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Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 25, 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 - Jun 17, 2024Hindi
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Hello I am a 55 year old Mechanical Engineer worked in MNC automotive OEM & Tier 1 companies for many years. But I lost job about 5 months back. I have now started MF Distributor & Insurance Advisory business after passing required exams. I have a PF of 57lac, Insurance maturity amounts worth 60 lac expected from 2028 onwards till 2032. MF worth 17lac SIP in progress , FD 5 lac, Living Flat worth 1.8cr, Plot worth 25 lac. I also get rental income of 20k pm. MF & Insurance business is for long term for next 15 to 20 years as long as it permits. I am also trying for a regular job to wirk for 5 to 6 years. How to go about Financial management in case I don't land up a job. Inam worried as Inncome from MF & Insurance will take longer.

Ans: I appreciate your determination and proactive approach in starting a mutual fund and insurance advisory business. At 55, transitioning from a corporate job to entrepreneurship can be daunting, but it’s commendable. Let’s build a solid financial plan to secure your future, assuming you don't find another job.

Understanding Your Current Financial Situation
Assets and Income
Provident Fund (PF): Rs 57 lakhs
Insurance Maturity Amounts: Rs 60 lakhs (expected from 2028 to 2032)
Mutual Funds (MF): Rs 17 lakhs (SIP in progress)
Fixed Deposit (FD): Rs 5 lakhs
Living Flat: Rs 1.8 crores
Plot: Rs 25 lakhs
Rental Income: Rs 20,000 per month
Business and Career Goals
MF and Insurance Advisory: Aiming for long-term business (15-20 years)
Potential Regular Job: Trying to find a job for the next 5-6 years
Prioritizing Financial Goals
Ensure Regular Income: Cover monthly expenses
Maintain and Grow Investments: Secure long-term financial stability
Plan for Retirement: Prepare for a comfortable retirement
Ensuring Regular Income
Rental Income
Current Rental Income: Rs 20,000 per month
Mutual Fund SIPs
Continue SIPs: Keep the SIPs active to build wealth over time.
Systematic Withdrawal Plan (SWP): Consider SWP from mutual funds after a year or two for regular income.
Emergency Fund
Emergency Fund: Ensure you have an emergency fund to cover 6-12 months of expenses.
Liquid Funds: Keep the emergency fund in liquid or ultra-short-term funds for easy access.
Income from MF and Insurance Business
Growing Your Business
Client Base: Focus on growing your client base to increase income.
Networking: Leverage your industry contacts to get clients.
Online Presence: Build a strong online presence to attract clients.
Income Management
Diversify Income Sources: Apart from MF and insurance, consider providing financial planning services.
Training and Development: Invest in continuous learning to stay updated and offer better services.
Managing Expenses
Monthly Budget
Track Expenses: Use budgeting tools or apps to track and manage your expenses.
Cut Unnecessary Costs: Identify areas where you can reduce expenses.
Loan Repayment
Avoid New Debt: Try to avoid taking on new debt during this transition period.
Prepay Existing Loans: If possible, prepay any high-interest loans to reduce the financial burden.
Investment Strategy
Existing Investments
Provident Fund: Keep the PF invested for long-term growth.
Insurance Policies: Let the policies mature as planned for future financial support.
Mutual Funds: Continue SIPs and review the portfolio regularly.
New Investment Opportunities
Diversify Portfolio: Invest in a mix of large-cap, mid-cap, and small-cap funds.
Debt Funds: Consider investing in debt funds for stable returns and low risk.
Avoid Real Estate: Given the illiquidity and high transaction costs, avoid new real estate investments.
Tax Planning
Utilize Tax Benefits
Section 80C: Maximize the Rs 1.5 lakh limit under Section 80C.
NPS Contributions: Consider additional NPS contributions for extra tax benefits.
Tax-Efficient Investments
Long-Term Capital Gains: Focus on investments that offer tax-efficient returns.
Tax Harvesting: Use tax harvesting strategies to manage tax liabilities on mutual fund gains.
Retirement Planning
Creating a Retirement Corpus
Calculate Retirement Needs: Estimate the amount needed for a comfortable retirement.
Invest in Growth Assets: Focus on equity mutual funds for long-term growth.
Regular Review
Annual Review: Review your retirement plan annually to ensure it aligns with your goals.
Adjustments: Make necessary adjustments based on market conditions and personal circumstances.
Final Insights
Your proactive approach to starting a new business and managing your finances is commendable. Focus on growing your MF and insurance advisory business, managing your expenses, and making strategic investments. With careful planning and disciplined execution, you can achieve financial stability and a comfortable retirement.

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  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 07, 2024

Money
Hi, I working in the automotive industry from last 8 years and my current gross salary is 68k per month. I did my my investment of 2.5lacs in Sahara fund and I think I have lost my money and no return I will get from their. I have also a LIC policy of 52k yearly. I also lost approx. 7lacs in stock marked and my current savings is nill. I just want to hear about financial planning how can I make robust plan so that I can free from all the liability at the age 45. I also have plan to purchase a house in NCR. My current age is 31 and I married.
Ans: Thank you for reaching out and sharing your financial situation. It’s commendable that you are taking proactive steps towards financial planning. Let’s work together to create a robust financial plan that addresses your current challenges and helps you achieve your goals.

Current Financial Situation Analysis

You’ve been in the automotive industry for the past 8 years, earning a gross salary of Rs 68,000 per month. It’s great that you have steady income. However, you’ve faced some financial setbacks.

Investment in Sahara Fund: Rs 2.5 lakhs, with concerns about losing this amount.
LIC Policy: Annual premium of Rs 52,000.
Loss in Stock Market: Approx. Rs 7 lakhs.
Current Savings: Nil.
Despite these challenges, your initiative to seek financial planning is commendable. Let's start by addressing each component and then create a plan for your future.

