Hello, I am 37 years old, with a near 7 year old son. My monthly (m) in hand salary is about 2 lakhs/m, husband's is 45k/m. In addition, I put in 27208/m in PF (employer+ employee), 11301/m in NPS employer contribution, 1.5 lakh/year (y) in PPF since starting in 2021, 50k/y NPS, 15k/m MF SIP. My husband puts in 5k/m in MF SIP. I would like to purchase a property of maximum 1 cr in the near future, another 1cr to build a house in 2-3 years from purchase (purchase date is indefinite as we've not yet found an ideal plot - need liquidity for purchase and hence FD). About 1.5 crore for my son's higher education - 2032 onwards perhaps. Our current monthly expenses are about 60k/m. Combined we have about 1.27cr through MF (57 lakhs), NPS (4 lakhs), SGB (58k), PPF (10 lakhs), EPF (7.5 lakhs), FD (43 lakhs, saving for property purchase), US stocks (1.7 lakhs). Mutual funds +insurance (maturity of about 32 lakhs in 2032) have been reserved for child's education, PPF, NPS, EPF, stocks including US for retirement. I put in about 155k in FD towards property/m. We own our flat. Looking at guidance on where to invest and how much to invest.
Ans: Firstly, you have an impressive income and savings strategy. Your monthly combined in-hand salary is Rs 2.45 lakhs. You have set aside substantial amounts in various investment instruments. This reflects a commendable level of financial discipline and foresight.
Your current investments include provident fund (PF), national pension system (NPS), public provident fund (PPF), mutual funds (MF), sovereign gold bonds (SGB), fixed deposits (FD), and US stocks. You have clearly earmarked funds for your son's education, retirement, and a future property purchase. This strategic approach is excellent.
Investment Allocation Overview
Your current investment allocation includes:
PF: Rs 27,208 per month
NPS: Rs 11,301 per month (employer contribution), Rs 50,000 per year (self-contribution)
PPF: Rs 1.5 lakh per year
MF SIPs: Rs 20,000 per month (combined)
SGB: Rs 58,000
EPF: Rs 7.5 lakh
FD: Rs 43 lakh
US stocks: Rs 1.7 lakh
Your current investments and savings are well-diversified. You are contributing regularly to PF, NPS, PPF, and MFs, which ensures a balanced approach to both growth and stability. Your focus on long-term goals like your son's education and retirement is evident and well-planned.
Evaluating Current Investments for Goals
Property Purchase and Construction
You plan to buy a property worth Rs 1 crore and build a house worth another Rs 1 crore in 2-3 years. You have set aside Rs 43 lakh in FDs for this purpose. This is a sound strategy for maintaining liquidity. However, to meet the property purchase goal, continue adding to your FD to reach the required Rs 2 crore.
Son's Higher Education
For your son's higher education starting around 2032, you have earmarked Rs 1.5 crore. You have allocated mutual funds and insurance policies with a maturity value of Rs 32 lakh. Given the current MF corpus of Rs 57 lakh and regular SIP contributions, you are on the right track. Continue these SIPs and consider increasing the allocation slightly as your income allows.
Retirement Planning
Your PPF, NPS, EPF, and US stocks are designated for retirement. Your contributions to these funds are robust. The regular investments in PPF and NPS, along with EPF, will provide a steady retirement corpus. US stocks add some international diversification, though you might consolidate more into mutual funds for now.
Optimising Investment Strategy
Increase Equity Exposure via Mutual Funds
Your current MF SIPs are Rs 20,000 per month. Given your long-term goals, consider increasing this to Rs 30,000 per month if your budget allows. Actively managed funds provide professional management and the potential for higher returns compared to index funds.
Disadvantages of Index Funds
Index funds track the market and lack flexibility. They can't respond to market changes and may underperform during volatile periods. Actively managed funds, however, offer better opportunities for growth through strategic asset allocation.
Advantages of Actively Managed Funds
Professional managers make informed investment decisions. They can adapt to market conditions and potentially provide higher returns. This is particularly beneficial for your long-term goals like your son's education and retirement.
Regular Funds vs. Direct Funds
Direct funds have lower expense ratios but require more time and expertise. Regular funds, invested through a Certified Financial Planner, offer professional guidance and ongoing support. This helps in making informed decisions and managing your portfolio efficiently.
Maintaining Liquidity for Property Purchase
FDs are a good option for liquidity. Continue your Rs 1.55 lakh monthly FD contributions. This ensures you have enough funds available when you find the ideal plot.
Evaluating Risk and Adjusting Investments
Given your current age and financial goals, a balanced approach between equity and debt is suitable. However, as you approach your goals, consider gradually shifting from equity to debt to reduce risk.
Professional Guidance
A Certified Financial Planner can provide tailored advice. They help in aligning your investments with your goals and managing risks effectively. Regular reviews and adjustments based on market conditions are crucial.
Tax Implications
Keep in mind the tax implications of your investments. Long-term capital gains tax on mutual funds, interest income from FDs, and tax benefits from PPF and NPS contributions should be considered. Consult with a tax advisor for optimal tax planning.
Emergency Fund
Ensure you have an emergency fund covering at least 6-12 months of expenses. This provides a financial cushion for unexpected events.
Insurance Needs
Adequate insurance coverage is essential. Review your life and health insurance policies to ensure they meet your family’s needs. Insurance provides financial security in case of unforeseen events.
Diversification
While you have a diversified portfolio, review your asset allocation periodically. Ensure it aligns with your risk tolerance and financial goals. Diversification helps in managing risk and optimizing returns.
Long-Term Investment Horizon
Given your long-term goals, maintaining a disciplined investment approach is key. Avoid making impulsive decisions based on market fluctuations. Stick to your investment plan and review it regularly with your Certified Financial Planner.
Final Insights
Your financial strategy is well-thought-out and disciplined. Continue your current investment approach with slight adjustments to enhance your portfolio. Increase your SIPs in actively managed mutual funds for better returns. Maintain your FDs for property purchase liquidity. Seek professional guidance for regular reviews and adjustments.
Ensure adequate insurance coverage and maintain an emergency fund. Focus on long-term goals and stick to your investment plan. With disciplined investing and professional advice, you can achieve your financial goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in