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Samraat

Samraat Jadhav  |1876 Answers  |Ask -

Stock Market Expert - Answered on Dec 12, 2023

Samraat Jadhav is the founder of Prosperity Wealth Adviser.
He is a SEBI-registered investment and research analyst and has over 18 years of experience in managing high-end portfolios.
A management graduate from XLRI-Jamshedpur, Jadhav specialises in portfolio management, investment banking, financial planning, derivatives, equities and capital markets.... more
Ijaz Question by Ijaz on Dec 12, 2023Hindi
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DEAR SIR, I have around 4.5 lakhs cash in hand and i may require it 2 years later for marriage.could you please suggest me any equity stocks or MF to invest the same.

Ans: if the target is of 2yrs, i would suggest you to invest in any good debt mutual fund, avoid investing in equities as the horizon is small.

Disclaimer: Investments in securities are subject to market RISKS. Read all the related documents carefully before investing. Please consult your appointed/paid financial adviser before taking any decision. The securities quoted are for illustration only and are not recommendatory. Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
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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Ramalingam

Ramalingam Kalirajan  |5173 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 17, 2024

Asked by Anonymous - Mar 20, 2024Hindi
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Please suggest me which equity PMS, is suitable for me, I can wait upto a period of 6 years. You are requested to suggest fund house name as well the particulsr scheme name.
Ans: Investing in equity Portfolio Management Services (PMS) can be a great option for investors looking for tailored investment strategies and direct ownership of stocks. However, it is crucial to understand both the benefits and the potential risks associated with PMS, as well as how it compares to mutual funds (MFs). Here’s a detailed analysis to help you make an informed decision.

Understanding Portfolio Management Services (PMS)
Portfolio Management Services offer a customized investment approach where professional portfolio managers manage your investments based on your financial goals, risk appetite, and investment horizon. Unlike mutual funds, which pool money from many investors to buy a diversified portfolio of stocks, PMS allows for direct ownership of individual stocks.

Advantages of PMS
1. Customized Portfolios: PMS offers personalized investment strategies tailored to your financial goals, risk tolerance, and investment horizon. This customization can lead to a portfolio that better aligns with your specific needs.

2. Direct Stock Ownership: In PMS, you own the stocks directly, unlike in mutual funds where you own units of the fund. This direct ownership allows for greater transparency and control over your investments.

3. Flexibility and Agility: PMS managers can make quick and decisive changes to the portfolio based on market conditions, which can be advantageous in capturing short-term opportunities.

4. High-Quality Research: PMS typically involves in-depth research and analysis, leading to a focused portfolio of high-conviction stocks.

5. Active Management: PMS involves active management by experienced portfolio managers who continuously monitor and adjust the portfolio to optimize returns.

Advantages of Mutual Funds Over PMS
While PMS offers several benefits, mutual funds can also be an excellent investment option, especially for investors who prefer a more hands-off approach. Here are some key advantages of mutual funds over PMS:

1. Lower Entry Barriers: Mutual funds typically have lower minimum investment requirements compared to PMS. This makes them accessible to a broader range of investors.

2. Diversification: Mutual funds pool money from many investors to buy a diversified portfolio of stocks or bonds, which reduces risk. Diversification helps to mitigate the impact of poor performance by any single security.

3. Professional Management: Mutual funds are managed by professional fund managers who make investment decisions based on extensive research and analysis. This ensures a disciplined investment approach.

4. Liquidity: Mutual funds offer higher liquidity compared to PMS. You can easily redeem your mutual fund units at any time, subject to exit loads and fund-specific rules. PMS investments may have lock-in periods and exit restrictions.

5. Regulatory Oversight: Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), which ensures transparency, investor protection, and adherence to stringent regulatory standards. PMS is also regulated by SEBI but offers less stringent oversight compared to mutual funds.

6. Cost Efficiency: Mutual funds generally have lower management fees and expenses compared to PMS. The expense ratio of mutual funds includes management fees, administrative expenses, and other costs, making them more cost-effective for investors.

7. Convenience: Investing in mutual funds is simple and convenient. You can start with a Systematic Investment Plan (SIP), make lump sum investments, and track your portfolio online. PMS requires a more hands-on approach and ongoing communication with the portfolio manager.

8. Tax Efficiency: Mutual funds offer better tax efficiency. Capital gains from mutual funds are taxed based on the holding period and type of fund, with equity funds benefiting from favorable long-term capital gains tax rates. PMS investments are subject to capital gains tax on each transaction, which can lead to higher tax liability.