Understanding Your Goals

Debt-Free by Age 45: You aim to be free of liabilities by 45.
Purchase a House in NCR: You plan to buy a house in the National Capital Region.
Build a Robust Financial Plan: You want to ensure financial stability and growth.
Step-by-Step Financial Planning

1. Assessing and Addressing Current Investments

Sahara Fund Investment

Your investment of Rs 2.5 lakhs in the Sahara fund seems concerning. It’s essential to follow up on any legal recourse or regulatory updates regarding Sahara funds. However, for planning purposes, we will consider this amount as a potential loss.

LIC Policy Evaluation

LIC policies often come with high premiums and lower returns compared to mutual funds. Evaluating the surrender value of your policy can provide an option to reinvest in more lucrative investments. If surrendering the policy yields a reasonable amount, consider reinvesting it in mutual funds. Mutual funds offer better returns and flexibility.

Stock Market Losses

The Rs 7 lakhs loss in the stock market is significant. It highlights the need for a more structured approach to investing. Stock market investments can be volatile and risky without proper research and strategy. Moving forward, it’s crucial to diversify and possibly reduce direct stock market exposure.

2. Setting Up a Budget and Emergency Fund

Monthly Budget

Your gross monthly salary is Rs 68,000. Let’s create a budget to ensure effective allocation of your income:

Essentials (Rent, utilities, groceries): Rs 30,000
Insurance and premiums (LIC): Rs 4,333 (Rs 52,000 annually)
Savings and Investments: Rs 10,000
Discretionary Spending: Rs 10,000
Emergency Fund Allocation: Rs 13,667
This budget ensures you save consistently while covering your necessary expenses. Adjustments can be made based on your specific needs and circumstances.

Emergency Fund

An emergency fund is crucial for financial stability. Aim to save at least 6 months’ worth of expenses. With Rs 13,667 saved monthly, you’ll build an emergency fund of Rs 82,002 in 6 months. Continue this until you reach Rs 1.8 lakhs, providing a solid financial cushion.

3. Creating a Structured Investment Plan

Mutual Funds Investment

Considering the disadvantages of direct funds, investing through a Certified Financial Planner (CFP) can provide professional guidance. Let’s discuss the benefits of regular funds:

Professional Management: Actively managed funds have fund managers making informed investment decisions.
Regular Reviews: A CFP will review and adjust your portfolio as needed.
Diversification: Mutual funds offer a diversified investment portfolio.
Investment Allocation

Here’s a suggested investment allocation based on your monthly budget:

Equity Mutual Funds: Rs 6,000 (Higher growth potential but higher risk)
Debt Mutual Funds: Rs 4,000 (Stability and lower risk)
Emergency Fund: Continue saving Rs 13,667 monthly until you reach the target amount.
4. Long-Term Goals and Retirement Planning

Debt-Free by Age 45

To achieve this, focus on paying off any existing debts. If you have loans or credit card debts, prioritize clearing them. Use part of your savings and investment returns to accelerate debt repayment.

Retirement Planning

Start planning for retirement by investing in mutual funds and considering the Employee Provident Fund (EPF) if applicable. Regular contributions to EPF and mutual funds will create a substantial retirement corpus. Aim to increase your investment amounts as your income grows.

5. Planning for a House in NCR

Buying a house is a significant financial commitment. Here’s a plan to help you prepare:

Down Payment Savings: Save for the down payment, typically 20% of the property value. Assuming a house costs Rs 50 lakhs, you need Rs 10 lakhs for the down payment.
Monthly Savings Goal: Save Rs 20,000 monthly dedicated to the down payment fund. In approximately 4 years, you’ll have Rs 9.6 lakhs.
Home Loan Consideration: Evaluate home loan options. Ensure the EMI fits within your budget without straining your finances.
6. Tax Planning and Efficiency

Tax Benefits on Investments

Investing in Equity Linked Savings Schemes (ELSS) can provide tax benefits under Section 80C. Ensure you utilize the full Rs 1.5 lakhs limit for maximum tax savings. Contributions to EPF and LIC premiums also count towards this limit.

Tax Efficiency of Investments

Mutual funds, especially equity funds, offer tax efficiency. Long-term capital gains (LTCG) on equity mutual funds are taxed at 10% for gains above Rs 1 lakh. Debt funds have different tax implications but can be more tax-efficient than fixed deposits.

7. Regular Review and Adjustments

Financial planning is not a one-time activity. Regular reviews and adjustments are crucial. Schedule annual reviews with your CFP to assess the performance of your investments and make necessary changes. Life events, market conditions, and financial goals can change, requiring adjustments to your plan.

Empathy and Understanding

I understand that past financial losses can be disheartening. However, your proactive approach towards financial planning is commendable. It's important to learn from past experiences and make informed decisions going forward. Building a solid financial foundation takes time, but with consistent effort and strategic planning, you can achieve your goals.

Final Insights

Your journey towards financial stability starts with a structured plan. By addressing current investments, setting up a budget, creating an emergency fund, and investing wisely, you’ll build a robust financial future. Regular reviews and adjustments will ensure your plan stays on track.

Keep in mind the importance of professional guidance. A Certified Financial Planner can provide valuable insights and help navigate complex financial decisions. Stay committed to your financial goals, and you’ll achieve the security and stability you desire.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 18, 2024

Asked by Anonymous - Jul 07, 2024Hindi
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Hi, am 47 years old. Have EPF approx 95 lakhs. MF portfolio of around 90 lakhs(still continuing SIP of 60k per month), FD of about 1cr. Self occupied house and another flat (un occupied, it was earlier used by my parents). Term insurance of 1.25 cr, Personal health insurance of around 10 lakh, personal accidental insurance of 2 cr. Have 2 young kids (aged 12 and 5). How am I placed and what is your suggestion for better financial stability in future in the uncertain job market scenario ?
Ans: You are 47 years old with a strong financial foundation. Here is a summary of your current assets and investments:

EPF: Rs. 95 lakhs
Mutual Fund Portfolio: Rs. 90 lakhs (with a SIP of Rs. 60,000 per month)
Fixed Deposits: Rs. 1 crore
Real Estate: Self-occupied house and an unoccupied flat
Insurance: Term insurance of Rs. 1.25 crore, personal health insurance of Rs. 10 lakhs, and personal accident insurance of Rs. 2 crore
Family: Two children aged 12 and 5
Financial Goals
Ensure Financial Stability: Secure financial stability in an uncertain job market.
Education Fund: Plan for your children's education expenses.
Retirement Planning: Ensure a comfortable retirement.
Emergency Fund: Maintain an adequate emergency fund.
Recommendations for Financial Stability
1. Enhance Emergency Fund
Safety Net: Maintain an emergency fund equal to 6-12 months of living expenses.
Liquid Assets: Keep this fund in liquid assets like savings accounts or short-term deposits for easy access.
2. Education Planning for Children
Dedicated Investments: Start dedicated investments for your children's education.
Education Plans: Consider investing in child education plans or mutual funds tailored for long-term growth.
3. Review and Rebalance Investment Portfolio
Diversification: Ensure your investment portfolio is well-diversified across equity, debt, and balanced funds.
Regular Review: Review your portfolio annually to adjust based on market conditions and financial goals.
4. Increase Health Insurance Coverage
Adequate Coverage: Ensure your health insurance coverage is sufficient for the entire family.
Top-Up Plans: Consider top-up health insurance plans to increase your coverage without high premiums.
5. Retirement Planning
Long-Term Investments: Continue investing in long-term assets like mutual funds and EPF for retirement.
Retirement Corpus: Calculate your retirement corpus and ensure you are on track to meet your retirement goals.
6. Utilize Real Estate Wisely
Unoccupied Flat: Consider renting out the unoccupied flat to generate additional income.
Real Estate Maintenance: Ensure proper maintenance and upkeep of your real estate properties.
7. Insurance Coverage
Review Policies: Regularly review your term insurance and personal accident insurance to ensure they meet your needs.
Update Nominees: Ensure your insurance policies have the correct nominees and beneficiaries.
Analytical Insights
Investment Strategy
Continued SIPs: Your continued SIP of Rs. 60,000 per month in mutual funds is a disciplined investment strategy.
Fixed Deposits: Fixed deposits provide stability but consider diversifying for higher returns.
EPF: Your EPF is a strong long-term investment with good returns.
Risk Management
Adequate Insurance: You have sufficient term and personal accident insurance coverage.
Health Insurance: Ensure your health insurance coverage is adequate for medical emergencies.
Key Considerations
Financial Goals: Align your investments with your long-term financial goals, such as education and retirement.
Risk Tolerance: Assess your risk tolerance to determine the right mix of investments.
Regular Review: Review your financial plan annually and adjust investments based on performance and goals.
Final Insights
To ensure financial stability in an uncertain job market, focus on maintaining a strong emergency fund and planning for your children's education. Continue with your disciplined SIP investments and ensure your portfolio is well-diversified. Increase your health insurance coverage to protect against medical emergencies. Review your insurance policies regularly to ensure adequate coverage. Utilize your unoccupied flat to generate additional income. By following these recommendations, you can secure a stable financial future for yourself and your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 13, 2024

Asked by Anonymous - Aug 08, 2024Hindi
Money
I am 23 single and I earn 41k pm and I send 22k at my home to parents as a part of responsibility and keep 19k to myself in which i pay 6k as a rent and on an around i end with 1-2k around in the end of the month from the 19k and i have an SIP of 4000 per month, and have invested around 40k in stock market in equity, i lic of 1cr for which i pay 40k per year. Do give me advice for the financial management how should i get my financials strong and what steps should be taken for the same.
Ans: You have a monthly income of Rs. 41,000. You send Rs. 22,000 to your parents, which shows a strong sense of responsibility. After rent and expenses, you manage to save around Rs. 1,000 to Rs. 2,000 per month. You also have an SIP of Rs. 4,000 and an investment of Rs. 40,000 in equities. Additionally, you pay Rs. 40,000 annually for a LIC policy with a cover of Rs. 1 crore. Your financial journey has begun, but you need a strategy to strengthen it further.

Budgeting: The Foundation of Financial Management
Budgeting is key to managing your finances better. Since your current savings are limited, a strict budget can help you find areas where you can cut costs. For example, you could look into reducing discretionary spending like eating out or entertainment. Saving small amounts from these areas can gradually build up your emergency fund.

Track Your Expenses:
Keep a detailed record of your monthly spending. This helps you identify where you can cut back.

Prioritize Saving:
Even small amounts saved every month can grow over time. Aim to increase your savings by Rs. 500 to Rs. 1,000 per month.

Reevaluate Your Rent:
Consider looking for a more affordable place to live if possible. Saving on rent can significantly impact your budget.

Reviewing Your SIP and Equity Investments
You have wisely started investing in an SIP and equities at a young age. This habit can yield significant returns over time. However, it’s essential to ensure your SIP is aligned with your financial goals.

Increase SIP Gradually:
Try to increase your SIP contributions by Rs. 500 to Rs. 1,000 every year. This small step can make a big difference over time.

Diversify Your Equity Portfolio:
If your Rs. 40,000 investment in equities is concentrated in a few stocks, consider diversifying. Spreading your investment across different sectors reduces risk.

Consider Actively Managed Funds:
Actively managed funds can potentially outperform the market. This offers better growth prospects compared to index funds.

Insurance and Risk Management
You have a Rs. 1 crore LIC policy, which is a significant step towards securing your financial future. However, it’s essential to review the policy’s terms and its alignment with your overall financial plan.

Reevaluate Your LIC Policy:
Evaluate if the annual Rs. 40,000 premium fits your current financial capacity. Consider if the policy provides value beyond just life cover.

Consider Term Insurance:
Term insurance is usually more cost-effective than traditional LIC policies. It provides the same coverage at a lower cost, allowing you to invest the savings.

Health Insurance:
If you don’t have health insurance, consider getting a basic plan. Medical emergencies can drain your savings quickly.

