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Ramalingam Kalirajan  |4647 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 29, 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
Ashish Question by Ashish on Apr 29, 2024Hindi
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I am Ashish aged 52. I recently resigned from my job. At present i have following investments Rs 42 L shares 77 L Mutual Fund 25 L in PPF 15 L in one SBI insurance policy. I am expected to get 39 L from PF and gratuity. Also expected to get 22 Lakhs from LIC in 2030 and pension from LIC @ 2500/ per month from 2027. I do not have any loans nor my child education is pending. My son is appearing for CA finals. Only Group 1 of Finals is pending. My wife is a professional baker and is making around 40 K per month. My monthly expenses are 60 k. Pls guide how can i plan. At present i have 29 K SIP which i am planning to continue and is not included in 60 K expenses

Ans: Ashish, you've built a solid foundation with your investments and your wife's entrepreneurial spirit. It's admirable how you've planned ahead, especially with your son's education and your retirement in mind. Now, as you transition into this new phase of life, it's time to ensure your financial security. Have you considered diversifying your investments to spread the risk? And with your son's CA finals approaching, perhaps setting aside some funds for his future endeavors could provide peace of mind. Remember, life is a journey, and financial planning is just one part of it. Cherish the moments with your loved ones and embrace the changes that come your way. A Certified Financial Planner can help navigate this journey with expertise and care. Stay focused, stay resilient, and may your future be as fulfilling as your past achievements.
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  |4647 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 02, 2024

Asked by Anonymous - Jun 23, 2024Hindi
Money
Hi I am an it professional. My annual ctc is 45 lacs. I have 26 lacs in epf, 24 lacs in equity, 1.1 lacs in gold soverign bond. I own a car and scooty. I have one flat in greater noida with 30 lacs as loan . My monthly expense is 70k. I also have paternal property worth 3cr which is in village from where currently i am getting nothing. My wife is home maker and i have 2 children(girl 9 years old, boy 4 years old) I want to retire after 5 years . How should i plan my investment
Ans: You have a diverse financial portfolio, which includes a high annual income, investments in EPF, equity, gold bonds, a car, a scooty, and a flat with a loan. Your monthly expenses are Rs. 70,000, and you also own a valuable paternal property. Your goal is to retire in 5 years. Let's discuss how you can plan your investments to achieve a secure retirement.

Evaluating Current Investments

1. Employee Provident Fund (EPF):
Your EPF balance of Rs. 26 lakhs is a stable and secure investment. It provides assured returns and tax benefits. Continue contributing to your EPF to build a strong retirement corpus. It will be a significant part of your retirement income.

2. Equity Investments:
Your Rs. 24 lakhs in equity indicate a good start towards wealth creation. Equity investments have the potential for high returns, especially over the long term. However, they come with market risks. To mitigate this, diversify your equity portfolio across various sectors and companies. Regularly review and rebalance your portfolio with the help of a Certified Financial Planner.

3. Gold Sovereign Bonds:
You have Rs. 1.1 lakhs in gold sovereign bonds, which provide security and act as a hedge against inflation. It's good to have some exposure to gold, but don’t rely solely on it. Continue holding these bonds as part of your diversified portfolio.

4. Real Estate:
Your flat in Greater Noida, with a loan of Rs. 30 lakhs, is both an asset and a liability. Real estate can provide stability and potential appreciation, but it also ties up capital. Focus on paying off the loan efficiently to reduce interest burden and enhance equity in the property.

5. Paternal Property:
Your paternal property worth Rs. 3 crores is a significant asset. Although it currently generates no income, it has potential for future returns. Consider ways to monetize this property, such as leasing it out or developing it, to create an additional income stream.

Assessing Monthly Expenses

Your monthly expense of Rs. 70,000 includes household expenses, children's education, and lifestyle costs. As you plan for retirement, it's crucial to ensure that your post-retirement income can cover these expenses comfortably. Factoring in inflation is essential to maintain your standard of living.

Investment Planning for Retirement

1. Mutual Funds:
Mutual funds are excellent for long-term wealth creation. They offer diversification, professional management, and potential for high returns. Here’s how you can approach mutual fund investments:

a. Equity Mutual Funds:
Allocate a significant portion of your investments to equity mutual funds. These funds invest in stocks and have the potential for high returns. They are suitable for your moderate to high-risk appetite. Choose funds with a strong track record and diversify across large-cap, mid-cap, and small-cap funds.

b. Debt Mutual Funds:
Include debt mutual funds for stability and regular income. These funds invest in fixed-income securities and are less volatile than equity funds. They provide liquidity and help balance the risk in your portfolio. Opt for short-term and medium-term debt funds for better returns than traditional fixed deposits.

c. Hybrid Mutual Funds:
Hybrid funds offer a mix of equity and debt investments. They provide a balanced approach, combining growth potential and stability. These funds are suitable for investors nearing retirement, offering both capital appreciation and regular income.

