Hello, I am 25 yrs old and my take home monthly salary is approx 80k. I do freelance as well, so total in hand income comes around 1.2lacs pm. I am investing in PPF since 2020. Used to invest around Rs. 1000/- pm but slowly increased my investment to 12,500 from last month onwards and looking to continue the same. Since beginning of this year, I have started to invest in mutual funds with a monthly SIP of 15,000. I invest in a mix of small, mid and large cap funds. Does it makes sense to consider investing in ELSS tax saver funds? Do they generally give good returns as compared to SML cap funds? I am looking to step up my SIP by 10% every year. My goal is to attain financial freedom in the next ten years with more 1cr. as a corpus. I also have a LIC jeevan anand policy and I invest around 1,250/- every month which will mature in next 10 years. In order to achieve my financial goal fast, should I increase my monthly SIP to maybe 30k by decreasing the amount invested in other schemes? I know that SIPs generally comes with a better return but with a high risk. Is there any other scheme that I should opt for which gives higher return? Please suggest how to go about it based on my current income and living expenses. I also have some liabilities after investments such as: Personal loan: 45k Consumer loans: around 10k House expenses: 20k My current investment portfolio so far: SIP: 40K (Recently started as mentioned) PPF: 2.2 lacs EPF: 1.8 lacs LIC: 1 lac Thank you!

Ans: Three funds are sufficient, and with monthly investment of Rs. 20K corpus that can be created in 15 years is 1.2 cr, hence only one objective / goal can be met!

Ans: It's great to see your proactive approach towards long-term financial planning. Given your income, expenses, and existing investments, here are some suggestions to help you achieve your target net worth of 5 crores in 5 years:

Increase SIP Contributions: Consider increasing your SIP contributions to align with your ambitious goal. You may also explore the option of stepping up SIP amounts annually to accelerate wealth accumulation.
Diversification: While your current SIPs are well-diversified, you can further enhance diversification by adding funds from different categories such as large-cap, mid-cap, and multi-cap funds. This helps spread risk and capture opportunities across market segments.
Explore Tax-Saving Investments: Utilize tax-saving investment avenues such as Equity Linked Savings Schemes (ELSS) to optimize tax benefits while building wealth. ELSS funds offer the twin benefits of tax savings under Section 80C of the Income Tax Act and potential capital appreciation.
Regular Review and Rebalancing: Regularly review your investment portfolio to ensure it remains aligned with your financial goals and risk tolerance. Consider rebalancing your portfolio periodically to maintain the desired asset allocation mix.
Emergency Fund: Ensure you have an adequate emergency fund set aside in a liquid instrument like a savings account or liquid mutual fund to cover unforeseen expenses without disrupting your investment portfolio.
Seek Professional Advice: Given the ambitious nature of your financial goal, consider consulting with a certified financial planner who can provide personalized advice tailored to your specific circumstances and objectives.
Remember, achieving a significant target like 5 crores in 5 years requires disciplined savings, strategic investing, and periodic reassessment of your financial plan. Stay focused on your long-term objectives and remain patient during market fluctuations.

Ans: Firstly, I commend you for taking proactive steps towards building your financial future at such a young age. Your commitment to increasing your investments over time is commendable and will serve you well in achieving your financial goals.

Regarding your query about ELSS tax saver funds, they can indeed be a valuable addition to your investment portfolio. ELSS funds not only offer tax benefits under Section 80C of the Income Tax Act but also have the potential to generate higher returns over the long term compared to traditional investment avenues like PPF.

As for comparing ELSS funds with small-cap funds, it's essential to understand that they belong to different categories with varying risk profiles. Small-cap funds typically carry higher risk but also have the potential for higher returns, while ELSS funds invest primarily in equity markets and have the added advantage of tax benefits. Both can play a role in diversifying your investment portfolio and achieving your financial goals.

Considering your goal of attaining financial freedom in the next ten years with a corpus of over 1 crore, it's essential to review your investment strategy periodically and make adjustments as needed. Increasing your monthly SIP to 30k and potentially reallocating some funds from other schemes could be a prudent move, given your high income and relatively low living expenses.

Regarding your existing LIC Jeevan Anand policy, surrendering it and reinvesting the proceeds in mutual funds could potentially yield higher returns, especially considering your long investment horizon and risk tolerance. However, it's essential to evaluate the surrender value, any applicable penalties, and the potential tax implications before making a decision.

In summary, continue with your disciplined approach to investing, consider adding ELSS funds to your portfolio, and review your investments periodically to ensure they align with your financial goals and risk tolerance.

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

Ans: You have done a good job by consistently investing in mutual funds. Your investment horizon of more than 15 years is a big advantage. This long-term approach will help you build significant wealth.

Your current portfolio has a mix of small-cap, large & mid-cap, sectoral, and ELSS funds. However, a few adjustments can improve diversification and risk management. Below is a detailed assessment of your portfolio and investment strategy.

Assessment of Your Existing Mutual Fund Portfolio
Small-Cap Exposure: You have Rs 12,000 per month in small-cap funds. This is around 44% of your SIP portfolio. Small-cap funds can give high returns but also have high risk and volatility. Such a high allocation is not advisable for stability.

