower than other forms of taxation.

Tax-Efficient Mutual Funds: You can also consider investing in other tax-efficient funds, which allow you to grow your money while reducing the tax burden.

Maximising EPF and PPF: Since you already contribute to EPF, consider starting a Public Provident Fund (PPF) if you haven’t yet. PPF offers tax-free returns and is a long-term savings option, ideal for retirement planning.

Health and Life Insurance: Ensure that you have adequate health and life insurance. These will protect you and your family and offer tax benefits under sections 80C and 80D of the Income Tax Act. The premium paid for health insurance and life insurance qualifies for tax deductions.

Allocating Funds for Your World Tour
While planning for retirement, you’ll also need to set aside a specific fund for your world tour. Here's how you can do this:

Goal-Based Investment: Set a target amount you need for your world tour. For instance, if you plan to take this trip right after your retirement at 50, you’ll need to ensure this amount is separate from your retirement corpus.

Dedicated SIP for Travel: You can create a separate SIP in a balanced mutual fund, which offers stability and growth, to save for this goal. This will allow your travel fund to grow without affecting your retirement savings.

Short-Term Fixed Income Instruments: If you’re looking for a relatively safer option, consider investing in short-term debt funds or fixed-income instruments closer to the time of your world tour. These can provide liquidity and safety for your travel fund.

Estate Planning and Children's Future
With two daughters, planning for their future education and possibly marriage expenses is essential. Here’s how you can ensure this:

Sukanya Samriddhi Yojana (SSY): If you haven’t yet, you could consider investing in SSY for your daughters. This is a government-backed scheme that offers attractive returns and tax benefits. It’s specifically designed to cater to the education and marriage needs of girls.

Children’s Education Fund: You should also start a dedicated education fund for your daughters. Education costs, especially for higher education, are rising, and planning for it early will give you peace of mind.

Nomination and Will: Ensure that you have a proper will in place. This is crucial for ensuring that your wealth is passed on to your loved ones without legal hassles. Include all your major assets such as gold, mutual funds, shares, and other investments in your will.

Managing Gold Holdings Effectively
You hold Rs 1 crore in gold, which is a significant amount. While gold is a hedge against inflation, it doesn’t generate income. Here’s how you can better utilise this asset:

Sovereign Gold Bonds (SGB): Instead of holding physical gold, consider converting some of your gold holdings into SGBs. SGBs provide an interest income along with price appreciation. This way, you’ll continue to benefit from the rise in gold prices while earning a passive income.

Reduce Physical Gold: Consider liquidating a portion of your physical gold to reinvest in higher-yielding assets. The money from this can be used to further invest in equity or mutual funds, thus boosting your retirement corpus.

Contingency Fund and Emergency Planning
While planning for retirement and travel, it’s also important to have an emergency fund. This fund should cover at least 6-12 months of your expenses in case of unforeseen circumstances like job loss or medical emergencies.

Emergency Fund: Since you already have some liquid assets, ensure you keep a portion of your Rs 50,000 salary aside every month for this purpose. Ideally, this should be kept in a liquid fund or savings account for quick access.

Health Insurance: Ensure you have a comprehensive health insurance plan to avoid dipping into your retirement savings during medical emergencies.

Finally
Your financial foundation is strong with gold, mutual funds, shares, and EPF contributions. To retire at 50 and fund a world tour, you need to boost your investments with more strategic and tax-efficient approaches. Focus on building a larger retirement corpus through mutual funds and SIPs. Use your gold more effectively by converting part of it into income-generating assets. Don't forget to plan for your children’s education and secure your family's financial future through proper estate planning.

A well-balanced investment plan, along with disciplined savings, will help you retire early and achieve your dreams.

