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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 02, 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
NIKHIL Question by NIKHIL on Apr 14, 2024Hindi
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Hi Sir, I am currently working in PSB in the Middle management group and investing in different investment options to achieve the goal of financial freedom. I have one 6 years old daughter and want to accumulate a fund of 2.5 Cr for her education and marriage also. I am investing the monthly amount in below mentioned categories: A) Traditional: 1) Sukanya Sammaridhi account: 2K 2) PPF: 1K B) Market Linked: 1) DSP Small cap fund: 3K 2) SBI magnum Mid Cap Fund: 2 K 3) HDFC Mid Cap opportunities Fund: 3 K 4) Aditya Birla SL Pure value fund Reg (G): 1K 5) Mirae Asset Large & Midcap Fund Reg (G): 2 K 6) Canara Robeco Emerging Equities Reg (G): 3K 7) 3-4 K in share purchase for long term investment. I want to keep investing in MFs for the next 25 years with an annual increment in monthly investment figures as per the capability. Kindly advise me about these funds and share your suggestions to achieve my dream. Awaiting your reply. Regards, Bhuvneshwar.

Ans: Bhuvneshwar, your commitment to securing your daughter's future is commendable, and your diversified investment strategy reflects your dedication to achieving your financial goals. Let's break down your approach:

Traditional Investments: Sukanya Samriddhi and PPF provide a solid foundation with tax benefits and guaranteed returns. These avenues ensure stability and security for your daughter's future needs.
Market-Linked Investments: By investing in a mix of small, mid, and large-cap funds, you're tapping into the potential growth of the market. Your selection shows a balanced approach, spreading risk across different segments of the market.
Direct Stock Investments: Your involvement in direct stock purchases demonstrates your confidence in specific companies for long-term growth. However, ensure thorough research and prudent decision-making to mitigate risks associated with individual stocks.
To further enhance your strategy:

Regular Review and Rebalancing: Periodically assess the performance of your investments and rebalance if needed to maintain your desired asset allocation.
Risk Management: While market-linked investments offer growth potential, they also carry inherent risks. Ensure you're comfortable with the level of risk in your portfolio and adjust your investments accordingly.
Gradual Increase in Investments: Your plan to incrementally increase your monthly investments aligns with the principle of gradual improvement over time. Consistency and discipline in this approach will help you reach your target efficiently.
Remember, Bhuvneshwar, achieving financial freedom for your daughter's education and marriage requires patience, discipline, and a long-term perspective. Stay focused on your goals, continuously educate yourself, and adapt your strategy as needed along the journey. With dedication and strategic planning, you're well on your way to realizing your dreams for your daughter's future.
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  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 26, 2024

Asked by Anonymous - Sep 07, 2023Hindi
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Hello Sir/Madam, I am 44-year-old man working in a private sector. My wife is 39 years old, and she is a homemaker. We have one daughter aged 7 years. My take home salary is INR 1.25 lacs per month, and I get a bonus around 3 lacs yearly. I would like to invest for retirement in MF for next 15 years. Currently I am only investing in NPS – 5000 per month. SSY for daughter – 5000 per month MF - Canara Robeco Bluechip Equity Fund Direct Growth – 3000 per month. PPF is around 14 lacs. I am planning to increase NPS and SSY to 10000 per month; and I can invest around 30000 to 40000 in MF monthly. Please suggest long term mutual funds for 15 years. Regards, SA
Ans: Retirement Planning Through Mutual Fund Investments

Assessment of Current Financial Situation

Your commitment to securing your retirement deserves commendation. Let's delve into your financial landscape:

Income Stability: Your monthly take-home salary of Rs. 1.25 lakhs, supplemented by an annual bonus of Rs. 3 lakhs, provides a stable financial footing.
Existing Investments: Presently, your investment portfolio includes contributions to the National Pension System (NPS), Sukanya Samriddhi Yojana (SSY) for your daughter, and investments in mutual funds (MFs).
PPF Holding: Your Public Provident Fund (PPF) investment stands at approximately Rs. 14 lakhs.
Understanding Retirement Goals

Your aspiration for financial freedom post-retirement is both practical and forward-thinking:

Timeframe: Planning for retirement over the next 15 years indicates a proactive approach to long-term financial security.
Financial Commitment: Your willingness to increase contributions to NPS and SSY demonstrates a dedicated effort to build a robust retirement corpus.
Investment Strategy