Large & Mid-Cap Exposure: Rs 2,500 per month in this category is good. Large & mid-cap funds provide a balance between growth and stability.

Sectoral Fund Exposure: Rs 3,000 per month is in an energy-focused fund. Sectoral funds are highly concentrated and risky. They perform well only when the sector is in a growth phase.

ELSS Fund for Tax Savings: You are investing Rs 3,000 per month in an ELSS fund. This is a good choice for tax-saving under Section 80C. However, ensure you are not over-investing just for tax benefits.

Changes Suggested in Your Existing Portfolio
Reduce Small-Cap Allocation: Reduce SBI Small Cap and Axis Small Cap allocation. You can shift some funds to diversified equity funds.

Exit Sectoral Fund: Energy sector exposure is very high-risk. Instead, move this amount to a diversified multi-cap or flexi-cap fund.

Increase Large & Mid-Cap Allocation: Your large & mid-cap investment is low. Increase allocation to this category for stability.

Where to Invest the Additional Rs 30,000 Per Month?
Instead of ETFs, invest in actively managed mutual funds. Active funds can outperform in the long run due to expert fund management. Below is a recommended SIP allocation for better diversification.

Large & Mid-Cap Funds (Rs 7,000) – These provide stability and reasonable growth. They perform well across different market cycles.

Flexi-Cap Funds (Rs 7,000) – These funds have the flexibility to invest in large, mid, and small-cap stocks based on market conditions. They help in managing risk better.

Mid-Cap Funds (Rs 6,000) – Mid-cap stocks have the potential to generate good returns. However, they carry moderate risk.

Balanced Advantage Fund (Rs 5,000) – These funds automatically manage asset allocation between equity and debt. This helps in reducing risk.

Debt Mutual Fund for Stability (Rs 5,000) – This will add stability to your portfolio. You can choose a short-duration or corporate bond fund.

Why Not Index Funds or ETFs?
Lower Flexibility: Index funds follow a fixed benchmark. They do not adapt to changing market conditions.

No Downside Protection: Actively managed funds adjust their portfolio in a market downturn. Index funds cannot do this.

Potential for Higher Returns in Active Funds: A good fund manager can outperform the index over long periods.

Final Insights
Reduce small-cap exposure for better risk management.
Exit the sectoral fund and move to diversified equity funds.
Increase large & mid-cap allocation for stability.
Invest new SIPs in flexi-cap, mid-cap, and balanced advantage funds.
Avoid ETFs and index funds, as actively managed funds offer better growth potential.
Add a debt fund to bring stability to the portfolio.
These changes will help you build a well-diversified portfolio. You will achieve wealth creation with controlled risk.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: I appreciate your proactive approach. Your financial position has a strong base. But improvement is needed in a few areas. Below is a detailed 360-degree analysis.

? Income and Cash Flow Review

You earn Rs 2 lakh per month from salary.

You also earn Rs 65,000 per month as passive income.

Total monthly inflow is Rs 2.65 lakh. This is a healthy income.

You pay Rs 1 lakh towards home loan EMI.

You also pay Rs 22,000 for your car loan EMI.

Total EMI outflow is Rs 1.22 lakh.

Your EMI to income ratio is about 46%. This is slightly on the higher side.

A safe EMI ratio should be below 40% for comfort.

This affects your ability to save more.

Careful planning is needed to balance debt and investments.

? Loan Assessment and Debt Strategy

Home loan outstanding is Rs 1.17 crore. EMI is Rs 1 lakh. Tenure left is 25 years.

A long tenure keeps interest costs high in the long run.

Car loan is Rs 18 lakh. EMI is Rs 22,000. Tenure left is 6 years.

Car loans are expensive. They are not wealth-building.

Recommend partial prepayment of car loan first.

Aim to close it in the next 2 to 3 years.

This will free up Rs 22,000 monthly for investments.

Home loan can continue for tax savings.

But make occasional lump sum payments when possible.

This will reduce interest outgo.

? Existing Investment Analysis

Mutual Funds worth Rs 13 lakh. This is a good start.

Ensure these are actively managed funds.

Avoid index funds. They lack flexibility. They simply mirror the market.

Active funds have professional fund managers.

They help during market volatility.

Gold investments are Rs 30 lakh. This is on the higher side.

Ideally, gold should be only 5% to 10% of your portfolio.

Gold protects against inflation. But it doesn’t generate income.

Fixed deposits worth Rs 9 lakh. Good for emergency reserve.

But excess in FD earns low post-tax returns.

You may reduce excess FD over time.

PPF account has Rs 2 lakh. Continue yearly contributions.

PPF gives tax-free returns. It also builds long-term corpus.

? Emergency Fund and Insurance Assessment

Maintain 6 to 9 months of expenses in a liquid form.

You seem to already have FDs and passive income as a backup.

Ensure you have sufficient term life cover.

It should be at least 15 times your annual income.

Also secure health insurance for family protection.

Review your home loan insurance and car insurance too.

? Systematic Investment Plan (SIP) Initiation

Start SIP with your available surplus after EMIs and expenses.

