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Kirtan

Kirtan A Shah  |77 Answers  |Ask -

MF Expert, Financial Planner - Answered on Nov 01, 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
SANDEEP Question by SANDEEP on Oct 09, 2023Hindi
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hi, i am doing sip of 10000 per month. 2000 in ICICI blue chip fund growth,2000 in HDFC top 100 fund & 2000 in HDFC small cap fund, 1000 in HSBC midcap fund & 1000 in SBI Blue chip fund growth. I am investing in this from last three year. I am 51 year old & i am doing it for my retirement. Is these funds are good or should i change these

Ans: Exit the below funds,
HDFC Top 100
HSBC Midcap

Add the below Funds,
Kotak Emerging
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  |4631 Answers  |Ask -

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

Asked by Anonymous - Jun 19, 2024Hindi
Money
Sir, I am new and I have started investing in SIP of 7 thousand from this month: quant small cap fund direct -1000, Tata small cap fund-500, quant mid cap fund direct- 1000, Nippon India large cap-1000, UTI nifty 50 index fund - 2000, JM FLEXI cap fund direct-500, Aditya Birla sunlife psu equity-1000 Please inform me whether these funds are good and also I hv plan to keep these sips for 10 yr horizon.
Ans: Let's dive into a detailed analysis and provide you with comprehensive guidance on your SIP investments for a 10-year horizon. It's great to see your initiative in starting a systematic investment plan. Here's a thorough evaluation of your investment portfolio with a focus on various aspects to help you understand the implications of your choices and make informed decisions.

Understanding Your Current Investment Portfolio
You've chosen a diverse mix of mutual funds for your SIPs, which is a good strategy. This diversity helps in spreading risk and capturing growth from different segments of the market. Let's break down your investments into categories and analyze each one:

Small Cap Funds: You've invested in two small cap funds. Small cap funds have the potential for high growth, but they also come with high volatility.

Mid Cap Funds: You've allocated funds to a mid cap fund. Mid caps strike a balance between growth potential and risk.

Large Cap Funds: You've chosen a large cap fund, which provides stability to your portfolio with lower risk compared to small and mid cap funds.

Index Funds: You've invested in an index fund, which aims to replicate the performance of the Nifty 50 index.

Flexi Cap Funds: You've invested in a flexi cap fund, which offers the flexibility to invest across market caps.

Sector-Specific Funds: You've allocated funds to a PSU equity fund. Sector-specific funds can be volatile and are often dependent on the sector's performance.

Evaluating Small Cap Funds
Small cap funds can deliver impressive returns, especially in a growing economy. However, they are highly volatile and susceptible to market fluctuations. Over a 10-year horizon, these funds can provide substantial growth if the companies perform well.

Advantages:

High growth potential.
Beneficial in a bullish market.
Disadvantages:

High volatility.
Risk of significant losses during market downturns.
Mid Cap Funds: Balancing Growth and Stability
Mid cap funds offer a balance between the high growth potential of small caps and the stability of large caps. These funds invest in mid-sized companies that have significant growth potential and are more stable than small caps.

Advantages:

Potential for good returns.
Moderate risk compared to small caps.
Disadvantages:

Can be volatile.
Requires a longer investment horizon to mitigate risks.
Large Cap Funds: Stability and Consistent Returns
Large cap funds invest in well-established companies with a solid track record. These funds provide stability to your portfolio and are less volatile compared to small and mid cap funds.

Advantages:

Lower risk and volatility.
Consistent returns over the long term.
Disadvantages:

Lower growth potential compared to small and mid caps.
Returns may be modest.
Index Funds: A Critical Analysis
You've invested in an index fund which tracks the Nifty 50. Index funds are passively managed and aim to replicate the index's performance. While they offer diversification and low expense ratios, there are some drawbacks:

Disadvantages:

Limited to the performance of the index.
Cannot outperform the market.
Lack of active management to navigate market downturns.
Benefits of Actively Managed Funds:

Potential to outperform the market.
Active management to mitigate risks.
Flexibility in changing market conditions.
Flexi Cap Funds: Versatile and Adaptive
Flexi cap funds are versatile as they can invest across different market capitalizations. This flexibility allows the fund manager to capitalize on opportunities in any segment.