Crafting an investment strategy tailored to your objectives and risk tolerance is paramount:

Equity Mutual Funds: Allocating a significant portion of your monthly investment towards equity mutual funds ensures potential for long-term wealth accumulation. These funds offer exposure to a diversified portfolio of stocks across sectors and market capitalizations.
Balanced Funds: Considering investments in balanced funds strikes a balance between growth and stability, crucial for retirement planning. These funds typically invest in a mix of equities and debt instruments, offering downside protection during market downturns.
Debt Funds: Dedicating a portion of your investment to debt funds provides stability and capital preservation. These funds primarily invest in fixed-income securities like government bonds and corporate debentures, offering steady returns with lower volatility.
Systematic Investment Plans (SIPs): Continuing with SIPs ensures disciplined investing, enabling you to benefit from rupee cost averaging and mitigate the impact of market volatility over time.
Benefits of Mutual Fund Investments

Mutual funds offer several advantages conducive to retirement planning:

Professional Management: Managed by seasoned fund managers, mutual funds provide expert oversight and strategic asset allocation, optimizing returns within predefined risk parameters.
Diversification: Investing in mutual funds offers diversification benefits, mitigating concentration risk associated with individual stock selection. A diversified portfolio spreads risk across various asset classes and investment avenues.
Liquidity: Mutual funds provide liquidity, allowing investors to redeem units as per their financial needs. This flexibility is crucial during retirement to meet unforeseen expenses or capitalize on investment opportunities.
Monitoring and Review

Regular monitoring and review of your investment portfolio are essential for staying on track with your retirement goals:

Periodic Reviews: Conducting periodic reviews enables you to assess the performance of your mutual fund investments and make informed decisions based on market dynamics and evolving financial objectives.
Rebalancing: Rebalancing your portfolio periodically ensures alignment with changing market conditions and risk preferences. This process involves adjusting asset allocations to maintain desired risk-return profiles.
Conclusion

By adopting a disciplined investment approach and harnessing the benefits of mutual fund investments, you can lay a solid foundation for your retirement journey. Stay committed to your long-term financial objectives and seek guidance from a Certified Financial Planner for personalized advice tailored to your unique circumstances.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

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

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My age 62, male, getting rental income Rs. 90k nett. Already subscribing 12.5k in PPF for the past 2 1/2 years. No other investments. My target is 5 crores in 10 years. I already have Mediclaim Rs.50 lakhs for me & wife . Please advice me what to do.
Ans: Your current financial foundation is strong and shows promise:

A rental income of Rs. 90,000 per month provides consistent and predictable cash flow. This stability can serve as the backbone for your investment strategy.

PPF contributions of Rs. 12,500 per month for 2.5 years reflect disciplined saving. However, its returns may be insufficient to achieve a high-growth target like Rs. 5 crores in 10 years.

A robust Mediclaim policy of Rs. 50 lakhs for you and your wife ensures adequate health coverage. This safeguard allows you to focus on wealth-building without worrying about medical emergencies.

Despite these positive factors, achieving Rs. 5 crores in 10 years requires a carefully crafted and growth-oriented strategy.

Defining and Prioritising Your Financial Goals
Achieving Rs. 5 crores is ambitious yet achievable with a focused approach:

Define this target as your primary financial goal over the next decade.

Break it into manageable milestones: for example, Rs. 50 lakhs every 1-2 years in cumulative investments and growth.

Prioritise high-return investments that align with your risk tolerance and financial capacity.

Optimising Existing PPF Contributions
While PPF is a secure investment, its growth potential is limited:

Returns: PPF currently offers an interest rate of approximately 7-7.5%, which barely outpaces inflation.

Contribution Review: Consider capping your PPF contributions at Rs. 1.5 lakh annually (to utilise the Section 80C benefit). This ensures that excess funds are redirected to higher-return investments.

PPF can serve as a low-risk component of your portfolio but should not dominate your investment strategy.

Building a Diversified Investment Portfolio
A diversified portfolio will provide a balance of risk and reward. Include the following components:

1. Equity Mutual Funds for Growth
Equity mutual funds are essential for achieving high returns over the long term:

Large-Cap Funds: These invest in established companies and offer stability with moderate growth. They are ideal for a portion of your portfolio to reduce risk.

