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ICICI Ex-NRI: Converting Existing Investments to NRO - Your Advice?

Ramalingam

Ramalingam Kalirajan  |8241 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 16, 2025

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
Shankar Question by Shankar on Dec 12, 2024Hindi
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hi i have exsisiitng investments in icici in savings account for shares and mutual funds if i convert this to Nro what will be the process any tax implications also cna i continue investing in the account as a savings account itself and open a nre account in other bank will it have any issues

Ans: When you convert your existing savings and investments into an NRO (Non-Resident Ordinary) account, there are a few key factors you need to understand. Let's break it down step by step.

1. What is an NRO Account?
An NRO account is meant for non-resident Indians (NRIs) to manage income earned in India.
This includes income from property, investments, dividends, and other sources within India.
You can operate this account from abroad, but it has specific rules for tax purposes.
2. Process for Converting Your Account to NRO
To convert your existing savings or investment account to an NRO, you will need to provide documents proving your NRI status.
A few common documents include your passport, visa, and Overseas Citizen of India (OCI) card.
Your bank will help you complete the conversion process and guide you on the necessary forms.
Once converted, your account will be subject to NRO account guidelines, which include specific tax implications.
3. Tax Implications of an NRO Account
Income in an NRO account is subject to Indian tax laws.
Interest income from the savings account, dividends, and capital gains are all taxable.
Tax deducted at source (TDS) will be applicable. TDS rates on interest can be as high as 30%, depending on the type of income.
If you earn interest or dividend income, it will be taxed in India.
Capital gains from the sale of investments like mutual funds or shares in an NRO account will also be subject to Indian taxes.
Short-term capital gains (STCG) on equity investments are taxed at 15%.
Long-term capital gains (LTCG) over Rs 1 lakh are taxed at 10% (with indexation benefits).
4. Can You Continue Investing in the NRO Account?
Yes, you can continue investing in your NRO account.
You can invest in Indian stocks, mutual funds, and other financial instruments.
However, you must ensure that all investments comply with RBI regulations for NRIs.
Investment in equity mutual funds, bonds, and other instruments will continue to be taxed according to Indian tax laws.
5. Opening an NRE Account in Another Bank
Yes, you can open an NRE (Non-Resident External) account with a different bank.
NRE accounts are for income earned outside of India and are tax-free in India.
You can freely transfer funds from your NRO account to your NRE account.
However, the funds transferred will have to follow the RBI guidelines, and tax implications could arise depending on the source of income.
6. Potential Issues When Converting to NRO
Tax Complications: You may face double taxation if there are cross-border taxation issues.
Repatriation Limitations: Funds in the NRO account can only be repatriated to your home country after tax payment.
Transfer Rules: When transferring funds to NRE accounts, ensure that the sources of income are in compliance with Indian regulations.
Repatriation to NRE Account: Only current income like interest, dividends, and rental income can be transferred to NRE accounts. Capital gains need to be settled in the NRO account.
7. Can You Continue Using Your Existing Savings Account for Investments?
If you convert your savings account to an NRO account, it can still be used for day-to-day transactions, such as receiving rental income or dividends.
However, your tax liability will be different for every type of income earned, so keep track of TDS deductions.
This NRO account can also be used for trading in shares and mutual funds.
8. Best Practices to Minimize Tax Implications
Always keep a record of taxes paid and TDS deductions to avoid any discrepancies later.
Understand the tax treaties between India and your country of residence, as it may offer benefits to reduce double taxation.
Consider seeking assistance from a Certified Financial Planner (CFP) for tax planning and strategy, as they can help optimize your investments and tax burden.
Final Insights
Converting your account to NRO is a necessary step when you become an NRI.
While you can continue investing, you will be subject to Indian tax laws on any income generated.
Opening an NRE account in another bank is possible and has its own set of advantages, especially with tax-free income.
Understanding the tax implications and RBI guidelines is crucial to managing your investments and repatriation of funds.
Proper planning with the help of a Certified Financial Planner will ensure you make informed investment decisions and manage your tax liability efficiently.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
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  |8241 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 07, 2024

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I have invested in mutual funds through savings account in groww. Now the same account is converted to NRO account. Can I continue investigating from the same account? Account number is same and have invested in the same fund after converting to NRO. Should I continue investigating it? Is there anything I need to update about my NRI status?
Ans: Converting your savings account to a Non-Resident Ordinary (NRO) account can bring about several changes, especially when it comes to your investments in mutual funds. Here’s how to navigate your situation effectively.

