Need Expert Advice?Our Gurus Can Help

Financial Independence at 44: How To Invest Surplus Money?

Ramalingam Kalirajan |8182 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Sep 16, 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 - Sep 15, 2024Hindi

Hello Sir, I am 44 and my wife is 41 and we are both working in software industry and have a 10 year old daughter. We have taken home salaries of 3.5 L and 3 L per month. At this point we have real estate worth of around 6 crores (2 flats and 2 plots) and rental income from one of the flats is 20k. Our other assets are PF - 1 CR, PPF - 20 L, NPS - 20 L, NPS - 20 L, Sukanya Samrithi - 10 L, Mutual funds - 50 L, Bank FD's - 50 L, Shares / options / RSU's - 60L and Gold - 1.5 CR We have monthly investments of Mutual Fund SIP's - 1.5 L Bank RD'S - 1.2 L PF - 1 L PPF - 25000 NPS - 25000 Sukanya Samrithi - 12500 Our ancestral inheritance would be roughly 8 CR's We have 2 cars and don't have any loans or EMI's and current monthly expenses is around 1.5 L and typically take an international vacation every year. Considering the uncertainty in corporate sector we want to achieve financial independence and invest our surplus money. Please advice

Ans: You and your wife are in a very stable financial position. Your combined home salary is Rs 6.5 lakh per month, which is a strong base. Additionally, you have significant real estate assets worth Rs 6 crores, alongside other investments such as provident funds, mutual funds, shares, and gold. Having no loans or EMIs gives you financial flexibility, and your monthly expenses of Rs 1.5 lakh allow for substantial monthly investments.

You already have:

Real estate worth Rs 6 crore (two flats and two plots)
Rental income of Rs 20,000 per month
Provident fund (PF) – Rs 1 crore
Public Provident Fund (PPF) – Rs 20 lakh
National Pension System (NPS) – Rs 20 lakh
Sukanya Samriddhi Yojana (SSY) – Rs 10 lakh
Mutual funds – Rs 50 lakh
Bank fixed deposits (FDs) – Rs 50 lakh
Shares, options, and RSUs – Rs 60 lakh
Gold – Rs 1.5 crore
Ancestral inheritance – Approximately Rs 8 crore
Monthly SIPs in mutual funds – Rs 1.5 lakh
Bank recurring deposits (RDs) – Rs 1.2 lakh
Provident fund (PF) – Rs 1 lakh
Public Provident Fund (PPF) – Rs 25,000
National Pension System (NPS) – Rs 25,000
Sukanya Samriddhi Yojana (SSY) – Rs 12,500
Financial Independence and Investment Strategy
Evaluate Asset Allocation
Your current investment portfolio is quite diversified. However, it’s heavily skewed toward real estate and gold. While these are valuable, both asset classes are typically illiquid, and they don’t provide regular income or substantial growth over time.

Real estate can be difficult to liquidate in emergencies or during downturns, and gold doesn’t generate regular income either.

Recommendations:
Increase Allocation to Financial Assets: You should focus on shifting a part of your real estate and gold assets into more liquid, growth-oriented financial assets such as mutual funds and stocks. This will provide better returns over the long term and more flexibility.

Diversify Further into Equity Mutual Funds: Consider increasing your SIPs in mutual funds. Equity-based mutual funds, especially actively managed ones, can offer higher returns compared to fixed deposits or RDs over the long term.

Reduce Dependence on Fixed Income Instruments: You have significant investments in fixed deposits and recurring deposits. These offer safety but at lower returns. Reducing your exposure to fixed-income instruments and increasing exposure to equity will balance growth and safety. The PPF, SSY, and NPS already provide sufficient debt exposure.