Detailed Comparison of Mutual Funds and PMS
Minimum Investment
Mutual Funds: The minimum investment in mutual funds can be as low as Rs. 500 for SIPs and Rs. 5,000 for lump sum investments. This makes mutual funds accessible to a wide range of investors.
PMS: The minimum investment for PMS is typically Rs. 50 lakh, which makes it suitable for high-net-worth individuals (HNIs).
Fee Structure
Mutual Funds: Mutual funds charge an expense ratio, which includes management fees, administrative costs, and other expenses. The expense ratio for equity mutual funds usually ranges from 1% to 2.5% annually.
PMS: PMS charges a management fee, which can be a fixed fee or a combination of a fixed fee and a performance fee. The fixed fee typically ranges from 1% to 2% of assets under management (AUM) annually, and the performance fee can be around 10% to 20% of profits exceeding a certain threshold.
Transparency
Mutual Funds: Mutual funds provide regular updates, including monthly fact sheets, annual reports, and NAV disclosures. Investors can track the performance and holdings of the fund easily.
PMS: PMS offers detailed reporting, including quarterly performance reports and transaction statements. However, the reporting frequency and transparency may vary across PMS providers.
Investment Strategy
Mutual Funds: Mutual funds follow a specific investment mandate and strategy outlined in the scheme’s offer The fund manager must adhere to the defined investment objectives and restrictions.
PMS: PMS offers more flexibility in investment strategy. Portfolio managers can tailor the portfolio to meet the client’s specific goals, risk tolerance, and preferences.
Taxation
Mutual Funds: Equity mutual funds held for more than one year qualify for long-term capital gains (LTCG) tax at 10% on gains exceeding Rs. 1 lakh. Short-term capital gains (STCG) are taxed at 15%.
PMS: Each transaction in a PMS portfolio is subject to capital gains tax. The tax treatment depends on the holding period of each stock. This can result in a higher tax liability compared to mutual funds.
Recommended Mutual Funds for a 6-Year Horizon
For investors looking for growth over a 6-year period, mutual funds remain a compelling choice. Here are some recommended categories and types of funds:

Large Cap Funds
Large cap funds invest in well-established, financially stable companies with a strong market presence. They offer stability and steady growth. These funds are suitable for conservative investors seeking lower risk and moderate returns.

Mid Cap Funds
Mid cap funds focus on companies with significant growth potential. These companies are generally more volatile than large caps but can offer higher returns. Mid cap funds are ideal for investors with a moderate risk appetite.

Flexi Cap Funds
Flexi cap funds provide flexibility by investing across market capitalizations – large, mid, and small caps. This diversification allows the fund manager to adapt to market conditions and optimize returns. Flexi cap funds are suitable for investors seeking a balanced risk-return profile.

Small Cap Funds
Small cap funds invest in smaller companies with high growth potential. These funds are more volatile and carry higher risk but can deliver substantial returns. Small cap funds are best suited for aggressive investors with a higher risk tolerance.

Hybrid Funds
Hybrid funds invest in a mix of equity and debt, offering balanced growth and stability. They are suitable for conservative to moderate investors looking for a blend of equity growth and fixed-income stability.

Conclusion
Choosing between Portfolio Management Services (PMS) and mutual funds depends on your investment goals, risk tolerance, and financial situation. PMS offers personalized, actively managed portfolios with direct stock ownership, making them suitable for high-net-worth individuals seeking tailored investment strategies. However, PMS requires a substantial minimum investment and comes with higher costs.

On the other hand, mutual funds provide diversification, professional management, lower costs, and ease of access. They are regulated, transparent, and offer a wide range of options to suit different risk profiles and investment horizons. For most investors, mutual funds offer a more straightforward, cost-effective, and efficient way to achieve long-term financial goals.

If you prefer the professional management, convenience, and lower entry barriers of mutual funds, you can build a diversified portfolio with large cap, mid cap, flexi cap, small cap, and hybrid funds. This approach balances growth potential and risk, aligning with your 6-year investment horizon.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |5173 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 13, 2024

Asked by Anonymous - Jun 12, 2024Hindi
Money
Sir i m 35 with net monthly income of 80k, previously my wife was also working but not now.we have combined 20 lakh in shares n 45 lakh in mf. I want to accumulate 5 cr in next 10 years. Where to invest as i can save 50k monthly
Ans: Achieving your goal of accumulating Rs 5 crores in the next 10 years is ambitious but attainable with disciplined saving and investing strategies. Your current financial position, with Rs 20 lakhs in shares and Rs 45 lakhs in mutual funds, provides a strong foundation. Here’s a comprehensive guide on how to effectively invest your savings of Rs 50,000 monthly to reach your target.

Assessing Your Financial Situation

Your current net monthly income is Rs 80,000, and you have Rs 20 lakhs in shares and Rs 45 lakhs in mutual funds. Your wife is not currently working, which impacts your household income but does not preclude achieving your goal.

Setting Clear Financial Goals

It's important to set clear, measurable financial goals. Your target is to accumulate Rs 5 crores in 10 years. This requires a well-thought-out investment plan with a focus on both growth and risk management.