Continuing Your Mutual Fund Investments
Since you have invested in mutual funds through your Groww account, you can continue investing from your NRO account. Here are some important points to consider:

Same Account Number: Since your account number remains the same, your investments in mutual funds through the Groww platform can continue. The transition to an NRO account does not automatically hinder your investment.

Fund Investment: As long as the mutual fund house allows investments from NRO accounts, you can keep investing in the same funds. However, ensure that the mutual fund you are investing in accepts funds from NRO accounts.

Updating Your NRI Status
When you convert to an NRO account, there are some updates and considerations you should be aware of:

Notify the Fund House: Inform the mutual fund house about your change in status to NRI. This is crucial for regulatory compliance and ensuring that your investments are correctly classified.

Tax Implications: NRI investments are subject to different tax treatments. Capital gains from mutual fund investments are taxed differently for NRIs, particularly with regards to Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG). You should familiarize yourself with these changes to manage your tax liability effectively.

KYC Compliance: Make sure your KYC (Know Your Customer) details are updated according to your NRI status. This may involve submitting new documents that reflect your NRI status, such as a valid passport, visa, and proof of residence abroad.

Why Professional Guidance is Essential
During transitions like converting to an NRO account, it’s often challenging to manage investments independently. Here’s why seeking professional help is advantageous:

Expertise in NRI Investments: A professional Mutual Fund Distributor (MFD) can guide you through the complexities of investing as an NRI. They can help you understand the implications of your status change on your investments.

Tailored Financial Advice: An MFD can provide personalized advice based on your financial goals, risk appetite, and investment horizon, ensuring that your portfolio aligns with your needs.

Assistance with Documentation: Managing the necessary paperwork during this transition can be overwhelming. A professional can help ensure that all required documents are submitted correctly and promptly.

Handholding Throughout the Process: Having an expert to assist you can ease your concerns and help you navigate the investment landscape confidently. They will be there to address any queries you may have and provide ongoing support.

Final Thoughts
You can continue investing from your NRO account using your existing Groww account, as long as you keep the mutual fund houses informed about your NRI status. It’s vital to update your KYC details and understand the tax implications of your investments.

However, managing investments as an NRI can be complex. Therefore, engaging a certified professional MFD is highly recommended. They can provide you with the necessary guidance and support as you navigate this transition.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |8241 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 16, 2025

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Col Sanjeev Govila, good evening. I am Col P Venkatachalam, retd from MCEME as HOD FIET in 2006. I want to invest Rs 10 lacs. Please advise me.
Ans: Your disciplined decision to invest Rs 10 lakhs is deeply respected. Let's carefully assess the options for you.

This response is structured for your complete understanding and peace of mind.

We’ll explore all angles: safety, growth, liquidity, and suitability for your life stage.

Let’s proceed step-by-step.

Understanding Your Needs First

Before investing, it's important to check a few things:

Do you need regular income from this amount?

Do you want to keep this money safe from loss?

Or, are you looking for long-term growth for legacy or future use?

Are you okay with some ups and downs in value for better returns?

Once your objective is clear, investment selection becomes easier and more purposeful.

If Your Priority Is Capital Safety with Some Growth

You may want to protect your money and still grow it better than FDs.

These types of investments are suitable for short-term or medium-term use.

You may explore actively managed short-duration debt mutual funds.

These funds give better returns than bank FDs in most cases.

Returns are not fixed but are usually in the range of 6% to 7.5% per year.

They also offer better tax efficiency compared to bank FDs.

You can redeem partially anytime if you need money.

These funds are managed by experts and reviewed regularly.

If Your Priority Is Monthly Income

If you want steady cash flows, you can consider this route.

Keep 6 to 12 months of expenses in a liquid fund.

Use the rest in a Systematic Withdrawal Plan (SWP) from a balanced hybrid fund.

SWP gives regular cash flow without touching your capital much.

You also get better post-tax returns than bank interest.

You can increase or stop SWP anytime you want.

If Your Priority Is Long-Term Wealth Creation

If you don’t need this money for at least 5 to 7 years, then growth becomes key.

You can consider investing in an actively managed equity mutual fund.

Your capital grows over the long term with the power of compounding.

You have already seen 5x growth in past equity investments.

