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Is my mutual fund investment strategy right for a 47-year-old with 11 years to retirement?

Ramalingam

Ramalingam Kalirajan  |7281 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 22, 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
Dillip Question by Dillip on Jul 03, 2024Hindi
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Hello Sir, I'm a 47 years old man with home take salary 1.3 lacks. As only 11 years remaining for retirement, I have started sip in 5 mutual funds Rs 3000 each. All 5 mutual funds are Sbi contra fund, Aditya Birla sun life PSU equity fund, Hdfc index fund sensex plan, Parag Parikh flex cap fund & Nippon India small cap fund. Are these mutual funds right to invest for me or need any changes? Pls suggest.

Ans: Current Investment Analysis

You are investing in five mutual funds through SIPs of Rs 3,000 each. Your chosen funds are diverse, covering contra, PSU equity, index, flex cap, and small cap. Let’s evaluate and suggest improvements for better alignment with your retirement goals.

SBI Contra Fund

A contra fund invests in undervalued stocks. It can offer good returns but carries higher risk. It is suitable for long-term investors who can tolerate market fluctuations.

Aditya Birla Sun Life PSU Equity Fund

This fund invests in public sector companies. PSU funds can be volatile and depend heavily on government policies. It is good to have some exposure, but consider diversifying further.

HDFC Index Fund Sensex Plan

Index funds track market indices. They offer low-cost diversification but are less flexible in volatile markets. Actively managed funds might provide better returns with professional management.

Parag Parikh Flexi Cap Fund

Flexi cap funds invest across various market capitalizations. They offer flexibility and diversification. This is a good choice for long-term growth and stability.

Nippon India Small Cap Fund

Small cap funds invest in smaller companies with high growth potential. They are risky but can offer high returns. Balance this with more stable investments.

Investment Strategy Recommendations

Diversification

Your current portfolio is well-diversified across different types of funds. However, you may need more stability as you approach retirement. Consider adding large cap or balanced funds for reduced risk.

Increase Equity Exposure

Equity funds can offer higher returns over the long term. Increase your SIP amounts in equity mutual funds. Consider allocating more to large cap and multi-cap funds for stability and growth.

Balanced Funds

Balanced funds invest in both equity and debt. They offer moderate returns with controlled risk. Allocate around 20-30% of your portfolio to balanced funds. This provides a good mix of growth and stability.

Debt Funds

Debt funds provide stable returns with lower risk. Allocate around 10-15% of your portfolio to debt funds. This ensures some stability in your investments.

Review and Rebalance

Review your portfolio every six months. Rebalance your investments to align with your goals. Adjust your allocations based on market conditions and performance.

Tax Efficiency

Investing in equity mutual funds provides tax efficiency. Long-term capital gains up to Rs 1 lakh per year are tax-free. Gains above Rs 1 lakh are taxed at 10%. Plan your withdrawals to minimize tax hits. Consider spreading withdrawals over multiple years.

Systematic Withdrawal Plan (SWP)

Use SWP for regular withdrawals during retirement. SWP helps in managing cash flow and tax efficiency.

Insurance Review

Ensure you have adequate life and health insurance. Consider term insurance for life cover and a good health insurance plan. This safeguards your family’s financial future.

Final Insights

To achieve your retirement goals, diversify wisely. Continue with a mix of large cap, mid cap, and multi-cap funds. Add debt and balanced funds for stability. Review and rebalance your portfolio regularly. Use SIPs for consistent investments and SWPs for efficient withdrawals. Work with a Certified Financial Planner (CFP) for professional guidance. Ensure you have adequate insurance coverage.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
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  |7281 Answers  |Ask -

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

Asked by Anonymous - May 11, 2024Hindi
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Dear sir, I am 36. I am investing 25k SIP every month for last 5 months in 9 mutual funds, 1. UTI nifty 50, 2. HDFC balanced advantage fund, 3. HDFC mid cap, 4. Quant mid cap, 5. Kotak tax saver fund, 6 Noppon india small cap fund, 7. Mirae Asset mid cap fund, 8. Prag parikh flexy cap fun, 9. SBI mid cap & large cap fund. Can you please help me with your advice if i am doing right ot i need to make changes and also can you please suggest how much amount i should allocate each fund? Thanks for your valuable time and your advice in advance.
Ans: It's great to see your proactive approach to investing, especially at the age of 36. Investing through SIPs in mutual funds is a smart way to build wealth over the long term. Let's assess your current investment strategy and see if any adjustments are needed.

Firstly, investing in nine mutual funds might be excessive and could lead to over-diversification. Managing too many funds can be challenging and may not necessarily lead to better returns. It's generally recommended to have a focused portfolio with a smaller number of well-chosen funds.

Secondly, your portfolio seems to have a tilt towards mid-cap and small-cap funds, which can be riskier compared to large-cap funds. While these funds have the potential for higher returns, they also come with increased volatility. It's essential to ensure that your portfolio aligns with your risk tolerance and investment goals.

As a Certified Financial Planner, I suggest streamlining your portfolio by consolidating your investments into fewer funds that cover a broader spectrum of the market. Consider retaining one or two well-performing funds from each category (large-cap, mid-cap, small-cap, etc.) to achieve diversification while keeping things manageable.

Regarding allocation, it's crucial to align your investments with your risk profile and financial goals. A common approach is to allocate a higher percentage to large-cap funds for stability and then allocate smaller portions to mid-cap and small-cap funds for growth potential. However, the exact allocation would depend on factors like your risk tolerance, investment horizon, and overall financial situation.

I recommend consulting with a Certified Financial Planner who can conduct a detailed analysis of your financial goals and risk profile to provide personalized advice on asset allocation and fund selection.

In conclusion, while your initiative to invest through SIPs is commendable, refining your portfolio and asset allocation can optimize your returns and reduce unnecessary complexity.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

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