Advantages of Mutual Funds:

Diversification: Mutual funds invest in a wide range of securities, reducing risk.

Professional Management: Fund managers have expertise in selecting and managing investments.

Liquidity: You can easily buy and sell mutual fund units, providing flexibility.

Power of Compounding: Reinvesting returns can significantly grow your investment over time.

2. Systematic Investment Plan (SIP):
SIPs allow you to invest a fixed amount regularly in mutual funds. This disciplined approach helps in averaging the cost of investment and reduces market timing risks. Start a SIP with a comfortable amount and gradually increase it as your income grows. SIPs are ideal for building a substantial corpus over the long term.

3. Child Education Fund:
Plan for your children's higher education expenses. Create a dedicated education fund using a mix of equity and debt investments. This fund should grow over time to meet the future costs of education, ensuring your children have the best opportunities without financial stress.

4. Emergency Fund:
Maintain an emergency fund equivalent to 6-12 months of expenses. This fund provides a safety net for unexpected financial challenges, such as medical emergencies or job loss. Keep this fund in a liquid and easily accessible form, like a savings account or liquid mutual funds.

5. Life Insurance:
Ensure adequate life insurance coverage to protect your family in case of an unfortunate event. Term insurance is the most cost-effective option, providing a high sum assured at a low premium. Review your existing policies and enhance coverage if needed.

6. Health Insurance:
Having comprehensive health insurance is crucial to cover medical expenses without dipping into your savings. Opt for a family floater plan that covers your entire family. Review the coverage and enhance it if necessary, considering the rising healthcare costs.

7. Retirement Corpus Calculation:
Estimate the retirement corpus required to sustain your lifestyle post-retirement. Consider factors like inflation, life expectancy, and desired monthly income. A Certified Financial Planner can help you with accurate calculations and create a personalized retirement plan.

8. Reducing Debt:
Focus on reducing and eventually eliminating your home loan. This will free up your finances and reduce the interest burden. Prioritize debt repayment along with your investment goals.

9. Estate Planning:
Plan for the distribution of your assets to ensure your family's financial security. Create a will to specify how your assets should be distributed among your heirs. Consider setting up trusts if needed for managing and protecting your wealth.

Final Insights

Retirement planning requires a comprehensive and strategic approach. By diversifying your investments, reducing debt, and ensuring adequate insurance coverage, you can build a secure financial future. Here’s a summary of the key steps to take:

Continue contributing to your EPF for assured returns and tax benefits.

Diversify your equity investments to manage risk and maximize returns.

Hold on to your gold sovereign bonds as a hedge against inflation.

Pay off your home loan efficiently to reduce interest burden.

Explore ways to monetize your paternal property for additional income.

Invest in mutual funds, with a mix of equity, debt, and hybrid funds.

Start and increase SIPs for disciplined and regular investments.

Create a dedicated education fund for your children's future.

Maintain an emergency fund for unexpected financial challenges.

Ensure adequate life and health insurance coverage.

Estimate your retirement corpus and plan accordingly.

Focus on reducing and eliminating debt.

Plan your estate to secure your family's financial future.

By following these steps and regularly reviewing your financial plan with a Certified Financial Planner, you can achieve a comfortable and financially secure retirement. Your diverse portfolio and proactive approach will help you build a strong foundation for the future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |4647 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 11, 2024

Asked by Anonymous - Jul 11, 2024Hindi
Money
I m 38 female. Earning 50k. Monthly expenses 25k including sip of 5k . Axis focused fund 3k, Nippon India value fund 2k. I expect to get 50k every month after retirement at the age of 58. My salary is not on time, not every month, in a year 6 months regular 6 months irregular with the gap of 4 months. How do I plan my finances
Ans: It’s great to see that you’re actively planning for your future. Managing finances with an irregular income can be challenging, but with the right approach, you can achieve your goals. Let's dive into how you can plan your finances effectively.

Current Financial Overview
You have a steady income of Rs 50,000 when paid, with monthly expenses of Rs 25,000. Your SIP investments are in place with Rs 5,000 allocated to Axis Focused Fund and Nippon India Value Fund. Your goal is to have Rs 50,000 monthly after retirement at age 58. Given the irregularity of your income, planning becomes even more crucial.