That patience has rewarded you. Same can happen here.

Select only regular plans of equity funds through MFDs with CFP credentials.

Don’t choose direct plans as they give no guidance and no service.

Avoid index funds. They follow market blindly. They don’t manage risks well.

Actively managed funds perform better in changing market conditions.

Why Not Index Funds or Direct Plans

Many suggest index funds or direct mutual funds without understanding your life stage.

Index funds copy an index. No human checks or risk control.

During market falls, they fall just like the market. No safety layer.

They may not suit senior citizens looking for safer growth.

Also, direct plans have no support.

A Certified Financial Planner and MFD will guide and update you regularly.

They also ensure rebalancing and switching at the right time.

What to Avoid at This Stage

Don’t go for market-linked insurance plans like ULIPs or combo policies.

Don’t keep Rs 10 lakh idle in a savings account or low-interest FD.

Don’t lock the entire amount in long-term non-liquid products.

Don’t invest in real estate for rental income. It’s illiquid and stressful.

Tax Aspects to Keep in Mind

If you redeem your equity fund after 1 year, capital gains above Rs 1.25 lakh are taxed at 12.5%.

For debt funds, gains are taxed as per your income slab.

SWP from equity funds is treated as capital gains. So, tax is lower.

You can plan redemptions smartly to keep tax low.

Avoid dividend payout plans in equity funds. They deduct tax before payout.

Instead, choose growth option and withdraw through SWP. That’s tax-friendly.

Sample Allocation for Rs 10 Lakh Based on Your Profile

This is a balanced idea assuming you don’t need regular income.

Rs 2 lakh in liquid fund – for emergency or unexpected needs

Rs 3 lakh in short-duration debt fund – for medium-term use

Rs 5 lakh in actively managed large and mid-cap equity mutual fund – for long-term growth

If you need monthly income, then replace Rs 5 lakh equity with a balanced fund and start SWP.

This will give you regular income with capital protection.

Flexibility and Liquidity

All these options offer full liquidity. You can withdraw anytime.

No fixed lock-in like insurance or annuities.

You stay in control of your money.

You also avoid penalty or surrender loss.

Review and Adjust Every Year

Check the performance every year with a Certified Financial Planner.

Rebalance between equity and debt based on your age and goals.

Make sure you are not taking more risk than needed.

If markets have performed well, book some profit and move to safer options.

If You Already Have Any LIC, ULIP, or Combo Plans

If any LIC or ULIP policies exist, kindly check surrender value.

If they are giving poor return, consider surrendering and reinvest in mutual funds.

Many old plans give less than 5% return.

Mutual funds offer more transparency and liquidity.

Make sure to shift wisely and not impulsively.

You Have Already Done Well

You are retired and still planning ahead. That is very admirable.

You also understand that income from equity mutual funds is not guaranteed.

Your discipline in sticking with equity for long term is wise.

It’s rare to see 5 times growth. You must have chosen well and held strong.

Finally

Based on your need, risk comfort, and goal, we can mix liquid, debt, and equity.

Avoid products which lock your capital or give poor return.

Prefer actively managed mutual funds with guidance.

Avoid index funds, direct plans, and fixed-return insurance schemes.

Keep part of your money flexible for any future need.

Ensure that your capital works hard but remains under your full control.

Periodic review with a trusted Certified Financial Planner is a must.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8241 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 16, 2025

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I am retired and have invested in equity mutual fund dividend payout for monthly dividends. I also understand that dividend is not certain and I need not to depend on this dividend for monthly survivals. Now the question before the veterans is: 1) should I continue the equity fund Dividend payout; many advising for senior citizen investing in equity fund is not suggestiable, but it was invested a loooong time back and getting regular and uninterrupted dividend plus the amount invested was grown 5 times; or 2) should I redeem or transfer to growth fund or debt fund; or 3) redeem or submit for SWP (where I don't require or having any financial commitment with the redemption or SWP) any redemption will again need to invested in mutual fund. please advise.
Ans: You have managed your investments thoughtfully over the years. Investing long ago in equity mutual funds and letting them grow 5 times is truly smart. Now, as a retired investor, it’s wise to review the next steps from all angles.

Let us evaluate your current equity mutual fund dividend strategy with a full 360-degree view.

Understanding Your Current Position

You have invested in equity mutual funds under the dividend payout option.

You are receiving uninterrupted dividends regularly for a long time.