Advantages:

Diversification across market caps.
Ability to adapt to market conditions.
Disadvantages:

Performance highly dependent on the fund manager's expertise.
May have higher expense ratios.
Sector-Specific Funds: Concentrated Risk
You've invested in a PSU equity fund, which focuses on public sector undertakings. Sector-specific funds can be rewarding if the sector performs well but are highly risky.

Advantages:

High returns if the sector performs well.
Targeted exposure to a specific sector.
Disadvantages:

High risk due to concentration in one sector.
Performance is sector-dependent and can be volatile.
Active vs. Direct Funds: Considerations
You've chosen direct funds, which means you invest directly with the mutual fund company without intermediaries. While this can save on commission fees, there are advantages to investing through a Certified Financial Planner (CFP):

Disadvantages of Direct Funds:

Requires thorough research and understanding.
No professional guidance in fund selection and management.
Benefits of Investing through CFP:

Expert advice and tailored investment strategies.
Regular portfolio review and adjustments.
Better understanding of market trends and opportunities.
Long-Term Investment Strategy
A 10-year investment horizon is a substantial period, allowing you to ride out market volatility and benefit from compounding returns. Here's how you can make the most of your investments:

1. Stay Consistent with SIPs:
Continue your SIPs regularly to benefit from rupee cost averaging, which helps in buying more units when prices are low and fewer when prices are high.

2. Diversify Your Portfolio:
Ensure your portfolio remains diversified across different market caps and sectors to spread risk and capture growth from various segments.

3. Review and Rebalance:
Periodically review your portfolio with a CFP to ensure it aligns with your financial goals. Rebalancing helps in maintaining the desired asset allocation.

4. Monitor Performance:
Track the performance of your funds and compare them with benchmark indices. If a fund consistently underperforms, consider switching to better-performing alternatives.

5. Focus on Financial Goals:
Align your investments with specific financial goals, such as retirement, children's education, or buying a home. This helps in maintaining discipline and focus.

Final Insights
Investing in SIPs for a 10-year horizon is a smart choice. You've diversified across different types of funds, which is commendable. However, it's crucial to regularly review your portfolio, seek expert advice, and make adjustments as needed. Stay informed about market trends and remain consistent with your investments. Your financial journey is a marathon, not a sprint. With patience and prudent decision-making, you're likely to achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |4631 Answers  |Ask -

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

Asked by Anonymous - Jun 09, 2024Hindi
Money
Hi i am 30 years old and earning 1 lacs per month,....i have two kids ..i started SIP of 30K per month from last one year.....Large cap fund then Middle cap and around 20 % in small cap.....i dont have that much knowledge of MF so i selected SIp....Please suggest how much further i invest to retire around 50
Ans: It’s great that you’re thinking ahead and investing for your future. I understand that you might not have much knowledge about mutual funds, but you've already taken a positive step by starting a Systematic Investment Plan (SIP). Let's dive into how you can enhance your investment strategy to retire comfortably around the age of 50.

Understanding Your Current Situation
You're 30 years old and earning Rs 1 lakh per month. With two kids, you have important financial responsibilities. You’ve been investing Rs 30,000 per month through SIPs for the past year. You’ve diversified your investments across large-cap, mid-cap, and small-cap funds. That’s a great start!

The Power of SIPs
SIPs are a disciplined way to invest. They help you avoid market timing and average out the purchase cost of mutual fund units. This is beneficial, especially in volatile markets.

Evaluating Your Current Investments
Your current allocation is into large-cap, mid-cap, and small-cap funds. Here’s a brief look at each:

Large-Cap Funds: These funds invest in companies with a large market capitalization. They are generally considered safer than mid-cap and small-cap funds. They offer stable returns over the long term.

