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Ramalingam

Ramalingam Kalirajan  |8615 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 17, 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
Asked by Anonymous - Oct 16, 2024Hindi
Money

Hello sir, I am 37 year old professional, I didn’t started any investment till now in share market. Now I want to invest some amount may be 10k monthly till I turn into 55 or 60 yrs and my goal is to get 2 cr of corpus amount. Can you please help me on how I can achieve this? Also as I am new to investment, will you be able to help on which mutual funds we have to select?

Ans: It’s fantastic that you're considering starting your investment journey now. At 37, you still have a long time horizon, which is a major advantage in achieving your goal of Rs 2 crore by the time you turn 55 or 60.

Let's break down how you can approach this goal step by step.

The Power of Long-Term Investment
You have mentioned that you want to invest Rs 10,000 monthly until you turn 55 or 60. This long-term horizon will give you the benefit of compounding, which is essential to building wealth. The key to achieving your financial goal is consistency, discipline, and choosing the right mutual funds to invest in.

By starting early, you allow your investments to grow over time. Over a period of 18 to 23 years, the returns from your investments will have enough time to compound significantly. This will help you move closer to your target corpus of Rs 2 crore.

Importance of Choosing Actively Managed Mutual Funds
Since you’re new to investing, choosing actively managed mutual funds is the best way to go. Unlike index funds, which merely track the market, actively managed funds aim to outperform the market. The professional fund managers who oversee these funds have the expertise to make better decisions, especially during market fluctuations.

Disadvantages of Index Funds:

Index funds only mirror the market, so they do not offer protection during downturns.

Index funds can underperform actively managed funds in a growing market, as they lack the ability to select stocks with higher potential.

They do not provide flexibility to take advantage of market opportunities, as they simply follow the index.

In contrast, actively managed funds allow the fund manager to adapt the investment strategy based on market conditions, giving you a better chance of achieving higher returns.

Why You Should Avoid Direct Mutual Funds
Some investors choose direct mutual funds thinking that they save on commissions. However, as a new investor, direct funds may not be suitable for you. Managing your investments without guidance can be difficult, especially in volatile markets.

Here are the disadvantages of direct mutual funds:

Lack of Professional Guidance: Direct funds require you to choose and manage funds on your own. Without professional advice, this can lead to poor decisions.

Time-Consuming: Direct funds demand that you regularly track the market and make decisions accordingly, which can be time-consuming.

Missed Opportunities: A Certified Financial Planner (CFP) can help you identify new opportunities and make adjustments that can improve your returns over time.

Instead, investing through a Certified Financial Planner can give you access to expert advice and a well-managed portfolio. This ensures that your investments are aligned with your goals, risk appetite, and market conditions.

Understanding Mutual Fund Types
Since you are investing for the long term, equity mutual funds are ideal for your situation. Equity funds have the potential to offer higher returns compared to debt funds, especially over a 20-25 year period. However, within equity mutual funds, there are different types you should be aware of:

Large-Cap Funds: These funds invest in the top 100 companies by market capitalization. They are more stable compared to mid-cap and small-cap funds but offer moderate returns. These can form the core of your portfolio to provide stability.

Mid-Cap and Small-Cap Funds: These funds invest in smaller companies that have the potential to grow rapidly. However, they also come with higher risk. Adding a small portion of these funds can boost your overall returns, but they should be balanced with more stable funds.

Multi-Cap or Flexi-Cap Funds: These funds invest across large-cap, mid-cap, and small-cap companies, providing a balance between growth and stability. This flexibility allows fund managers to shift between segments depending on market conditions.

Balanced or Hybrid Funds: These funds invest in a mix of equities and fixed-income securities. They provide a cushion during market downturns and help balance risk.

The Importance of Systematic Investment Plan (SIP)
Since you're planning to invest Rs 10,000 per month, you will be using a Systematic Investment Plan (SIP). SIP is one of the best ways to invest in mutual funds for the following reasons:

Consistency: By investing a fixed amount regularly, you avoid the temptation to time the market.

Rupee Cost Averaging: With SIPs, you buy more units when the market is low and fewer units when the market is high. Over time, this reduces the average cost of your investment.

Discipline: SIP ensures you invest consistently without missing any instalments, helping you build a substantial corpus over time.

Estimating the Potential Corpus
While it is impossible to predict the exact returns, equity mutual funds typically provide an average return of 10-12% over the long term. Here’s a rough estimate:

Assumed Rate of Return: 10-12% annually (for equity funds)

Time Horizon: 18 to 23 years (until you turn 55 or 60)

Monthly SIP: Rs 10,000

With a 10-12% annual return, your investment of Rs 10,000 monthly for the next 18-23 years can grow into a corpus that approaches your goal of Rs 2 crore. However, remember that the actual returns will depend on market conditions and the performance of the funds you choose.