The investment value has grown 5 times over the years.

You do not depend on these dividends for monthly living expenses.

You have no pressing need to redeem or shift to SWP right now.

You are considering whether to:

continue as is,

shift to growth or debt funds,

opt for SWP.

Key Strengths in Your Current Setup

The investment already grew 5 times. This shows long-term wealth creation has worked well.

Regular dividends, though not guaranteed, show fund health and consistent past performance.

You are not financially dependent on dividends. This gives you freedom to make strategic changes.

No urgent need to redeem or change plan adds flexibility in planning next moves.

Limitations with Equity Dividend Option

Dividend is not fixed. It depends on market condition and fund’s surplus.

In uncertain market years, fund may stop or reduce dividend payouts.

Dividend payout reduces NAV. It is like withdrawing from your own investment.

No compounding benefit as dividends are paid out and not reinvested.

Tax is deducted at source. Dividend is added to your income and taxed at your slab.

Advantages of Switching to Growth Option

Entire profit stays invested. You get full compounding benefit.

NAV keeps growing without reduction due to payout.

You control when to redeem and how much.

If held for long, equity gains have tax advantage. First Rs 1.25 lakh LTCG is tax free. Then 12.5% tax.

Ideal for long-term wealth preservation and growth beyond retirement too.

You avoid uncertainty of future dividend declarations.

How SWP Scores Better Than Dividend Option

SWP gives you regular income like dividends.

But you fix the amount and frequency as per your comfort.

Withdrawals are from your own corpus. So there is clarity and control.

No dependency on AMC or market performance for payout.

Taxation is more efficient. Only capital gains are taxed, not full amount withdrawn.

SWP from growth plan gives you stability, predictability, and better tax handling.

You can increase, decrease or pause SWP as per your needs anytime.

How Debt Funds Fit In – Should You Shift?

Debt funds are suitable if you want capital protection and lower volatility.

They give more stable returns, usually between 5% to 7% per year.

But equity funds may outperform in long term even after retirement.

Since you do not need capital immediately, equity growth suits your goal better.

Debt funds make sense only for emergency buffer or short-term needs.

For wealth preservation and tax efficiency, SWP from equity growth is better than debt switch.

Key Factors to Evaluate Before Any Shift

What is the current total value of this investment?

What is the actual dividend amount you receive monthly or yearly?

Do you have other debt or liquid investments to cover emergencies?

Do you wish to pass this fund to family members later?

Are you comfortable with small market fluctuations in equity NAV?

Do you expect to use this money after 3, 5 or 10 years?

Are you comfortable handling minor tax paperwork under SWP?

Suggested 360 Degree Action Plan

Keep a part of this investment in equity growth plan for compounding.

Shift from dividend payout to growth option in the same fund.

Begin a small SWP from this fund if you want some monthly income.

Reinvest SWP amount in short-term debt fund or savings account if not used.

Monitor SWP yearly and adjust amount based on fund value.

This way, you get control, tax efficiency, and compounding together.

Keep dividend payout only if emotionally attached or enjoy seeing it as “income”.

If dividend amount is very small, better to fully move to growth + SWP.

Avoid These Common Mistakes

Do not redeem the full fund just to re-invest elsewhere.

Do not move everything to debt fund without reason.

Do not keep depending on uncertain dividend payout for future planning.

Do not chase high SWP amount. That may reduce fund value quickly.

Avoid frequent shifting or redemption which may affect long-term growth.

A Word on Index Funds – Why Not to Choose Now

Index funds are passive and follow index blindly.

They do not beat the market in sideways or falling conditions.

Active funds manage risk better in volatile markets.

You already hold actively managed fund that grew 5 times.

No need to shift to index now after seeing strong performance.

And a Note on Direct Funds – Please Stay Cautious

Direct funds look cheaper, but offer no guidance or emotional handholding.

You may miss rebalancing or strategy updates.

Investing through MFDs with Certified Financial Planner gives 360 degree support.

You need someone who understands you and not just the product.

MF Taxation Rules You Should Know (New Rules from FY25)

For equity mutual funds, LTCG above Rs 1.25 lakh is taxed at 12.5%.

Short-term capital gains (STCG) taxed at 20%.

For debt funds, capital gains taxed at your income slab, both STCG and LTCG.

Dividend is added to income and taxed as per your slab.