Building an Emergency Fund
An emergency fund is a must-have for financial stability. It provides a safety net in case of unforeseen expenses or job loss. Aim to build a fund that covers at least three to six months of your expenses.

Start Small:
Begin by saving a portion of your Rs. 1,000 to Rs. 2,000 monthly surplus. Gradually increase this amount as your income grows.

Keep It Accessible:
Ensure the money is easily accessible, but separate from your regular savings. A dedicated savings account is ideal.

Future Planning: Goals and Investments
At 23, you have time on your side. It’s the right time to think about your long-term goals, like buying a house, further education, or retirement. Early planning can help you achieve these goals more comfortably.

Set Clear Financial Goals:
Define what you want to achieve in the next 5, 10, and 20 years. This will guide your investment choices.

Consider Retirement Planning:
Even though retirement seems far away, starting early ensures you have a comfortable nest egg. Consider starting a PPF or NPS account to begin this journey.

Invest in Skill Development:
Investing in your skills can lead to better job opportunities and higher income. This, in turn, strengthens your financial position.

Managing Debt Wisely
Currently, you have no mention of loans or credit card debt, which is positive. However, managing debt is crucial as you progress in your career and take on more responsibilities.

Avoid High-Interest Debt:
If you ever need to take a loan, avoid high-interest options like personal loans or credit card debt.

Use Credit Cards Responsibly:
If you use a credit card, pay the full balance each month to avoid interest charges.

Regular Review and Adjustment
Your financial plan should not be static. As your income increases or life circumstances change, revisit your budget, investments, and goals.

Annual Review:
Make it a habit to review your financial plan every year. Adjust your SIPs, budget, and goals based on your current situation.

Stay Informed:
Keep yourself updated on financial products and market trends. This knowledge helps you make informed decisions.

Finally
Strengthening your financials at this stage is a wise decision. By budgeting, saving, and investing thoughtfully, you can build a strong financial foundation. With time and discipline, you’ll be well on your way to achieving your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Asked by Anonymous - Oct 08, 2024Hindi
Money
Good evening sir. i am 66year old senior citizen retired last year.wife is 60 years n home.maker.My.investments r as follows..Shares.1.4.cr.Muttual funds.50.lakhs.Sip 75k per month for another 3 years.Real estate plot 1cr.ppf 45 lakhs valid till.2026.Gold around 80 lakhs Daughters married n settled.Son.engineering graduate recently n searching for job.How do i plan for retirement assuming lie span.upto.85.I.have.a family health insurance of 7 lakhs. Looking forward for your valuable guidance.No.liabilities n.own house.
Ans: Your investment portfolio looks quite healthy. You have a variety of assets:

Rs 1.4 crore in shares
Rs 50 lakh in mutual funds
SIP of Rs 75,000 per month for another 3 years
Rs 1 crore real estate plot
Rs 45 lakh in PPF
Rs 80 lakh in gold
You also have a health insurance cover of Rs 7 lakh and no liabilities. With your wife being a homemaker, and your children settled, the focus should be on planning for sustainable retirement income.

Let’s analyse the situation and guide you on how to ensure your funds last throughout your retirement. Your goal is to maintain financial security till the age of 85, which means planning for the next 19 years.

Evaluating Your Current Assets
Shares (Rs 1.4 crore)
This is a substantial part of your portfolio. Shares can provide high returns but are volatile. Since you are retired, you need stability more than high-risk exposure. I suggest reviewing your shareholding and considering shifting a portion of this into less risky assets.

You may continue holding some of these shares for capital appreciation.
Shift part of the portfolio into less volatile instruments for regular income.
Mutual Funds (Rs 50 lakh) and SIPs
You have Rs 50 lakh in mutual funds and an ongoing SIP of Rs 75,000 per month for another three years. This systematic investment is a good approach, as it helps build wealth.

You could switch some of these mutual funds from growth-oriented funds to regular income-oriented funds.
This will ensure a steady stream of income while still enjoying some growth.
Note: Actively managed funds could be a better option for you at this stage of life. They are guided by professional fund managers who adjust the portfolio based on market conditions. Index funds, on the other hand, follow the market passively and can be volatile.

PPF (Rs 45 lakh, Valid Till 2026)
The PPF is a safe investment, giving tax-free returns. With Rs 45 lakh, it serves as a stable part of your portfolio.

You should continue holding it until maturity in 2026.
Upon maturity, reinvesting the proceeds into senior citizen schemes or low-risk instruments can ensure steady income.
Gold (Rs 80 lakh)
Your gold holding is quite significant. While gold can act as a hedge against inflation, it does not generate regular income.

I suggest retaining some portion of the gold.
Consider liquidating part of the gold and shifting the proceeds into low-risk, income-generating investments.
Real Estate Plot (Rs 1 crore)
You have a real estate plot valued at Rs 1 crore. However, real estate is an illiquid asset and may not provide regular income unless rented or sold.

You can explore selling this property if it doesn’t generate regular cash flow.
Reinvest the proceeds into safer, more liquid instruments that provide monthly income.
Retirement Corpus and Monthly Income
At this stage, it's crucial to build a consistent monthly income stream to meet your expenses.

Look at investing a portion of your shares, mutual funds, or real estate sale proceeds into debt instruments.
Debt mutual funds, bonds, or government-backed schemes can provide a steady flow of income without high risk.
You need to evaluate your monthly expenses and match them with the income from investments. Based on your assets, there are several options that offer predictable returns:

Senior Citizens' Savings Scheme (SCSS): Offers regular income, government-backed, and safe.
Debt Funds: These are relatively safe mutual funds focusing on fixed-income securities.
Monthly Income Plans (MIPs): These are hybrid mutual funds designed to give regular income, ideal for retirees.
These options can ensure that you have a regular monthly income to meet your lifestyle needs without depending on volatile assets like shares.

Emergency Fund Planning
You should keep aside 1-2 years’ worth of expenses in a very liquid form. This ensures you are prepared for any unexpected emergencies without liquidating long-term assets.