Managing Risk with a Long-Term Investment Strategy
It is essential to understand that equity investments carry risk, especially in the short term. However, over the long term, equities tend to outperform other asset classes like fixed deposits and bonds. Since your investment horizon is 18-23 years, you have enough time to ride out market volatility and benefit from the long-term growth of equity markets.

That said, you should review your portfolio periodically, especially as you approach your retirement age. As you get closer to your goal, consider shifting a portion of your investments into more conservative options, such as debt funds or balanced funds, to protect your corpus from market volatility.

Tax Considerations
Understanding how your investments will be taxed is crucial for effective financial planning. Here’s a breakdown of the tax implications on mutual funds:

Equity Mutual Funds:

Long-Term Capital Gains (LTCG): For equity mutual funds, gains above Rs 1.25 lakh in a financial year are taxed at 12.5%. If your gains stay below this limit, they are tax-free.

Short-Term Capital Gains (STCG): If you sell your mutual fund units within one year, the gains will be taxed at 20%. Hence, it’s advisable to stay invested for the long term.

Debt Mutual Funds:

Long-Term and Short-Term Gains: Gains from debt funds are taxed based on your income tax slab.
Given these rules, staying invested for the long term will help you minimise your tax burden.

Diversification for Risk Management
While equity mutual funds should form the majority of your portfolio, it is also important to diversify. You can consider allocating a small percentage to debt funds or balanced funds as you near your retirement. This will ensure that you have a mix of high-growth and low-risk investments, helping to protect your wealth as you approach your goal.

Debt Funds: Although debt funds provide lower returns compared to equity funds, they come with lower risk. As you approach your retirement age, shifting a portion of your equity investments to debt funds can help preserve your capital.
Reviewing and Rebalancing Your Portfolio
Investment is not a one-time decision. You will need to review your portfolio regularly and make adjustments based on your life stage, market conditions, and financial goals. Here are some tips:

Annual Reviews: At least once a year, review the performance of your mutual funds. You may need to shift to better-performing funds or rebalance your portfolio if certain funds are underperforming.

Rebalancing: As you approach your retirement age, consider gradually reducing your exposure to equities and increasing your allocation to safer assets like debt mutual funds or balanced funds.

Finally
Starting your investment journey at 37 with a monthly investment of Rs 10,000 is a great decision. You have a long investment horizon and the power of compounding will work in your favour to help you achieve your Rs 2 crore corpus goal. The key is to remain consistent, choose the right mutual funds, and review your portfolio periodically to make necessary adjustments.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Asked on - Oct 22, 2024 | Answered on Oct 23, 2024
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Thanks for the reply. Can you please help me on which mutual funds we need to select for investment
Ans: When selecting mutual funds, focus on these types:

Large-Cap Funds: For stability and consistent returns.

Multi-Cap Funds: For diversification across market capitalizations.

Debt Funds: For safety and steady income.

Balanced/Hybrid Funds: For a mix of equity and debt exposure.

Sectoral/Thematic Funds: For higher risk and potential high returns (use cautiously).

For personalized fund selection, it's best to consult with a Certified Financial Planner (CFP) or Mutual Fund Distributor (MFD).

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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Hi Dev I am retired and aged 58. I have a corpus of 2 crores. How do i invest ( in which funds specifically) so that i get 2lakhs per month with immediate start. Please guide.
Ans: Planning for retirement income is crucial, especially with a significant corpus like yours. Here's a strategy to generate 2 lakhs per month with your 2 crores corpus:

Dividend-Paying Mutual Funds: Consider allocating a portion of your corpus to mutual funds that focus on dividend-paying stocks or bonds. Look for funds with a track record of consistent dividend distributions. These funds can provide regular income through dividend payouts. However, keep in mind that dividends are not guaranteed and may vary based on market conditions and fund performance.
Systematic Withdrawal Plan (SWP): Set up a systematic withdrawal plan (SWP) with a combination of debt funds, balanced funds, and liquid funds. SWP allows you to withdraw a fixed amount regularly from your investments while keeping the principal amount invested. Choose funds that prioritize capital preservation and have a history of providing steady returns. Adjust the withdrawal amount periodically based on your income needs and investment performance.
Senior Citizen Savings Scheme (SCSS): Consider investing a portion of your corpus in the Senior Citizen Savings Scheme (SCSS) offered by the government. SCSS provides regular interest payouts, usually on a quarterly basis, at attractive rates. It's a safe option for generating stable income, especially for retirees.
Annuity Plans: Explore annuity plans offered by insurance companies. Annuity plans allow you to convert a lump sum amount into a series of regular payments, providing you with a guaranteed income stream for a specified period or for life. Annuities offer security and peace of mind by providing a fixed income irrespective of market fluctuations.
Fixed Deposits (FDs) and Bonds: Consider allocating a portion of your corpus to fixed deposits (FDs) and bonds to diversify your income sources. While FDs and bonds offer lower returns compared to mutual funds and equities, they provide stability and safety of capital. Look for FDs and bonds with competitive interest rates and varying maturities to create a laddered income stream.
Before making any investment decisions, it's essential to assess your risk tolerance, liquidity needs, and income requirements. Consider consulting with a certified financial planner who can provide personalized advice based on your financial situation and retirement goals.

