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Ramalingam

Ramalingam Kalirajan  |6275 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 09, 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
S Question by S on May 03, 2023Hindi
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Hello sir Good day to you. I have a home loan of Rs 25 Lakhs and land loan of Rs 20 Lakhs. Home loan ROI is 8.5% and land loan ROI is 8%. I am presently investing Rs. 52k monthly in MF via sip route. I have been investing for the past 3 years. My question to you is: Should I close the loan first after stopping all sips or continue investing via. SIP. My aim is to create wealth in long term for next 20 years.

Ans: Consider comparing the interest rates on your loans with potential returns from your MF SIPs. If the MF returns consistently outperform loan interest rates after considering tax implications and risk, continuing SIPs may be beneficial for wealth creation. However, if loan interest rates significantly exceed potential MF returns, prioritizing loan repayment can lead to substantial interest savings over the long term. Assess your risk tolerance, financial goals, and liquidity needs before making a decision. Consulting with a financial advisor can provide personalized insights to optimize your financial strategy.
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  |6275 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 06, 2024

Asked by Anonymous - Apr 06, 2024Hindi
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I have 36L in mutual fund SIP with 38%xirr, 10L in equity, recently have taken loan of 40L with 9.5%int. to purchase property I need advice should I sell mutual funds/equity and repay loans or should I continue with SIP
Ans: Considering your financial situation, it's essential to weigh the pros and cons of each option before making a decision. Here are some factors to consider:

Loan Repayment: Repaying the loan of 40 lakhs with a 9.5% interest rate is crucial to avoid accumulating excessive interest payments over time. By repaying the loan early, you can reduce the overall interest burden and free up cash flow for other financial goals.
Mutual Fund SIPs: Your mutual fund SIPs have provided a healthy return of 38% XIRR, indicating good growth potential. However, continuing with SIPs while carrying a high-interest loan may not be the most efficient use of your funds. It's important to assess whether the returns from your SIPs outweigh the interest cost of the loan.
Equity Investments: Equity investments can be volatile in the short term but tend to offer higher returns over the long term. If your equity investments are performing well and you have a longer investment horizon, you may consider holding onto them, especially if you believe they will outperform the loan interest rate.
Financial Goals: Evaluate your financial goals and priorities. If repaying the loan enables you to achieve other important goals such as financial security, peace of mind, or future investments, it may be worth considering.
Risk Tolerance: Consider your risk tolerance and comfort level with debt. Carrying a significant amount of debt can increase financial stress and limit your flexibility in the future. Assess whether you are comfortable managing both the loan and investment risks simultaneously.
Consult a Financial Planner: Given the complexity of your situation, it's advisable to consult with a Certified Financial Planner (CFP) who can provide personalized advice based on your specific circumstances, goals, and risk profile. A financial planner can help you evaluate the trade-offs and make an informed decision aligned with your long-term financial well-being.
Ultimately, the decision to sell mutual funds/equity to repay the loan or continue with SIPs depends on various factors, including your financial goals, risk tolerance, investment horizon, and current market conditions. Take the time to carefully assess your options and seek professional guidance if needed to make the best decision for your financial future.

..Read more

Ramalingam

Ramalingam Kalirajan  |6275 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 02, 2024

Asked by Anonymous - Apr 18, 2024Hindi
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Hello Sir, I'm 35 year. And getting 28lpa. Currently I'm invest in 6 SIPs (31k) monthly, 5k in NPS, 26k is personal loan, 17k car emi and purchasing 15k stock in every month. Stock buying I started from jan2024. I have around 25lakh in my sip fund and 10lakh other fund. Now I'm planning to buy a home that cost around 90 lakh. So my question is, can take the 80% home loan and keep my SIP. Or withdraw my all sip fund and reduce home loan amount. Btw my personal loan will complete end of this year. Please suggest withdraw the sip fund is good option or taking the home loan is good option.
Ans: It sounds like you're making some big financial decisions, and it's great that you're considering your options carefully. Taking out a home loan while keeping your SIPs intact could be a strategic move. It allows you to maintain your investment momentum while also spreading out the cost of your home purchase over time.