Sample Plan for You (No Fund Name)

Stop dividend payout. Switch to growth in same scheme.

Start SWP for Rs 5,000 or Rs 10,000 per month.

Use only part of fund. Leave rest for compounding.

Review SWP amount once every 12 months.

Ensure fund type suits your long-term risk capacity.

Keep emergency corpus in liquid fund separately.

Final Insights

You have done a great job growing your equity investment 5 times.

You are not financially dependent on this investment. This is a good position.

Dividend payout is convenient but not sustainable or tax-friendly.

Growth plus SWP strategy is more tax-efficient and gives full control.

Use this fund wisely and let compounding work longer.

Take help from a Certified Financial Planner to create a full retirement portfolio.

Include debt, equity, liquid funds, health cover, and emergency buffer in your plan.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8241 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 16, 2025

Asked by Anonymous - Apr 15, 2025Hindi
Money
Hello Sir, I am 34 years old with a kid 4 years and a wife. I earn roughly 85k monthly. I have a home loan of 7.2Lakhs with emi of 31k and 9.15% rate. I have 3.7L in pf and my dad had gifted me three lic policies(with a premium paying period of 35 yrs) as below Two Lic jeevan anand 149 started on 2013 One lic jeevan saral 165 started on 2009 Should I surrender my Lic policies to clear my home loan? If I surrender jeevan saral 165 I get 7Lakhs(I am getting more than I paid in premiums) If I surrender jeevan anand 149 I get 1Lakhs(50k loss on premium paid) Or should I keep paying for these policies and continue the home loan emi for 2yrs? I plan to buy another house in future. Please advise.
Ans: You are thinking in the right direction.

It is good that you are evaluating long-term LIC policies seriously. Most people delay it.

Let us now assess your situation in a structured and complete manner.

Your Current Situation
Age: 34 years

Family: Wife and one child (4 years)

Income: Rs 85,000 per month

Home Loan: Rs 7.2 lakh with Rs 31,000 EMI at 9.15% interest

Provident Fund: Rs 3.7 lakh

LIC Policies:

Two traditional endowment plans from 2013 (35-year term)

One traditional money-back plan from 2009

Jeevan Saral gives Rs 7 lakh surrender value (profit)

Jeevan Anand gives Rs 1 lakh surrender value (loss of Rs 50,000)

Let Us Look At Your LIC Policies First
Why LIC Policies Are Not Wealth Creators
These are low-yield, long-term insurance plans.

They give average returns of 4% to 5% annually.

This return is lower than inflation over 20 to 30 years.

Your premium paying term is 35 years — very long duration.

You get maturity at 60 to 70 years — very late for life planning.

These plans offer poor wealth accumulation and flexibility.

The surrender charges in early years are high.

They lock your money without decent compounding.

Even the loyalty additions at maturity are not attractive.

Should You Continue or Surrender?
Let us look at each policy carefully.

Policy 1: Jeevan Saral 165 (Started in 2009)
Surrender value is Rs 7 lakh

You have already earned more than what you paid

You are exiting with profit

There is no reason to keep this low-return policy

You have held it for 15+ years — enough duration already

No future compounding benefit is expected

Take the Rs 7 lakh and use it productively

Policy 2 and 3: Jeevan Anand 149 (Started in 2013)
Only Rs 1 lakh surrender value

Rs 50,000 loss on premium paid

You have held it for 11+ years already

Still 24 years of premium left

Future surrender value may still not justify returns

Loss of Rs 50,000 is painful, but continuing is worse

The value erosion will be higher over time

You are tying your money for 35 years for poor returns

Take the small loss now and invest better

What Should You Do With the Surrender Amount?
Now let us create a 360-degree plan for the Rs 7 lakh and Rs 1 lakh.