Understanding Mutual Funds
Mutual funds pool money from many investors to invest in a diversified portfolio of stocks, bonds, or other securities. They are managed by professionals and offer a range of benefits.

Categories of Mutual Funds:

Equity Funds: These invest in stocks. They offer higher returns but come with higher risks.
Debt Funds: These invest in fixed-income securities like bonds. They are safer but provide lower returns.
Hybrid Funds: These mix stocks and bonds, offering a balance of risk and return.
ELSS Funds: These are equity funds offering tax benefits under Section 80C of the Income Tax Act.
Advantages of Mutual Funds:

Diversification: Spreads risk by investing in various securities.
Professional Management: Expert fund managers handle investments.
Liquidity: Easy to buy and sell.
Tax Benefits: Certain funds offer tax deductions.
Risks of Mutual Funds:

Market Risk: Investment value can fluctuate with market conditions.
Interest Rate Risk: Affects debt funds when interest rates change.
Credit Risk: Risk of bond issuers defaulting.
Power of Compounding
Compounding is when your earnings generate more earnings. This process, over time, can significantly boost your wealth. By investing regularly, you can harness the power of compounding to meet your financial goals.

Regular Funds vs. Direct Funds
Disadvantages of Direct Funds:

Lack of Guidance: Missing out on professional advice from a Certified Financial Planner (CFP).
Time-Consuming: Requires constant monitoring.
Risk of Mistakes: Higher chance of poor investment decisions without expert guidance.
Benefits of Regular Funds:

Professional Advice: Access to expert financial planners.
Convenience: Less time and effort required from you.
Better Risk Management: Expert guidance helps in managing risks effectively.
Planning for Financial Goals
Monthly Budget and Expense Management:

You have monthly expenses of Rs 25,000, including Rs 5,000 in SIPs. It's essential to manage your budget carefully, especially during months when your income is irregular.

Emergency Fund: Build an emergency fund to cover at least six months of expenses. This ensures you have a financial cushion during the months when your salary is irregular.

Expense Tracking: Track your expenses diligently. Identify areas where you can cut costs and save more.

Investment Strategy:

Your current SIPs in Axis Focused Fund and Nippon India Value Fund are a good start. However, given your goal and irregular income, diversification is key.

Increase SIPs: Whenever your salary is regular, consider increasing your SIPs. Even small increments can have a significant impact over time.

Diversify Investments: Consider adding a mix of equity, debt, and hybrid funds to your portfolio. This helps balance risk and return.

Regular Review: Regularly review your portfolio with a CFP to ensure it aligns with your goals and market conditions.

Retirement Planning
Target Corpus:

You aim to get Rs 50,000 per month after retirement at age 58. This requires careful planning and disciplined investing.

Retirement Corpus Calculation: Work with a CFP to calculate the exact corpus needed to generate Rs 50,000 monthly. This will consider inflation and expected returns.

Systematic Withdrawal Plan (SWP): Post-retirement, you can set up an SWP from your mutual funds to get a regular income. This ensures a steady cash flow while keeping your investments growing.

Health Insurance:

Ensure you have adequate health insurance. Medical expenses can be a significant burden post-retirement, and having good health coverage can protect your savings.

Addressing Income Irregularity
Managing Irregular Income:

Since your income is irregular, financial discipline is crucial.

Save During Good Months: During months when you receive your salary, save a higher percentage to cover the months when your income is irregular.

Flexible Investments: Consider investing in liquid funds or short-term debt funds. These offer better returns than a savings account and can be easily liquidated when needed.

Budget Adjustments: Adjust your budget during lean months. Focus on essential expenses and cut back on non-essentials.

Side Income:

Consider exploring ways to generate a side income. This could be through freelancing, part-time work, or monetizing a hobby. A side income can help bridge the gap during months when your salary is delayed.

Avoiding Common Pitfalls
Real Estate:

Avoid investing in real estate for now. It’s illiquid and involves high transaction costs, which can strain your finances.

High-Risk Investments:

Avoid high-risk investments like direct stocks or volatile schemes. Stick to diversified mutual funds for steady growth.

Debt Management:

Ensure you have minimal debt. High-interest debts can erode your savings and impact your financial stability.

Final Insights
You've made commendable progress with your SIPs and managing expenses. Continue to focus on disciplined investing, diversify your portfolio, and consult with a CFP regularly. Your goal of achieving Rs 50,000 monthly post-retirement is achievable with careful planning and consistent efforts. Stay proactive and adapt your strategy as needed to navigate your income irregularities.

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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