However, withdrawing your SIP funds to reduce the home loan amount could also be a viable option. It would lower your debt burden and potentially save you on interest payments in the long run.

Before making a decision, consider factors like the interest rates on the home loan versus the potential returns on your SIP investments. Also, think about your long-term financial goals and how each option aligns with them.

Consulting with a financial advisor could provide valuable insight into the best course of action based on your specific circumstances and goals. With careful planning, you'll be on track to achieving your dream of homeownership while securing your financial future.

..Read more

Ramalingam

Ramalingam Kalirajan  |6275 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 21, 2024

Asked by Anonymous - May 21, 2024Hindi
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Hi myself 36 yrs old Started mf plan very late Luckily due to organisation switch got company stocks vested to me around 85 lacs and still around 60 lacs not yet vested . With that confidence I have taken home loan of 1.2cr for 25 yrs Emi amt 1 lac per month rate of interest 8.5 Not much invested earlier in mf started late around 1.5 yrs back Was able to accumulate 5 lacs total Invested in stocks around 2 lacs Now am trying to do sip every month of 42k I earn around 2.2lacs I have 2 more loans apart from home loan Personal loan of 26k emi 4 yrs pending Gold loan yearly emi payment of 6 lacs amount. Deduction of 1 lac + 26k+ 42k = 1.68 lacs goes to emis Yearly gold I have to pay around 60k without principal I consider 1.75 lacs to fixed amt goes as cuttings. I have remaining around 40k I think Home necessities cost around 15k monthly I still have around 20 to 25k remaining As I have started very late in mf I want to increase my sip for my kids education and future retirement plans I have something in mind which am bit afraid I want to sell stocks and invest in real estate and do the rotation of money for 10 years. But i have limited knowledge after doing some research . Should I go ahead with that ? Or Should I close my home loan using my stocks and reduce to 40 lacs home loan something Invest same amount in sips ? My stocks are in US market ..should I sell or not ? Company stocks are till now going well.. How high it would jump and how much it will take for that to happen I don't know Please suggest me to some investment ideas Q1. Should I close home loan Q2. Should I invest in real estate Q3. Should I invest stocks amt in mutual funds Any better ideas and suggestions please advise ..
Ans: Evaluating Your Financial Position
Your current financial situation reflects both opportunities and challenges. You have accumulated a significant amount of company stocks and started investing in mutual funds. Your home loan and other liabilities add to your monthly financial commitments. It's essential to strategically manage your investments to ensure long-term financial stability.

Assessing the Home Loan
Paying off your home loan can provide a sense of financial relief. However, consider the opportunity cost of using your stocks for this purpose. With an interest rate of 8.5%, the cost of maintaining the home loan is relatively high. Reducing your home loan can decrease your monthly EMI, providing more cash flow for investments and other expenses. However, before deciding, consider the potential growth of your stocks. If the stocks have significant growth potential, retaining them might be more beneficial in the long run.

Evaluating Real Estate as an Investment
Investing in real estate can be tempting, but it comes with several challenges. Real estate investments require substantial capital and involve high transaction costs. They also lack liquidity compared to stocks and mutual funds. The real estate market can be unpredictable, and managing properties requires time and effort. Given these factors, real estate might not be the best option for someone seeking to simplify and strengthen their financial portfolio.

Investing in Mutual Funds
Mutual funds offer a diversified investment option that can align with your financial goals. Given your late start in mutual funds, it’s wise to increase your SIPs to build a substantial corpus over time. Actively managed funds can offer better returns due to professional management. These funds allow you to benefit from the expertise of fund managers, providing a balanced risk-return ratio.

Disadvantages of Index Funds and Direct Funds
Index funds, while low-cost, do not always outperform actively managed funds. They mirror market performance, lacking the flexibility to adapt to market changes. On the other hand, direct mutual funds require active monitoring and decision-making. Investing through a Certified Financial Planner (CFP) can provide valuable insights and professional management, helping you navigate complex market conditions effectively.

Strategic Use of Stocks
Your company stocks are a significant asset. Diversifying this investment can reduce risk and enhance returns. Selling a portion of your stocks and investing in mutual funds can provide a balanced approach. This strategy diversifies your portfolio and reduces the risk associated with holding a single type of asset.