Best Regards,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6343 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 19, 2024

Asked by Anonymous - Sep 19, 2024Hindi
Money
I am 45, I have 3 factories assets leased at 9.30 lacs, 13.80 lacs, 8.5 lacs , i have 3 offices out of which 2 are leased at 40K and 45K per month. The locations of assets are good and market distress value of built up factories is 23 cr , 36 cr , 23 cr. The offices value are 1.5 cr each of 3 offices out of which 2 are leased. I have buffer of around 5 cr in FD's and around 11.58 lacs is the LIC Insurance premium i pay per annum. I have been paying since last 9 years and shall have to pay for another 8 years and Policies get matured 3 and 5 years after payment ends. I have 2 daughters and a wife & mother. I need to retire by 50. My income source right now is 20 lacs per Annum from a new business i have started 2 years back with an investment of 1.5 cr. Prior to this i had a manufacturing unit in DEBT which I sold during Covid to remain liability free... Please suggest me how can i reduce my taxes and increase further my passive income and asset base. The land and new properties have become expensive now and i want to invest in some where different where TAX liability is lower and returns are better. I am not exposed to SHARES , STOCKS , MUTUAL fund and have my reservations as they are market linked and how can i trust my investment on some unknown fund managers. My house i own values around 16.5 cr.
Ans: Assessing Your Current Financial Situation

You have built a strong foundation with a solid asset base, consistent passive income streams, and a clear goal to retire by 50. The leased factories and offices are providing a stable income. Additionally, you have a healthy buffer of Rs 5 crore in FDs and a well-structured LIC policy. Your family is your priority, and you are looking to reduce tax liability while increasing passive income.

At 45, you have a few critical years before retirement. This gives you enough time to optimize your financial portfolio and ensure your goals are met with minimal tax burdens. Let’s break down how you can move forward.

Passive Income: Key to Financial Independence
Your current real estate portfolio provides a dependable source of passive income. With the following income breakdown:

Factories leased at Rs 9.30 lakh, Rs 13.80 lakh, and Rs 8.5 lakh annually.
Offices leased at Rs 40,000 and Rs 45,000 monthly.
Your total passive income from these assets comes close to Rs 32 lakh annually. With the land and property market now expensive, your focus should be on diversifying income streams beyond real estate.

Steps to Increase Passive Income

Invest in Debt Instruments: Given your reservations about market-linked instruments like shares and mutual funds, consider debt instruments. Options like Government Bonds, Corporate Bonds, and Debt Mutual Funds can offer steady returns with lower market volatility. These also have tax-efficient structures if held for the long term (3+ years), benefiting from long-term capital gains tax with indexation benefits.

Diversify with International Investments: You could explore international bonds or debt-based mutual funds focused on developed economies. These offer diversification beyond India and can help protect your investments from domestic economic fluctuations.

Sovereign Gold Bonds (SGBs): Since land is expensive, another safe, government-backed option is SGBs. They provide interest along with capital appreciation based on the price of gold. Interest income is taxable, but any capital gains on maturity are tax-free.

Rental Yield Real Estate Investment Trusts (REITs): Though you're cautious about real estate, REITs allow you to invest in a basket of real estate assets. They provide regular dividend income, which is rental yield. You won’t need to worry about maintenance or managing properties. REITs offer steady income and tax-efficient capital appreciation.

Tax Efficiency Strategies
Tax planning is a crucial part of any financial strategy. Given your asset base, current income, and goal to retire in five years, reducing your tax liability is essential. Here are a few steps that can help you achieve that:

Reduce Tax Burden on Real Estate Income

Ownership Structure: If any of your properties are solely in your name, consider transferring them to family members in lower tax brackets (e.g., your wife or mother). This reduces your tax burden as rental income gets distributed.

Invest Through HUF: If you don’t already have one, forming a Hindu Undivided Family (HUF) can help. Income earned through HUF gets taxed separately from personal income, reducing your overall tax burden.

Depreciation Deductions: Claiming depreciation on your factories and offices can significantly reduce taxable income. This applies even though they’re leased out. Have your accountant review your depreciation claims to ensure you’re taking full advantage.

Focus on Tax-Free Investments

Tax-Free Bonds: You can invest in tax-free bonds issued by government-backed entities. The interest earned on these bonds is entirely exempt from tax. Though they offer lower returns (5-6%), they are a good addition to your portfolio for stable, tax-efficient returns.

PPF and VPF: If you haven't maxed out your Public Provident Fund (PPF), it offers tax-free returns, and the interest earned is exempt from income tax. Additionally, consider contributing to a Voluntary Provident Fund (VPF) if available, as it also enjoys tax benefits.