Start small and increase SIP amount annually.

Focus on diversified actively managed equity mutual funds.

These funds give long-term wealth creation.

Do not select index funds. They simply follow market averages.

Active funds aim for better returns through stock selection.

Always invest in regular plans through a Mutual Fund Distributor (MFD).

A Certified Financial Planner (CFP) and MFD offer portfolio review and guidance.

Direct plans miss human support.

Regular plans with MFD offer hand-holding during market volatility.

Avoid SIP in sector-specific funds. They are risky.

Maintain a diversified approach across large-cap, mid-cap, and flexi-cap funds.

? Recommended SIP Amount

You can start SIPs of around Rs 30,000 to Rs 40,000 monthly initially.

Post car loan closure, increase SIPs by another Rs 20,000 to Rs 25,000.

This will ensure steady wealth building over 25+ years.

? Kids Future Planning

Kids' education and marriage planning are important.

Start SIPs in child-focused funds or diversified equity funds.

Allocate a portion to balanced hybrid funds for stability.

Keep a separate portfolio for this goal.

Don’t mix it with your retirement portfolio.

Review goal progress every year with a Certified Financial Planner.

? Retirement Goal Planning

You have 26 years till age 60.

This is enough time to build a strong retirement corpus.

Allocate 60% of your investments to equity mutual funds.

Allocate 20% to debt mutual funds and PPF for safety.

Keep 10% to 15% in gold and other safe instruments.

Rebalance your portfolio every year to maintain asset allocation.

? Rebalancing Your Existing Portfolio

Your gold holdings are high at Rs 30 lakh.

Gradually sell gold and shift to mutual funds.

Do this over 3 to 4 years to avoid tax impact.

Avoid adding more to fixed deposits unless for emergency funds.

FD returns are taxable and do not beat inflation.

Keep your PPF contributions steady for long-term safety.

? Passive Income Consideration

Your passive income is Rs 65,000 monthly.

If this is rental income, continue maintaining the property well.

If this is from business, monitor the sustainability of income.

Don’t overly depend on this for your long-term plan.

? Tax Efficiency of Your Investments

Equity mutual funds have tax on long-term capital gains (LTCG).

LTCG above Rs 1.25 lakh is taxed at 12.5%.

Short-term capital gains are taxed at 20%.

Debt mutual funds are taxed as per your income tax slab.

Plan withdrawals accordingly for tax optimisation.

Keep your SIPs long-term to reduce tax outgo.

? Car Loan vs. Investment Dilemma

Prepay car loan faster to save interest.

Car loans charge higher interest than mutual fund returns in the short term.

Use any bonuses or incentives to clear this debt.

After that, channel freed cash into investments.

? Key Investment Suggestions

Start SIPs in diversified actively managed equity mutual funds.

Avoid index funds due to their market limitation.

Actively managed funds offer better flexibility and returns.

Avoid direct mutual fund plans. They lack expert guidance.

Invest through a Certified Financial Planner and Mutual Fund Distributor.

They will monitor and review your portfolio regularly.

Avoid real estate as an investment. It is illiquid and hard to exit.

You already have enough exposure through your home.

Do not consider annuities. They lock your money and give low returns.

? Insurance-cum-Investment Products

If you have any LIC, ULIP, or money-back plans, please review them.

They generally give low returns and poor liquidity.

If you hold them, consider surrendering them.

Reinvest the proceeds into mutual funds for better growth.

? Step-by-Step Action Plan

Step 1: Maintain 6-9 months' expenses as emergency fund.

Step 2: Review all your insurance policies.

Step 3: Start SIP of Rs 30,000 to Rs 40,000.

Step 4: Increase SIP after car loan closure.

Step 5: Gradually reduce gold holdings. Shift to mutual funds.

Step 6: Continue PPF contributions yearly.

Step 7: Make partial prepayments on the home loan when possible.

Step 8: Review your portfolio every year with a Certified Financial Planner.

? Risk Management

Your profile is of a long-term investor.

You can afford moderate to high equity exposure.

Keep some money in debt funds or PPF to balance volatility.

Stay invested for long-term compounding.

Don’t react to short-term market movements.

? Goal-Based Investing Approach

Separate goals like retirement and kids' education.

Allocate funds for each goal in different mutual fund portfolios.

Track each goal annually.

Adjust SIP amounts or asset allocation if required.

A Certified Financial Planner can help with these periodic reviews.

? Expense Management

Keep your lifestyle expenses within 35% to 40% of your income.

Avoid impulsive big-ticket purchases.

This will help you allocate more for investments.

Once your passive income grows further, use it for goal-based SIPs.

? Retirement Wealth Building

To retire comfortably, build a corpus that replaces your salary.

Regular mutual fund SIPs, PPF, and debt funds will help.

Start now, stay disciplined, and keep increasing your SIP yearly.

? Finally

You have a good income and investments.

With better debt management and smart investing, you will build wealth.

Start SIPs now in actively managed funds through a Certified Financial Planner.

Gradually increase SIP amounts as debt reduces.

Balance your portfolio between equity, debt, and gold.

Review it yearly for adjustments.

Stay focused on your retirement and kids’ education goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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