Liquid funds or bank fixed deposits can be a suitable place to park these emergency funds.
It will give you quick access to money, should the need arise.
Health Insurance Review
You currently have health insurance of Rs 7 lakh. At your age, healthcare expenses can rise, so reviewing your health cover is essential.

I recommend increasing your coverage to at least Rs 15-20 lakh.
You can do this by either upgrading your existing policy or taking a top-up plan.
Healthcare expenses are unpredictable and can put a strain on your savings. A larger health cover can protect your retirement corpus from being eroded.

Plan for Your Wife
Since your wife is a homemaker, it is important to ensure that she has financial security. If anything were to happen to you, she must have access to regular income and health coverage.

You can consider setting up joint investment accounts with your wife.
Ensure that your will and nominations are up to date.
Also, review her health insurance separately. Since she is 60 years old, it’s important that she has adequate cover in case of emergencies.

Structuring Your Retirement Income
Given the wide range of assets you have, structuring them properly is key to meeting your retirement goals. Here's how you can proceed:

Short-term needs (1-3 years): Keep money in highly liquid assets like bank FDs or liquid funds for emergencies.

Medium-term needs (3-10 years): Invest in debt mutual funds, bonds, or SCSS for regular income.

Long-term needs (10-15 years): Keep a portion of your shares and mutual funds invested for growth, but gradually move some into safer instruments.

Inflation Protection
You must also account for inflation in your retirement planning. Inflation will erode the value of your savings over time.

Consider keeping a portion of your funds invested in growth-oriented assets like mutual funds.
Gold also acts as a hedge against inflation, so maintaining some of your gold holdings will help.
Estate Planning
Since you own significant assets, it’s important to ensure a smooth transfer to your heirs.

Create a will if you haven’t already.
Review your nominations in all investment accounts and insurance policies to avoid legal complications.
You should ensure that your son, daughter, and wife are clear about your financial plans. This will help them manage assets if you are no longer able to.

Finally
You are in a strong financial position, but retirement requires careful planning. Diversifying your assets into more stable, income-generating options will give you the peace of mind that your money will last for the rest of your life.

Consider reducing exposure to volatile assets like shares.
Ensure regular monthly income through safer investments like debt mutual funds and senior citizen schemes.
Increase your health insurance cover to protect against rising healthcare costs.
By structuring your investments properly and making adjustments where necessary, you can ensure that you enjoy a comfortable retirement without worrying about outliving your savings.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 09, 2024

Asked by Anonymous - Oct 08, 2024Hindi
Money
I have availed home of 75 lakh. Loan account have over draft facility so I have parked all my savings of 65L in over draft. Plus point I am paying no nterest and amount is accessible in case needed. Please advise shall I start repaying in bulk 5L per year or invest in mf/equities. I am 44 yo working professional , 30L pa salary and looking to create corpus for retirement in next 10years
Ans: At 44, you're a working professional earning Rs. 30 lakh annually. You've availed a Rs. 75 lakh home loan with an overdraft facility and parked Rs. 65 lakh in this account. This setup ensures you're paying no interest while keeping funds accessible. You want to retire in 10 years and build a solid corpus for retirement. Your main question is whether to repay the home loan in bulk or invest in mutual funds (MF) and equities.

Let’s break this down into several key aspects for you to consider.

Overdraft Facility: A Double-Edged Sword

The overdraft (OD) facility is a smart choice in your current scenario. It provides liquidity, meaning you can use the funds anytime, while also saving on interest payments since your Rs. 65 lakh reduces the loan balance. This system gives you flexibility and ensures your funds are working for you by reducing the loan interest.

However, keeping all Rs. 65 lakh parked in the OD may not be the most efficient long-term strategy. This is because the opportunity cost of not investing these funds in potentially higher-return instruments like mutual funds or equities could outweigh the interest savings from the home loan.

Advantages of Keeping Money in the OD Facility:

Interest saved is almost equal to the loan’s interest rate (around 7-9%).

Full liquidity to use your money if any emergency arises.

Disadvantages:

No growth on the Rs. 65 lakh if it stays in the OD account, as the money is not invested in wealth-creating assets.
Should You Repay the Home Loan or Invest in Mutual Funds/Equities?

The next question is whether to repay the loan in bulk or start investing. Since you have already significantly reduced the loan interest by parking Rs. 65 lakh, let’s look at the factors that will help you decide:

Interest Rate Comparison: The home loan interest rate is typically around 7-9%. Historically, mutual funds have delivered returns in the range of 10-12% (depending on market conditions and fund types). Hence, investing in mutual funds could give you higher returns than the savings on your home loan interest.

Your Investment Horizon: You have a 10-year investment horizon before you plan to retire. This is an adequate time frame to take advantage of equity market growth. Equities and equity mutual funds tend to outperform debt instruments and loan interest rates in the long run.

Risk Appetite: Equity investments come with a certain level of risk. If you are comfortable with volatility in the short term and want to maximize returns over the next 10 years, mutual funds and equities are a good option. However, if you are more conservative, consider a balanced approach between debt and equity.

Emergency Needs: If you foresee any major financial requirements in the near future, it might be wise to keep part of your funds in the overdraft facility for liquidity. Otherwise, you can allocate a portion of these funds towards investments.

Investment Strategy for Your Corpus Goal

To meet your retirement goal of creating a large corpus, let’s assume you want a combination of regular income and growth.

SIP in Equity Mutual Funds: Systematic Investment Plans (SIPs) in equity mutual funds can help you build wealth consistently over time. If you haven't already, consider investing Rs. 25,000 to Rs. 30,000 monthly in diversified equity mutual funds, small-cap funds, or mid-cap funds based on your risk appetite.

Diversified Equity Portfolio: Having a mix of large-cap, mid-cap, and small-cap funds will give you a balanced exposure to the market, ensuring both stability and growth.