Multi-Cap or Flexi-Cap Funds: These provide exposure to companies of all sizes, offering growth and diversification.

Sectoral and Thematic Funds: Avoid these unless you have a high risk tolerance and understand market dynamics.

ELSS Funds: These not only provide tax savings under Section 80C but also deliver market-linked returns.

Why Avoid Index Funds?

Index funds may offer simplicity and lower expense ratios, but they lack flexibility. They cannot adapt to market conditions or capitalise on outperforming sectors. Actively managed funds, on the other hand, have the potential to outperform the market, especially in a developing economy like India.

Start with a Systematic Investment Plan (SIP) in selected funds to build wealth steadily.

2. Debt Mutual Funds for Stability
Debt funds add stability to your portfolio and reduce overall risk:

Choose funds with low credit risk and moderate duration to ensure safety and predictable returns.

Debt funds are suitable for short- to medium-term goals or as a fallback during market corrections.

Taxation Note: Both LTCG and STCG on debt funds are taxed as per your income tax slab. This should be factored into your planning.

3. Balanced Advantage Funds
Balanced advantage funds (BAFs) dynamically allocate assets between equity and debt. They:

Provide exposure to equity while minimising downside risk.

Offer a suitable option for someone nearing retirement but seeking growth.

4. Gold Investments for Diversification
Allocate a small portion (5-10%) of your portfolio to gold:

Gold serves as a hedge against inflation and currency depreciation.

Choose gold ETFs or sovereign gold bonds for ease of liquidity and better returns.

Emergency Fund Creation
Having an emergency fund is non-negotiable:

Maintain at least 6-12 months of expenses in liquid investments like liquid mutual funds or high-interest savings accounts.

This ensures liquidity for unforeseen events without disturbing your long-term investments.

Focus on Retirement Planning
At 62, balancing growth and safety becomes critical:

Estimate your monthly retirement expenses, considering inflation over the next 10-15 years.

Your target of Rs. 5 crores should primarily serve as your retirement corpus.

Allocate assets thoughtfully:

60-70% in equity funds for growth.
30-40% in debt funds for stability.
Periodically rebalance your portfolio to maintain this allocation.

Strategic Tax Planning
Tax efficiency can significantly impact your returns:

Continue using Section 80C to its full potential, including ELSS funds and PPF.

Consider the National Pension System (NPS) for an additional Rs. 50,000 deduction under Section 80CCD(1B).

Be mindful of the new taxation rules for mutual funds:

Equity Mutual Funds: LTCG above Rs. 1.25 lakh is taxed at 12.5%; STCG at 20%.
Debt Funds: LTCG and STCG are taxed as per your income slab.
Consult a Certified Financial Planner to optimise your tax strategy.

Regular Portfolio Monitoring and Rebalancing
Investing is not a one-time activity:

Review your portfolio every six months or annually to track performance.

Rebalance your asset allocation periodically to align with your financial goals and risk appetite.

Stay committed to SIPs even during market downturns, as this ensures cost-averaging.

Additional Suggestions
Avoid Over-Reliance on PPF
While PPF is safe, it is not sufficient for wealth creation. Shift excess contributions to equity-based investments for better returns.

Avoid Direct Stocks
Direct equity investing requires time, expertise, and constant monitoring. It carries higher risk and may lead to losses without proper research. Instead, rely on equity mutual funds managed by professionals.

Avoid Mixing Insurance and Investments
Do not invest in ULIPs or endowment plans, as they offer suboptimal returns. Stick to pure insurance products for protection and mutual funds for growth.

The Role of a Certified Financial Planner
To achieve Rs. 5 crores, a well-crafted financial plan is essential. A Certified Financial Planner (CFP) can:

Analyse your current investments and recommend improvements.

Design a customised strategy tailored to your income, expenses, and goals.

Provide periodic reviews to ensure you stay on track.

Finally
Achieving Rs. 5 crores in 10 years is a realistic goal if you adopt a disciplined and diversified approach.

Optimise your PPF contributions and channel excess funds into higher-growth investments.

Build a diversified portfolio with equity and debt mutual funds.

Include a small allocation to gold and maintain an emergency fund.

Stay consistent with your SIPs and review your investments regularly.

Work with a Certified Financial Planner to create a personalised roadmap.

By following these steps, you can secure your financial future and meet your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...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.

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