1. First, Close the Home Loan
Outstanding principal is Rs 7.2 lakh

Home loan EMI is Rs 31,000

Interest rate is high — 9.15%

Clearing this loan will give instant mental relief

It improves monthly cash flow by Rs 31,000

Use the Rs 7 lakh from Jeevan Saral to close most of the loan

You can arrange the balance Rs 20,000 from savings or PF

This clears your loan fully and frees up EMI burden

2. Stop Paying Premiums on LIC Policies
Surrender the two Jeevan Anand policies now

You get Rs 1 lakh total

Use this amount to build emergency corpus

This gives you financial cushion for 6 months expenses

You avoid any more losses in the future

What Happens When You Free Up Rs 31,000 EMI?
Your monthly savings increase by Rs 31,000

This is a huge jump in cash surplus

You can create a strong wealth building system now

Smart Allocation Of The Surplus
Let us divide this Rs 31,000 wisely:

1. Rs 10,000 — Invest in Child Future
Create a mutual fund SIP in your child’s name

Choose child-focused equity mutual fund via regular plan

Invest through a Mutual Fund Distributor who is also a Certified Financial Planner

Regular plan has guidance, monitoring, and discipline support

Avoid direct plan — it lacks personalisation and emotional anchoring

Avoid index funds — they lack flexibility, give average returns, and don't beat market

This Rs 10,000 monthly will build a good education corpus in 15 years

2. Rs 10,000 — Retirement SIP For You and Wife
Start a diversified equity SIP in your name

Also start Rs 5,000 SIP in wife’s name if she is not earning

Keep this SIP for at least 20 years

This will give you good retirement support

Retirement is your biggest financial goal

3. Rs 5,000 — Emergency Fund & Insurance
Add Rs 1 lakh from surrender value to savings

Add Rs 5,000 every month till you reach 6 months’ expenses

This is your family’s safety net

Also review your health insurance

Ensure you have minimum Rs 5 lakh family floater cover

Buy term life insurance of Rs 50 lakh to Rs 1 crore

This gives full protection to your family

4. Rs 6,000 — Home Planning Fund
You mentioned buying another house in future

Start a SIP in a balanced hybrid mutual fund for this

Invest Rs 6,000 per month in this fund

Use this for down payment after 5 to 7 years

What About Your Provident Fund?
You already have Rs 3.7 lakh in PF

Let it continue for retirement

Don’t withdraw unless it is urgent

PF is good for long-term safety

Should You Still Consider Buying Another House?
Do not rush to buy second home

First focus on becoming debt free and financially secure

Buying another house creates EMI pressure again

Rental yield is very low in India

Property value grows slowly in most locations

Instead, build a strong mutual fund portfolio

It is liquid, transparent, and better compounding

Final Insights
Surrender LIC policies and close your home loan

Free up EMI and use it for smart investment

Protect your family with insurance

Build education, retirement and home funds step-by-step

Mutual funds give better long-term growth than LIC or real estate

Use regular plans with CFP-led guidance

Track and review yearly with your MFD-turned-CFP

Keep focus on long-term goals — child, retirement, wealth

Make money work for you, not sit idle in poor plans

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8241 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 16, 2025

Money
Hello Sir, Over last few years I have created the below mutual fund portfolio on my own. My goal is to maximise returns for wealth creation and time horizon is 15 years. I am 42 now and can take a more aggressive approach for next 8-10 years. Post that I may want to preserve my wealth more. I am investing total of 43k which i can increase to 50k. Please have a look and suggest. 1. Invesco India contra fund - 9k 2. HDFC midcap fund - 9k 3. Kotak Flexi cap - 4k 4. Mirae Asset large cap (SIP Stopped due to poor performance) 5. SBI Focused equity - 6k 6. PPFAS Flexi cap - 10k 7. SBI Small Cap - 5k
Ans: You have done a great job so far. Taking charge of your finances with a clear long-term goal shows discipline and maturity.

You are 42 now and planning for a 15-year journey. That gives you a solid runway. The next 8–10 years are ideal for growth-focused investing. After that, wealth protection becomes the priority.

Let me do a full 360-degree assessment of your portfolio and give you specific insights.

Your Current Portfolio Snapshot
You have a mix of the following fund categories:

Contra fund

Midcap fund

Flexicap fund

Large cap (SIP stopped)

Focused equity fund

Flexicap fund (second one)

Small cap fund

This mix is mostly aggressive, which suits your growth objective well for the next decade.

Strengths in Your Portfolio
Good equity exposure: 100% of your SIPs are in equity. This is ideal for long-term wealth creation.

Diversification by category: You have exposure to midcap, small cap, flexicap, and contra. This creates growth potential with some balance.

Reasonable fund count: You hold 6–7 schemes. This is manageable and not over-diversified.

SIP discipline: SIP of Rs 43,000 monthly is a solid commitment. Increasing it to Rs 50,000 will compound well.

Clear time horizon: 15 years gives enough time to absorb market volatility.