Understanding Investment Options

Investing in a mix of equity and mutual funds is essential for growth. Equity investments provide high returns but come with higher risk. Mutual funds offer diversification and professional management, which can balance risk and return effectively.

Disadvantages of Index Funds

Index funds simply mirror market indices and offer average market returns. They don’t exploit market inefficiencies or provide the potential for outperformance that actively managed funds do. Actively managed funds can offer better growth opportunities, making them more suitable for your aggressive target.

Benefits of Regular Funds Over Direct Funds

While direct funds have lower expense ratios, they lack professional guidance. Investing through a Mutual Fund Distributor (MFD) with CFP credentials provides personalized advice, aligning investments with your goals and optimizing returns.

Creating an Investment Strategy

Diversified Equity Portfolio: Invest in a diversified set of high-quality stocks across various sectors. This reduces risk while capturing growth from different parts of the economy. A Certified Financial Planner (CFP) can help identify promising stocks.

Actively Managed Mutual Funds: Choose actively managed mutual funds that have a track record of outperforming the market. These funds leverage market insights to provide better returns than index funds.

Systematic Investment Plan (SIP): Invest Rs 50,000 monthly through SIPs in a mix of large-cap, mid-cap, and small-cap mutual funds. This approach benefits from rupee cost averaging and reduces the impact of market volatility.

Balanced Funds: Consider balanced or hybrid funds that invest in both equity and debt instruments. These funds provide growth potential with reduced risk, making them a prudent choice for part of your portfolio.

Emergency Fund and Insurance

Ensure you maintain an emergency fund covering at least six months of living expenses. This fund should be easily accessible, preferably kept in a savings account or a liquid fund. Additionally, have adequate life and health insurance to protect your family’s financial future against unforeseen events.

Reviewing and Rebalancing Your Portfolio

Regularly review and rebalance your portfolio to ensure it remains aligned with your financial goals. Market conditions and personal circumstances change over time, and periodic adjustments are necessary to stay on track. Consulting with a CFP will provide professional insights for these adjustments.

Tax Efficiency in Investments

Different investments have different tax implications. Equity mutual funds held for more than one year qualify for long-term capital gains (LTCG) tax, currently at 10% on gains exceeding Rs 1 lakh annually. Debt funds held for more than three years qualify for LTCG tax at 20% with indexation benefits, significantly reducing taxable gains.

Avoiding Common Investment Mistakes

Emotional Decisions: Avoid making investment decisions based on emotions. Market fluctuations are normal, and disciplined investing will yield better results over time.

Lack of Diversification: Don't put all your money in one type of investment. Diversify across various asset classes to balance risk and return.

Neglecting Reinvestment: Reinvest dividends and interest to benefit from compounding. This can significantly enhance your portfolio’s growth over time.

Ignoring Professional Advice: Leverage the expertise of a Certified Financial Planner. Their guidance can help navigate complex financial decisions and optimize your investment strategy.

Long-Term Financial Planning

Retirement Planning: Continue to contribute towards your retirement corpus. Ensure you are on track to maintain your lifestyle post-retirement. Systematic investment in diversified equity and balanced funds can help grow your retirement corpus.

Children’s Education: If you have or plan to have children, start investing early for their education. Consider dedicated education funds or SIPs in diversified equity mutual funds for long-term growth.

Estate Planning: Ensure you have a clear estate plan. Create a will to specify asset distribution and consider setting up trusts if necessary. Proper estate planning can prevent legal disputes and ensure a smooth transfer of assets to your heirs.

Achieving Your Rs 5 Crore Goal

To achieve your Rs 5 crore goal in 10 years, you need a strategic investment plan. Your current savings and monthly investment capacity are solid, but disciplined execution and professional guidance are crucial. Here are detailed steps to help you achieve this:

Calculate the Required Rate of Return: Determine the annual rate of return needed to grow your current investments and monthly contributions to Rs 5 crores in 10 years. This will help you understand the risk and return profile required for your investments.

Select High-Quality Mutual Funds: Choose mutual funds with a history of strong performance. Diversify across large-cap, mid-cap, and small-cap funds to capture growth from various segments of the market.

Invest in High-Growth Stocks: Allocate a portion of your savings to high-growth stocks. These stocks offer higher returns but come with higher risk. Diversification and professional guidance can help manage this risk effectively.

Regular Monitoring and Adjustments: Continuously monitor your investments and make necessary adjustments. Regular reviews with your CFP ensure your portfolio remains aligned with your goals and market conditions.

Leverage Tax Benefits: Utilize tax-saving investment options under sections 80C and 24(b) of the Income Tax Act. This can optimize your overall returns and reduce the tax burden.

Additional Considerations

Economic and Market Conditions: Stay informed about economic and market conditions. Understanding macroeconomic trends can help make informed investment decisions.