Liquidity Management
Increase Emergency Fund: While your savings and investments are robust, ensure you have an emergency fund equivalent to 6-12 months of expenses in a liquid, easily accessible account, such as a savings account or a liquid mutual fund. This ensures liquidity for unforeseen expenses.
Long-term Wealth Creation
Actively Managed Mutual Funds
Consider Regular Fund Investments via a Certified Financial Planner: Regular funds, guided by a certified financial planner, give you the benefit of professional management and fund recommendations. While direct funds may offer lower expense ratios, regular funds offer insights and advice that often lead to better long-term gains.

Avoid Index Funds and ETFs: While they offer low-cost exposure to the market, index funds and ETFs generally lack the dynamic approach that actively managed funds provide. In the uncertain corporate environment you mentioned, actively managed funds can adjust to market conditions better, potentially safeguarding your capital.

Tax Efficiency
Maximize Tax-advantaged Investments
Utilize Tax-efficient Investment Strategies: Continue contributing to tax-saving schemes such as PPF, NPS, and Sukanya Samriddhi Yojana. Additionally, tax-efficient equity funds (such as ELSS) can help you save on taxes while offering better long-term returns than debt instruments.

Review Gold Holdings: Consider selling a portion of your gold investments and reallocating them into financial assets. Gold doesn’t generate any income, and capital gains are taxed when sold. By reallocating to mutual funds or equities, you can create a more tax-efficient growth strategy.

Planning for Your Daughter’s Future
You are already investing in the Sukanya Samriddhi Yojana, which is a good step. However, you may want to consider adding child-specific mutual fund plans to ensure her education and marriage expenses are met without any shortfall.

Increase SIPs with a Goal-based Strategy: You can allocate additional SIPs in mutual funds with the goal of your daughter’s education and marriage. This will allow you to benefit from compounding returns, and you can adjust the risk level based on the time horizon.
International Vacations and Lifestyle
You have mentioned that you take international vacations regularly. Given that lifestyle is important to you, it’s crucial to balance financial independence with your desire for experiences.

Create a Separate Travel Fund: Set aside a small percentage of your monthly savings specifically for vacations. This ensures that your other financial goals, such as retirement, are not affected by discretionary spending on travel.
Retirement and Financial Independence
Retirement Planning
Given the uncertainty in the corporate sector, planning for early retirement and financial independence is wise. Your current investments, combined with the significant inheritance you expect, should provide you with a strong base for retirement.

Set a Retirement Corpus Goal: With your high monthly savings and disciplined investment strategy, aim for a retirement corpus that can sustain your lifestyle, cover medical expenses, and leave a legacy. Considering your current expenses of Rs 1.5 lakh per month, factor in inflation and aim for a corpus that generates enough passive income.

Diversify NPS Contributions: While NPS is an excellent long-term retirement instrument, ensure you select a high equity allocation for better growth. Given your current age, you can afford to take some risks for better long-term returns.

Ancestral Wealth and Estate Planning
Legacy and Inheritance Planning
With a large inheritance expected (Rs 8 crore), estate planning becomes crucial. It’s important to decide how you want to pass on your wealth to the next generation.

Draft a Will: Ensure that both you and your wife have clear wills in place to avoid any legal complications for your daughter. Also, consider consulting an estate planner to efficiently distribute your inheritance in a tax-efficient manner.

Create a Family Trust: Given the size of your estate, you may want to explore setting up a family trust. This will protect your assets and ensure a smooth transfer of wealth to your daughter.

Final Insights
Your current financial standing is solid, and your disciplined investment approach will help you reach financial independence soon. However, to improve liquidity and enhance growth, consider the following:

Increase your allocation to equity mutual funds and actively managed funds.

Reduce reliance on real estate and fixed deposits, which may limit growth potential and liquidity.

Continue focusing on tax-efficient investment strategies to maximize post-tax returns.

Plan for your daughter’s future education and marriage expenses through goal-based mutual fund investments.

Ensure your estate is well-planned through wills and a potential family trust.

By making these adjustments, you can balance financial security, long-term growth, and your lifestyle needs.

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.