High risk appetite in early phase: Your willingness to stay aggressive for the next 8–10 years is suitable.

Gaps and Risks in Your Portfolio
Overlap between funds
Midcap, small cap, focused, and flexicap funds may hold similar stocks. This can create redundancy.

Two flexicap funds
You are holding two flexicap funds. This may lead to duplication of large holdings.

Stopped SIP in large cap fund
You stopped a large cap fund due to poor performance. But judging funds by short-term returns is risky. Equity needs time.

No separate large cap anchor
Currently, there is no dedicated large cap fund. Flexicap funds are partly large cap but not fully reliable.

Overexposure to mid and small cap
14k out of 43k (almost 33%) is in mid and small caps. This is fine now, but needs pruning later.

No tax planning around equity
With new tax rules, exit strategy is important. Not planning it may lead to surprise taxation.

Suggested Portfolio Restructuring
Let us now work towards simplifying and optimising your portfolio. We will focus on:

Growth in first 8–10 years

Wealth protection post that

Balanced risk

Sector and stock diversification

Fund manager consistency

Tax efficiency

Here is the revised structure:

Ideal Portfolio Structure (for 50k SIP)
Let us group funds into 4 buckets. This helps with purpose-driven investing.

1. Flexicap Fund – Rs 12,000
Gives you all-cap exposure.

Works as your core portfolio.

Dynamic allocation across cap sizes.

Good for long-term consistency.

Why only one flexicap?
Two flexicap funds increase overlap. Retain only the better performer.

Action: Stop SIP in the second flexicap. Continue with only one high-quality flexicap fund.

2. Midcap Fund – Rs 10,000
Good for 8–10 years horizon.

Outperforms large caps in long term.

Needs patience during volatility.

Limit to one scheme.
Too much midcap increases risk. 20% allocation is enough.

Action: Continue SIP in one good midcap fund.

3. Small Cap Fund – Rs 5,000
High return potential.

But high risk and deep drawdowns.

Ideal to cap exposure at 10%.

Action: Continue SIP. Don’t increase allocation.

4. Contra or Focused Fund – Rs 8,000
Contra brings non-consensus picks.

Focused funds bring high conviction bets.

You can hold either one, not both.
Keep the one with better long-term track record.

Action: Choose one between contra and focused. Exit the other. Continue SIP in selected fund.

5. Large & Midcap or Multi-Cap Fund – Rs 10,000
Brings structure to the portfolio.

Multi-cap ensures fixed allocation to all three market caps.

Large & midcap has 35% in each, offers balance.

This will replace the stopped large cap fund.

Action: Add one fund from this category. It will add stability.

What You Should Avoid
Avoid index funds
Index funds give average returns. They blindly follow index. They don’t beat the market.

Actively managed funds have professional stock selection.

Fund managers adapt to market trends. This gives higher potential return.

Avoid direct mutual funds
Direct funds need DIY management. Most investors can't track portfolios properly.

Investing through regular plans via a MFD with CFP credential gives guided portfolio review.

You also get rebalancing advice and emotional handholding during market falls.

What You Can Improve From Here
Increase SIP gradually
Move from Rs 43k to Rs 50k as planned. Add Rs 7k to your core fund.

Review portfolio every year
Remove underperformers. Stick to funds with consistent returns and experienced fund managers.

Rebalance post 8–10 years
Slowly move some SIPs to hybrid or large cap funds. Reduce mid and small cap exposure after age 50.

Consider goal-wise investing
Assign funds to goals. One for retirement. One for child’s future. This makes tracking easier.

Final Insights
You have built a strong base already. That’s truly impressive. With small changes, your portfolio will become sharper.

Your equity exposure is rightly aggressive now. Stay with that approach for the next 8–10 years.

From age 50 onwards, gradually reduce volatility. That way, you protect the gains created in earlier years.

Make sure your exit strategy is tax-efficient. Under the new rules:

Equity LTCG above Rs 1.25 lakh is taxed at 12.5%

STCG is taxed at 20%

So, staggered redemptions make more sense later.

You don’t need annuities, real estate, or index funds in your journey. Equity mutual funds, when guided by a Certified Financial Planner, offer better long-term benefits.

Just stay disciplined. Keep SIPs running. Avoid panic exits. Review yearly. Stick to one scheme per category. That’s your best route to wealth creation.

You’re already doing great. Just refine the edges.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

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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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