Optimize Your Insurance Policies

You’re currently paying Rs 11.58 lakh annually in LIC premiums. Since these are investment-linked insurance policies, they tend to offer lower returns than other investment options. You may want to reconsider whether you need such a high premium commitment for another eight years.

Steps to Consider with LIC Policies

Review the projected returns upon policy maturity. Compare them with other safe investment options.

Surrender Partially: If the policies are not yielding a high return, you may consider surrendering part of them and reinvesting the surrendered value into better-performing instruments like debt mutual funds or tax-efficient bonds.

Retain Policies Near Maturity: Policies maturing within 3-5 years can be retained, as surrendering close to maturity may not be financially viable.

Build Your Retirement Corpus
Your goal of retiring at 50 is feasible, but your retirement corpus needs careful planning. At retirement, you would want a mix of stable income and wealth preservation to last for the next 30-40 years.

Steps to Build Your Retirement Corpus

Systematic Withdrawal Plans (SWPs): Once you retire, you can shift a part of your fixed deposits and FDs to debt mutual funds. Through an SWP, you can withdraw a fixed sum every month. SWPs in debt funds are tax-efficient since the withdrawals are treated as capital gains, and only a small portion of the withdrawal is taxed.

Avoid Direct Stock Exposure: Since you are risk-averse towards stocks and market-linked investments, avoid direct exposure to equity markets. However, you can consider hybrid funds that invest a portion in equity and debt. This way, you get a balanced return without the full exposure of equity risk.

Annuity as an Option: Once you reach the age of 50, explore annuities that provide a fixed monthly income. These are a secure, low-risk way of ensuring a steady income for your retirement.

Managing Business and Reducing Taxes
You’ve recently started a new business with an annual income of Rs 20 lakh. You should take full advantage of the available tax deductions for business expenses.

Tax-Reduction Strategies for Your Business

Claim All Deductions: Ensure that you claim deductions on all legitimate business expenses, including salaries, rent, utilities, and other operational costs. This reduces your taxable profit.

Depreciation on Assets: If your business involves equipment or machinery, ensure that you are claiming depreciation on these assets to reduce your tax liability.

Opt for Presumptive Taxation: If your business income is below Rs 2 crore, you may qualify for the presumptive taxation scheme. This scheme allows you to declare profits at a fixed percentage of your turnover, which simplifies tax filing and reduces scrutiny.

Estate Planning and Legacy for Daughters
Since you have two daughters and significant assets, estate planning should be a priority. You want to ensure a smooth transfer of wealth, reduce inheritance taxes, and avoid any disputes.

Steps for Efficient Estate Planning

Create a Will: Ensure that you have a clear, legally-binding will in place. This prevents any legal disputes and ensures that your assets are distributed according to your wishes.

Set up Trusts: Consider setting up a family trust. Trusts can help reduce estate taxes and ensure that your daughters inherit your wealth in a structured manner. They also protect the inheritance from creditors.

Plan for Property Transfer: Real estate can be tricky when it comes to inheritance due to capital gains tax. Discuss with a legal expert on how best to structure the transfer of property to your daughters to minimize tax implications.

Finally
You are in an excellent position, with a strong asset base and stable income streams. With some careful tax planning, reallocation of insurance premiums, and a focus on diversification, you can achieve financial freedom by the age of 50.

While your reservations about market-linked investments are valid, not all investment opportunities carry high risk. You can balance your portfolio with safer instruments like debt funds, government bonds, and REITs.

By following a diversified approach, you will be able to reduce tax liability, increase passive income, and secure your family’s future. Consider working with a Certified Financial Planner to ensure all elements of your plan are optimized and aligned with your goals.

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

...Read more

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.

Close  

You haven't logged in yet. To ask a question, Please Log in below
Login

A verification OTP will be sent to this
Mobile Number / Email

Enter OTP
A 6 digit code has been sent to

Resend OTP in120seconds

Dear User, You have not registered yet. Please register by filling the fields below to get expert answers from our Gurus
Sign up

By signing up, you agree to our
Terms & Conditions and Privacy Policy

Already have an account?

Enter OTP
A 6 digit code has been sent to Mobile

Resend OTP in120seconds

x