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Ramalingam

Ramalingam Kalirajan  |8615 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 20, 2024

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right now I am 52 year old & retire within 6years, I ready to invest Rs.1lkh per month & corpus has to be want after my retirement Rs.3cr.is it possible! if Yes then tell me where I should I invest in MF/shares/PPF/FD/NPS/
Ans: At 52, with six years until retirement, your goal of accumulating a Rs. 3 crore corpus is ambitious but achievable. With a disciplined investment of Rs. 1 lakh per month, you can work towards this target. The key is choosing the right investment vehicle to maximise your returns while managing risks.

Why Mutual Funds Are Ideal for Your Goal

Among the available options—Mutual Funds, Shares, PPF, FD, and NPS—mutual funds stand out as the best choice for your goal. Here’s why:

Potential for High Returns: Mutual funds, especially equity mutual funds, have historically provided returns that outpace inflation and other investment options like PPF, FD, or even NPS. Over a six-year period, equity mutual funds could deliver an average annual return of 10-12%, which is crucial for reaching your Rs. 3 crore target.

Flexibility and Diversification: Mutual funds offer a diversified portfolio across sectors and companies, reducing the risk associated with investing in individual stocks. This diversification is important, especially as you approach retirement, to ensure your investment is protected from market volatility.

Systematic Investment Approach: With mutual funds, you can benefit from a systematic investment plan (SIP) or a lump-sum investment strategy. In your case, investing Rs. 1 lakh per month through SIPs ensures rupee cost averaging, which helps mitigate market timing risks.

Steps to Achieve Your Rs. 3 Crore Goal

Focus on Equity Mutual Funds:

Equity Focus: Given your six-year horizon, a significant portion of your monthly Rs. 1 lakh investment should be allocated to equity mutual funds. These funds are designed to grow your wealth over the long term, and even within six years, they can generate substantial returns.

Balanced Allocation: To manage risk as you approach retirement, consider starting with 80% in equity mutual funds and 20% in debt mutual funds. As you get closer to retirement, gradually shift a portion of your equity investments to safer debt funds. This will protect your gains while still offering growth.

Reinvest Your Returns:

Compounding Effect: Keep your returns reinvested within the mutual funds. This will enhance the power of compounding, where your returns start generating their own returns, accelerating your wealth accumulation.
Regular Monitoring:

Performance Review: Although mutual funds are managed by professionals, it’s important to review the performance of your funds regularly. This ensures that your investments are aligned with your retirement goal.

Portfolio Rebalancing: As you get closer to retirement, consider rebalancing your portfolio to reduce exposure to equities and increase allocation to debt funds. This reduces the risk of a market downturn affecting your retirement corpus.

Avoid Unnecessary Withdrawals:

Stay Invested: To achieve your Rs. 3 crore goal, it’s essential to stay invested for the full six years. Avoid unnecessary withdrawals that could derail your plan.
Why Not Other Investment Options?

Shares: Direct stock investments can be volatile and require active management. Given your limited time frame and retirement goal, the risks associated with shares might outweigh the benefits.

PPF: Public Provident Fund (PPF) is a safe investment, but it offers lower returns (around 7-8%) compared to equity mutual funds. PPF is better suited for long-term safety rather than aggressive growth.

FD: Fixed Deposits (FDs) provide guaranteed returns but are also lower (5-6% on average) compared to mutual funds. FDs are more appropriate for capital preservation rather than growth.

NPS: The National Pension Scheme (NPS) offers tax benefits and a mix of equity and debt, but its structure is more suited for long-term retirement planning rather than aggressive wealth accumulation in a short period like six years.

Final Insights

Given your retirement goal of Rs. 3 crores and a six-year timeline, investing Rs. 1 lakh per month in mutual funds, with a focus on equity, is the most effective strategy. This approach balances potential returns with risk management, offering you the best chance of achieving your desired corpus.

Avoid direct investments in shares, PPF, FD, or NPS, as these options either carry higher risks or offer lower returns. By sticking with a disciplined mutual fund investment strategy and regularly reviewing your portfolio, you can confidently work towards your retirement target.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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I scored 96 percentile in JEE mains and got 60K rank in general list and 18K in OBC-NCL list. I gave MHCET also but I don't think I will score good enough because I did not prepare well. Same for jee advanced also.. I don't have any solid interest in like CS or other branches. Like I have not explored yet. But I certainly like hacking and coding sort of but not sure which college and which branch to choose. Please advice and help
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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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