Debt Allocation for Stability: As you move closer to retirement, you should allocate a portion of your portfolio to debt funds. These are safer and provide more stability compared to equities. Starting with around 20-30% debt allocation now and increasing it as you approach retirement will help balance the risk.

Equity Portfolio for Long-Term Growth: Continue to invest in equity mutual funds, as they offer potential higher returns over the long term. Given your 10-year horizon, you can afford to ride out market volatility and benefit from the growth.

Reviewing Current Mutual Funds:

If you're already invested in mutual funds, assess their performance. Replace underperforming funds with more consistent ones. Avoid index funds, as they often underperform actively managed funds in India. Active funds, managed by skilled fund managers, can generate higher returns by picking the right stocks.

Avoid direct funds, as investing through a Certified Financial Planner (CFP) can ensure better fund selection and management.

Creating a Corpus for Your Children’s Education and Marriage

Your daughter is 9 years old, and your son is 4. You’ll need a substantial corpus for their higher education and marriage.

Start Separate SIPs: Consider starting separate SIPs for each child’s education goal. Since you have about 7-9 years for your daughter’s education expenses and about 12-14 years for your son, SIPs in a mix of equity and debt funds can help build the required corpus.

Sukanya Samriddhi Scheme: You’ve already invested Rs. 4 lakh in the Sukanya Samriddhi Yojana for your daughter. This is a great initiative, but you’ll need to supplement this with equity-based investments to meet the rising education costs.

Gold for Marriage: If you're inclined towards traditional methods, you can consider buying small amounts of gold (as part of your overall investment strategy) for their marriages. However, avoid allocating a large portion of your wealth to gold, as its growth potential is limited compared to equities.

Optimizing Tax Benefits

While planning your investment and loan repayment strategy, consider the tax benefits you are already availing from your home loan under Section 80C and Section 24(b) of the Income Tax Act.

Maximize 80C Investments: Ensure that your investments in EPF, PPF, Sukanya Samriddhi Yojana, and life insurance policies help you claim the maximum tax benefit of Rs. 1.5 lakh under Section 80C.

Section 24(b): Interest paid on your home loan is eligible for a deduction of up to Rs. 2 lakh. As you're not paying much interest due to the overdraft facility, the benefit here might be minimal. However, investing the funds instead of repaying the loan could provide better tax efficiency in the long run.

Final Insights on the Path Forward

You have set up a solid base by utilizing the overdraft facility effectively, which is commendable. However, with a 10-year window before retirement, it’s crucial to focus on wealth creation through strategic investments.

Keep a portion of your funds in the overdraft for liquidity and emergencies. However, gradually reduce the excess parked amount and allocate these funds towards mutual funds and equities for better long-term returns.

Continue with your SIPs, and review your mutual fund portfolio regularly. Replace underperforming funds with more consistent performers, but avoid index funds and direct funds. Consult a Certified Financial Planner (CFP) for tailored advice and regular portfolio reviews.

Build separate investment plans for your children’s education and marriage. Ensure a mix of equity and debt to balance growth with safety.

Lastly, revisit your financial plan periodically to ensure you remain on track to achieving your retirement and other financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 09, 2024

Asked by Anonymous - Oct 08, 2024Hindi
Money
Hi Sir , Im currently 43 and Im an NRI with family staying with me. We have 2 kids 13 yrs Boy & 5 yrs Girl. I have couple of questions: 1.I have a housing loan for 25 lakhs with EMI of 25 thousand for another 9 years. Unknowingly I choose the floating interest and it keeps on increasing. What is the best way to proceed, will the interests rate come down? 2. We have retirement polity which will start @ age 55 and have invested little amount in SIP of 2 lahks. I have a lumpsum amount of 15 lakhs and is it advisable to do the one time investment in mutual funds and leave it to grow for the next 15 years. What will be the approx. corpus it will create. Will it reach 2 CR?
Ans: First, let's address your concern about the housing loan. You mentioned that your EMI is Rs 25,000 for 9 more years, and it's on a floating interest rate. This situation can feel frustrating, especially when rates are rising, but there are ways to manage it effectively.

Switch to a Fixed Interest Rate: One of the simplest solutions could be switching your loan to a fixed rate. Fixed rates provide predictability. You may lose out on lower rates if they drop, but you avoid the stress of rising rates.

Loan Refinancing: You can explore refinancing your loan with a different bank or financial institution that offers a better rate. Many banks offer balance transfer options at competitive interest rates. This could help reduce your EMI and interest burden.

Interest Rates Outlook: Predicting interest rates can be challenging. While rates may decrease over time, there's no certainty. If you're on a floating rate, be prepared for fluctuations. It's often better to make proactive decisions based on your current financial situation rather than wait for rates to drop.

Extra Prepayments: Another option is to make additional prepayments when possible. This can help reduce the principal amount and, consequently, the interest burden over time. Even small prepayments can make a significant difference in reducing your total interest payable.

Tenure Extension: You could consider extending your loan tenure, though this isn't always the best solution. It lowers your monthly EMI, but increases the overall interest payout. If cash flow is tight, this might be a temporary solution.

You might want to consider discussing these options with your lender to find the best possible solution for your current financial situation.

Investment in Mutual Funds for Long-Term Growth
You mentioned having a lumpsum amount of Rs 15 lakhs that you plan to invest for 15 years. This is a great time horizon for wealth accumulation, and mutual funds can be an excellent avenue for long-term growth.

One-Time Investment in Mutual Funds: Yes, investing your Rs 15 lakhs in a mutual fund is a good strategy for long-term growth. Since your investment horizon is 15 years, you can afford to take moderate to high risks, which can yield potentially higher returns.

Growth Potential: Historically, equity mutual funds have delivered around 10-12% annual returns over the long term. While returns are never guaranteed, equity mutual funds tend to outperform other asset classes like fixed deposits or bonds in the long run.

Potential Corpus Creation: Assuming a conservative return of 10% per annum, your Rs 15 lakh one-time investment could potentially grow to Rs 60-65 lakhs in 15 years. This is based on historical data, and actual returns could be higher or lower.