Mid-Cap Funds: These funds invest in mid-sized companies. They have the potential for higher returns but come with higher risk compared to large-cap funds.

Small-Cap Funds: These funds invest in smaller companies. They can provide very high returns but also come with significant risk.

Your current strategy is well-rounded, balancing growth potential and risk.

Active vs. Index Funds
While index funds follow a benchmark and provide average market returns, actively managed funds aim to outperform the market. Certified Financial Planners often recommend actively managed funds for their potential to deliver superior returns due to professional management.

Regular vs. Direct Funds
Direct funds have lower expense ratios because they don’t include commission fees. However, regular funds, managed by a Certified Financial Planner, offer professional advice and support. This guidance can help you make informed investment decisions, especially when market conditions change.

Increasing Your Investments
To retire by 50, you need to ensure your investments grow sufficiently. Here are some steps you can take:

Increase SIP Contributions: As your income grows, try to increase your SIP contributions. An annual increment in your SIP amount can significantly boost your corpus over time.

Diversify Further: While you have a good mix, consider adding other types of mutual funds like balanced funds or sectoral funds. They can provide additional growth opportunities and further spread your risk.

Emergency Fund: Ensure you have an emergency fund equivalent to 6-12 months of your monthly expenses. This will protect your investments in case of unforeseen events.

Insurance Coverage: Adequate life and health insurance are crucial. They protect your family and your investments in case of any unfortunate event.

Setting Up A Financial Plan
Creating a comprehensive financial plan with a Certified Financial Planner can provide a clear path to your retirement goals. Here are some key steps:

Define Your Goals: Clearly outline your retirement goals. How much do you need per month post-retirement? What are your children’s educational needs?

Assess Your Risk Appetite: Understand your risk tolerance. This will help in choosing the right mix of funds.

Review and Rebalance: Regularly review your portfolio. Rebalance it as per changing market conditions and your life stages.

Calculating the Required Corpus
While avoiding specific calculations, here’s a broad approach to estimate your retirement corpus:

Estimate Monthly Expenses: Calculate your current monthly expenses. Project these into the future, considering inflation.

Future Value Calculation: Determine the future value of these expenses at your retirement age. This gives an idea of your required corpus.

Investment Returns: Assume an average annual return from your investments. Factor in the power of compounding.

Enhancing Returns
To maximize returns:

Long-Term Perspective: Keep a long-term investment horizon. It allows your investments to grow and compound.

Consistent Investing: Continue investing through all market conditions. Consistency is key to wealth creation.

Professional Management: Consider the expertise of actively managed funds. They aim to outperform the market through informed investment decisions.

Preparing for Life Changes
Life is unpredictable. Preparing for major life events can safeguard your financial goals:

Children’s Education: Set aside funds for your children’s education. Education costs are rising, and early planning can ease this burden.

Medical Emergencies: Ensure you have sufficient health insurance. Medical emergencies can drain your savings if not adequately covered.

Major Purchases: Plan for major purchases like a house or car. This planning will help you avoid dipping into your retirement savings.

Tax Efficiency
Utilize tax-efficient investment options to maximize your returns:

ELSS Funds: Equity-Linked Savings Schemes provide tax benefits under Section 80C and potential for higher returns.

PPF and NPS: Public Provident Fund and National Pension System are excellent long-term investment options with tax benefits.

Final Insights
Investing for retirement requires careful planning and disciplined execution. You’re off to a great start with your SIPs and diversified investments. Increasing your contributions, diversifying further, and regularly reviewing your portfolio will set you on the right path.

Remember, the guidance of a Certified Financial Planner can be invaluable. They can help you navigate market complexities, rebalance your portfolio, and ensure you stay on track to meet your retirement goals.

Your proactive approach and commitment to investing are commendable. Keep up the good work, and you’ll achieve your financial 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.

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