Inflation Impact: Consider the impact of inflation on your investment returns. Ensure your investments are growing at a rate that outpaces inflation to maintain purchasing power.

Debt Management: If you have any outstanding debts, plan for their timely repayment. High-interest debts can erode your savings and investment returns.

Financial Discipline: Maintain financial discipline by sticking to your investment plan. Avoid impulsive spending and prioritize your long-term financial goals.

Final Insights

Achieving a Rs 5 crore corpus in 10 years requires a strategic approach and disciplined execution. By investing in a diversified portfolio of high-quality mutual funds and equities, leveraging professional guidance, and maintaining financial discipline, you can reach your goal. Regular reviews and adjustments, combined with a clear understanding of your financial goals and market conditions, will ensure you stay on track. Stay committed to your investment plan, and with time and patience, you will achieve your financial aspirations.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |5173 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 22, 2024

Asked by Anonymous - Jul 18, 2024Hindi
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Money
Hello Sir, I am 29 yrs old, unmarried in hand salary is around 1.34 lakhs. I am planning to get married to my partner in hand salary around 1.60 lakhs. Luckily we dont have liability /loans. Only have a high housing rents of 23000 and 26500 per month. I have an fd of valutaion around 9 lakhs. My partner has around 13lakhs in stocks fd etc. We both have emergency funds of around 3-3.5 lakhs in liquid. Currently i am investing 30000 in sip each month and he is investing 30000 in elss. Both invest around 10000-15000 in stocks on and off. Could you kindly suggest some investing advise our goals are to buy a house in the next 5 yrs and buy a mid range car. We also want to have some savings for future for kids.
Ans: Your current financial situation is strong. You both have good salaries, no liabilities, and substantial savings. Here’s a comprehensive plan to achieve your goals.

Current Investments and Expenses

High Rent: Rs. 23,000 and Rs. 26,500 per month are high. Consider if there are ways to reduce this.

Emergency Funds: You both have Rs. 3-3.5 lakhs in liquid emergency funds. This is excellent and should be maintained.

Fixed Deposits: You have Rs. 9 lakhs, and your partner has Rs. 13 lakhs in stocks and FDs.

SIP Investments: You invest Rs. 30,000 in SIPs monthly, and your partner invests Rs. 30,000 in ELSS.

Stock Investments: Both invest around Rs. 10,000-15,000 in stocks on and off.

Goals

Buy a House in 5 Years

Buy a Mid-range Car

Save for Future Kids

Investment Strategy

House Purchase Plan

Down Payment Savings: Aim to save for a down payment of at least 20% of the house cost. For a house costing Rs. 1 crore, you’ll need Rs. 20 lakhs.

Increase SIP Allocation: Increase your SIP investments to Rs. 40,000 per month if possible. Focus on large-cap and hybrid funds for stability and growth.

Short-term Debt Funds: Invest some money in short-term debt funds or recurring deposits. These are less volatile and offer better returns than savings accounts.

Car Purchase Plan

Car Fund: Decide on a budget for your mid-range car. For a car costing Rs. 10-15 lakhs, start a dedicated savings plan.

Recurring Deposit: Open a recurring deposit for car savings. Monthly contributions will help build this fund over 3-5 years.

Future Kids Savings

Child Education Fund: Start investing in child education funds or balanced mutual funds. SIPs of Rs. 10,000 per month in diversified equity funds can grow significantly over the long term.

Sukanya Samriddhi Yojana (SSY): If you have a daughter, invest in SSY. It offers attractive returns and tax benefits.

Review and Adjust Investments

Review Current SIPs

Diversify Portfolio: Ensure your SIPs are diversified across large-cap, mid-cap, and small-cap funds. Add some balanced or hybrid funds for stability.
Regular Stock Investments

Systematic Investment in Stocks: Consider a more systematic approach to stock investments. Regularly invest fixed amounts in strong, fundamentally sound companies.
Utilize Fixed Deposits

Partial Liquidation: Consider partially liquidating FDs and investing in mutual funds for better returns. Keep some FDs for security and liquidity.
Tax Planning

Utilize ELSS Funds: Continue investing in ELSS for tax benefits under Section 80C. Aim to maximize the Rs. 1.5 lakhs limit.
Insurance

Health Insurance: Ensure you both have adequate health insurance coverage. Consider a family floater policy post-marriage.

Life Insurance: Opt for term insurance plans. Ensure the coverage amount is sufficient to cover future liabilities and responsibilities.

Final Insights

Balancing your current savings with your future goals requires disciplined investing. Increase your SIPs, focus on diversified and balanced funds, and ensure regular contributions to short-term and long-term goals. Regularly review your investments and adjust based on performance and changing goals. By following this structured approach, you can achieve your dreams of buying a house, a car, and securing your future family’s needs.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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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.

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