Will It Reach Rs 2 Crore?: Reaching Rs 2 crore with just Rs 15 lakh over 15 years might be challenging with a one-time investment. However, you can achieve this goal by regularly topping up your investment, either through SIPs or additional lump-sum investments. You can also choose more aggressive mutual fund categories to potentially increase your returns, but this comes with higher risk.

Active Mutual Funds Over Index Funds: While many investors prefer index funds, actively managed funds could be a better option for you. These funds are managed by professional fund managers who actively pick stocks based on market conditions. Active funds have the potential to outperform the market, whereas index funds only replicate market performance.

Benefits of Regular Plans Over Direct Plans: If you’re not monitoring your portfolio actively, it's better to invest through a Certified Financial Planner (CFP). CFPs offer you guidance, ongoing support, and help you make informed decisions. Direct plans, while lower in cost, don’t offer this level of expertise or handholding.

Overall, a mutual fund investment could certainly help you achieve a significant corpus over 15 years, but reaching Rs 2 crore will likely require a combination of one-time and systematic investments.

Your Existing Retirement Policy
You mentioned that you have a retirement policy starting at age 55. This policy may provide you with a steady source of income during retirement. However, it’s essential to evaluate its performance periodically.

Policy Performance: Review the policy’s growth rate and see if it aligns with your retirement needs. Often, these policies offer lower returns compared to mutual funds. You might want to consider diversifying your retirement savings by adding mutual fund investments.

Supplementing with Mutual Funds: Since you’re investing in mutual funds through SIPs, this is a good strategy to supplement your retirement policy. SIPs provide the benefit of rupee cost averaging, which reduces the impact of market volatility. Increasing your SIP contributions over time can significantly enhance your retirement corpus.

Additional Considerations for Your Financial Plan
Here are some more suggestions that can help you secure your financial future:

Children’s Education: With two children aged 13 and 5, their education expenses are likely to rise soon. It’s important to start planning for their education costs, which could be substantial in the coming years. You can explore child education funds or set aside a portion of your mutual fund investments for this purpose.

Insurance: Ensure that you have adequate life and health insurance coverage for your family. Health emergencies or unexpected events can derail your financial plans, so having sufficient coverage is crucial. Consider increasing your coverage if needed.

Emergency Fund: It’s essential to have an emergency fund in place to cover at least 6-12 months of living expenses. This provides a financial cushion in case of unforeseen circumstances like job loss or medical emergencies. Keep this fund in a liquid and easily accessible instrument, such as a savings account or liquid mutual funds.

Debt Repayment Strategy: Focus on repaying your housing loan, especially if you choose to remain on a floating rate. Clearing your debt early will reduce your financial burden and free up more money for investments. As mentioned earlier, consider making small prepayments when possible.

Estate Planning: It’s also worth considering estate planning to ensure that your assets are distributed as per your wishes in the future. Creating a will or trust can provide peace of mind, knowing that your family is protected.

Key Takeaways
Switch your loan to a fixed rate or consider refinancing it to manage rising interest rates.

A one-time investment of Rs 15 lakhs in mutual funds could yield significant returns over 15 years, but reaching Rs 2 crore may require additional investments.

Evaluate your existing retirement policy and supplement it with mutual fund investments for better long-term growth.

Ensure that you are adequately insured and that you have an emergency fund in place.

Start planning for your children’s education and consider estate planning to safeguard your family's future.

Final Insights
Your overall financial situation seems solid, and you’ve made wise choices by investing in SIPs and planning for your retirement. However, with the fluctuating interest rates on your home loan and your desire to grow your wealth, it’s crucial to make proactive decisions now.

By refining your loan strategy, focusing on growing your mutual fund investments, and securing your family’s future with proper insurance and estate planning, you can build a strong financial foundation. Achieving Rs 2 crore is possible with consistent investment discipline and proper guidance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6544 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 09, 2024

Asked by Anonymous - Oct 08, 2024Hindi
Money
Hello Sir, I am 38 now and Planning to retire at 55 with corpus of 4 Cr. I have took home loan of 32 lakh in 2021 which has current interest rate of 9.35% Also have Car loan of Rs 9 lakh took 2 yrs before with interest rate of 10% for 7 year. My take home salary is 1 lakh and rental income of Rs. 12k. Investments current value :- Parag Parikh Flexi cap 4.43 lakh(SIP10K) ICICI prudential Nifty next 50 2.94 lakh(SIP 5K) Kotak Equity opportunities 1.5 lakh Franklin ELSS 70k HDFC Mid cap opportunities 38k(SIP5k) Nippon India Small cap - 5k(SIP 5K) Value of shares in share market is around 9 lakh. Sukanya Samruddhi Yojana 4 lakh PPF 1.5 lakh EPF around 2 lakh I have daughter of 9 year oldand Son of 4 year old Need corpus for Education,Marriage and Retirement Also let me know MF selected are ok or I need to switch??
Ans: You are 38 years old and aim to retire at 55 with a corpus of Rs. 4 crore. Your current salary is Rs. 1 lakh per month, and you have an additional rental income of Rs. 12,000. You have ongoing loans – a home loan of Rs. 32 lakh with an interest rate of 9.35% and a car loan of Rs. 9 lakh with a 10% interest rate.

Your investments include mutual funds, equities, Sukanya Samriddhi Yojana (SSY), PPF, and EPF, and you also have two children (a 9-year-old daughter and a 4-year-old son). You are planning for their education, marriage, and your retirement. Let's evaluate your financial situation step-by-step and provide a detailed strategy to meet your goals.

Evaluating Your Current Loans
Home Loan: You took a Rs. 32 lakh home loan at an interest rate of 9.35%. The current interest rate environment makes your EMI relatively high. Home loans can be long-term commitments, and high interest could be draining a significant portion of your income.

Car Loan: You also have a Rs. 9 lakh car loan with a 10% interest rate. Auto loans are generally high-interest liabilities that depreciate as the vehicle loses value. This is a costly loan that can burden your monthly cash flow.

Recommendation:

Consider prepaying the car loan as early as possible since it comes with a high-interest rate and doesn't offer tax benefits. This will free up cash for other investments.

Look into refinancing your home loan. Check if you can reduce the interest rate by transferring the balance to another lender offering a lower rate. Even a slight reduction can save you a lot over time.

Analyzing Your Current Investments
You have built a good mix of investments in mutual funds, equities, and savings schemes. Let’s evaluate them:

Parag Parikh Flexi Cap (SIP of Rs. 10K): Flexi-cap funds offer the flexibility to invest across market capitalizations. This is a good long-term bet as it gives fund managers the freedom to choose based on market conditions.

ICICI Prudential Nifty Next 50 (SIP of Rs. 5K): You are investing in an index fund, but index funds, especially in the Next 50 category, tend to be more volatile. These funds may not provide as much flexibility as actively managed funds in the long term. Actively managed funds usually perform better during uncertain market conditions.

Kotak Equity Opportunities: Equity opportunities funds can be suitable for investors looking for long-term growth. Ensure this fund is regularly monitored, and stay in touch with your Certified Financial Planner (CFP) to review performance periodically.

Franklin ELSS: This is a tax-saving option. Equity Linked Saving Schemes (ELSS) also provide decent returns over the long term, with a lock-in period of three years. This fund category should remain part of your portfolio for tax saving and wealth creation.

HDFC Mid Cap Opportunities (SIP of Rs. 5K): Mid-cap funds have the potential to offer high returns but come with higher volatility. With 17 years to retirement, mid-caps can give you a good risk-reward balance if you have a long-term horizon.

Nippon India Small Cap (SIP of Rs. 5K): Small-cap funds have a higher risk but also potential for high returns. Keep this as a part of your long-term investment portfolio but ensure that the exposure to small-cap funds doesn't exceed 10-15% of your overall portfolio.

Shares: You have Rs. 9 lakh in direct equity investments. Equities are excellent for long-term growth, but you must monitor them regularly and stay updated on company performances. Direct equities can be riskier than mutual funds, so ensure diversification.

Sukanya Samriddhi Yojana (SSY): This is a great option for your daughter’s education and marriage, offering guaranteed returns and tax benefits under Section 80C. SSY should remain a core part of your financial planning for her future.

PPF (Rs. 1.5 lakh): PPF is a safe, tax-saving option that also provides good long-term returns. Continue investing in PPF for guaranteed, risk-free returns.

EPF (Rs. 2 lakh): EPF is another safe, long-term retirement saving option. It provides a steady, assured return and should continue to be a part of your retirement corpus.

Recommendation:

Actively managed funds may be a better option compared to index funds. They give fund managers flexibility to make strategic choices, potentially offering better returns, especially in volatile markets.

Continue your investments in mid-cap and small-cap funds but limit their proportion in your portfolio to avoid excessive risk.

Direct equity investment should be carefully monitored or handled through a CFP to avoid risk concentration.

Planning for Children's Education and Marriage
You have a 9-year-old daughter and a 4-year-old son. Education and marriage are significant future expenses that need careful planning.

Education: With education costs rising, start building a dedicated education fund for each child. You may need to allocate a specific portion of your SIPs or open a separate mutual fund portfolio for this goal. Plan for both higher education and school-related expenses.

Marriage: Marriage costs can be unpredictable. You could create a separate investment for marriage-related expenses in a balanced fund or a combination of fixed-income instruments and equities to ensure safety with some growth potential.

Recommendation:

Start allocating a portion of your income towards a dedicated education fund. This could include child-specific schemes like SSY or child-focused mutual funds.

Consider keeping marriage funds in low-risk, medium-return instruments to ensure they grow steadily without much risk exposure.

Assessing Your Retirement Plan
You aim to retire at 55 with a corpus of Rs. 4 crore. This is achievable with disciplined investing and strategic planning.

Current Investment Strategy: You are already investing in mutual funds, equities, and long-term savings plans like PPF and EPF. However, you need to ensure that your asset allocation is aligned with your retirement goals.

Debt Management: Your current loans should be repaid before retirement to avoid carrying financial liabilities post-retirement. Prepaying your car loan and refinancing your home loan could help you save significant amounts, which can then be redirected to investments.

Recommendation:

Focus on building a balanced portfolio of equity and debt to ensure your portfolio grows while also offering stability. Equity should dominate your portfolio in the early stages, while debt instruments can gradually take over as you approach retirement.

Increase your SIP contributions whenever your income increases. Aim to invest 25-30% of your monthly income towards retirement planning.

Evaluating Your Financial Goals and Future Course
You need to address three major goals: retirement, children's education, and marriage. Each goal requires a dedicated plan to ensure adequate corpus growth.

Recommendation:

For retirement, ensure that at least 60-70% of your portfolio is in growth-oriented instruments like equity mutual funds for now. As you approach retirement, gradually shift to debt funds for stability.

For your children's education, use a mix of equity mutual funds and child-specific investment schemes to ensure the corpus grows in line with education inflation.

For marriage expenses, opt for lower-risk instruments that offer predictable growth, such as balanced funds or a combination of equity and debt.

Final Insights
Loan Repayment: Focus on prepaying your high-interest car loan as soon as possible. This will free up cash flow for investments. Consider refinancing your home loan to reduce the interest burden.

Mutual Fund Strategy: You have a well-diversified portfolio. However, avoid index funds, as actively managed funds can provide better returns over the long term. Continue SIPs in flexi-cap, mid-cap, and small-cap funds but limit small-cap exposure.

Children's Future: Start separate SIPs for your children's education and marriage. SSY is a great option for your daughter’s future, but you may also need equity mutual funds for higher growth.

Retirement Corpus: With consistent investment and discipline, a Rs. 4 crore corpus is achievable. Aim to increase your SIP contributions periodically, keep monitoring your mutual fund performance, and consult with a CFP regularly to review your progress.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

...Read more

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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