Recommendations
Reduce Home Loan: Consider partially reducing your home loan with your stocks. This will lower your EMI and interest burden, providing more cash flow for investments.

Avoid Real Estate: Given the high costs and management efforts involved, real estate might not be the best option. Focus on more liquid and manageable investments.

Increase SIPs in Mutual Funds: Boost your SIPs to build a robust financial corpus for your children’s education and retirement. Actively managed funds through a CFP can optimize your returns.

Diversify Stock Investments: Gradually sell a portion of your company stocks and diversify into mutual funds. This reduces risk and provides a balanced growth potential.

Conclusion
Your proactive approach to managing your finances is commendable. Balancing debt reduction with strategic investments can provide financial stability and growth. A diversified portfolio, professional management, and a focus on long-term goals will help secure your financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6275 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 25, 2024

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Hi, I have 43L and I'm planning to buy a flat worth 1.4Cr. It is due completion in 2029. So I can either put in more now or at the end. I have decided to do below. Pay 10% since it's compulsion, now I have 30lacks with me. My biggest advantage now is time. So I have invested lumpsum of 20L in PPFAS Flexi cap and 10L in HDFC Balanced Fund. I have a loan sanctioned of remaining amount 1.2Cr. My question is, in 5yrs time, should I use 87L from loan and use whatever I get from these MF's or should I stay invested in MF's and use full loan amount of 1.2cr instead? My plan was to pump in additional 30k per month if I use only 87L from loan as my EMI would be less and 8-10yrs down the line, I can apply for PreClosure. What's the best way forward? Use full loan amount and pay higher emi and keep my 30L in MF intact or use partial loan amount, pump in additional sip and utilize what I get to foreclosure of loan? Other details, 30M, Monthly Exp around 50k. I am investing 35k in SIP, 50k for various plans, ULIP, insurance ROP, Assured returns etc. I consider these as debt instruments in my investments. End goal is to save enough for retirement and an additional real estate asset worth 1.5cr before retiring.
Ans: You have Rs 43 lakhs and plan to buy a flat worth Rs 1.4 crores due for completion in 2029. Here's an analysis of your options:

Current Investment Plan
1. Initial Payment:

Paid 10% (Rs 14 lakhs) upfront.
Remaining Rs 30 lakhs available.
2. Investment Allocation:

Rs 20 lakhs in PPFAS Flexi Cap Fund.
Rs 10 lakhs in HDFC Balanced Fund.
3. Loan Details:

Sanctioned loan amount: Rs 1.2 crores.
Option 1: Partial Loan and Additional SIP
1. Plan:

Use Rs 87 lakhs from the loan.
Use returns from mutual funds for the rest.
Pump in an additional Rs 30k per month as SIP.
2. Benefits:

Lower EMI, making it easier to manage monthly expenses.
Ability to invest more monthly, enhancing wealth creation.
Option to pre-close the loan in 8-10 years.
3. Considerations:

Assess the expected returns from mutual funds.
Ensure the investments outperform the loan interest rate.
Option 2: Full Loan Amount
1. Plan:

Use the full Rs 1.2 crores loan.
Keep the Rs 30 lakhs in mutual funds.
2. Benefits:

Larger loan amount may offer tax benefits.
Investments remain intact and grow over time.
Flexibility to use investment returns for other goals.
3. Considerations:

Higher EMI impacts monthly cash flow.
Loan tenure may be longer, increasing interest paid.
Comparative Analysis
1. Loan Interest vs. Investment Returns:

Compare the loan interest rate with the expected returns from mutual funds.
If mutual fund returns are higher, keeping investments intact might be beneficial.
2. Monthly Cash Flow:

Evaluate your ability to manage higher EMIs.
Consider the impact on your overall financial stability.
3. Pre-closure Option:

With lower EMIs, pre-closure of the loan becomes feasible.
Additional SIP investments can create a pre-closure fund.
Recommendations
1. Balanced Approach:

Use a mix of both options.
Opt for a partial loan and keep some investments intact.
2. Regular Review:

Monitor your mutual fund performance regularly.
Adjust investments and loan repayments based on market conditions.
3. Financial Goals:

Align your investments with long-term goals like retirement.
Diversify your portfolio to balance risk and returns.
Final Insights
Considering your goals, a balanced approach of partial loan and maintaining investments is optimal. Regularly review and adjust based on performance and market conditions.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6275 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 12, 2024

Asked by Anonymous - Jul 15, 2024Hindi
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Hi, I am 30 years old. I am already investing in MF, stocks and crypto. My total SIP is 20k per month. I am planning to increase my SIP ko 40k. I have a loan amount of 24L with interest rate of 8.60%. My question is.. should I first clear my loan amount or should I increase my SIP to 40k ??
Ans: You're 30 years old and actively investing in mutual funds (MF), stocks, and cryptocurrency, with a SIP of Rs 20,000 per month. You're also considering increasing your SIP to Rs 40,000. You have a loan of Rs 24 lakhs at an interest rate of 8.60%.

Before making a decision, it's important to take a close look at your financial situation.

Loan Repayment vs. Increased SIP
Interest Rate on Loan: The interest rate of 8.60% on your loan is moderate. Paying off this loan will give you a guaranteed return equivalent to this rate. This is because every rupee you repay saves you from paying 8.60% in interest.

Expected Returns on Investments: Investments in mutual funds, stocks, and even cryptocurrency can potentially give you returns higher than 8.60%. However, these returns are not guaranteed and carry a certain level of risk.

Risk Appetite: Your ability to handle financial risk plays a crucial role in this decision. If you're comfortable with some volatility and risk, you may choose to invest more. However, if you're risk-averse, clearing your loan may provide peace of mind.

Debt-Free Living: Being debt-free is a huge financial relief. Clearing your loan would remove the burden of monthly EMI payments. This would free up more of your income for other purposes in the future.

Assessing the Impact of Increasing SIP
Long-Term Wealth Creation: Increasing your SIP to Rs 40,000 will likely accelerate your wealth creation. If the market performs well, you could see significant growth in your investments over the years.

Power of Compounding: By increasing your SIP, you're leveraging the power of compounding. This could result in exponential growth of your investments in the long term. Even small increments in SIP can have a substantial impact over time.

Diversification Benefits: By increasing your SIP, you can potentially diversify more into different funds, reducing overall risk. A well-diversified portfolio can help balance out market volatility.

Weighing the Emotional and Psychological Aspects
Debt Stress: Carrying a loan can be mentally taxing. The pressure of owing money can sometimes outweigh the potential benefits of investing. Clearing your loan can relieve this stress and give you financial freedom.

Investment Uncertainty: The stock market and other investments are inherently unpredictable. There might be market corrections or downturns, and this could affect your returns. If this uncertainty worries you, paying off the loan might be the better option.

Confidence in Investment Strategy: If you have confidence in your current investment strategy and believe in the potential of your chosen funds, increasing your SIP can be a sound decision. But ensure you’re ready for the ups and downs of the market.

Analytical Insights: Pros and Cons
Increasing SIP Pros:

Potentially higher long-term returns.
Leverages the power of compounding.
Greater diversification opportunities.
Increasing SIP Cons:

Market risk and volatility.
Continued loan repayment obligation.
Loan Repayment Pros:

Guaranteed savings at 8.60%.
Debt-free living.
Reduced financial stress.
Loan Repayment Cons:

Opportunity cost of not investing more in the market.
Slower wealth accumulation in the short term.
Impact on Your Future Financial Goals
Early Loan Repayment: If you prioritize paying off your loan, you may achieve a debt-free status sooner. This could open up more opportunities for investment in the future, as all your income will be available for wealth creation.

Increased SIP for Future Growth: If you choose to increase your SIP, you're aiming for larger growth in your portfolio. This could help you reach financial goals like retirement, buying a home, or funding education more quickly.

Considerations for Making a Decision
Current Financial Stability: Assess your current financial situation. Do you have an emergency fund? Are you able to comfortably meet your monthly expenses while increasing your SIP?

Life Stage and Goals: Consider your life stage and financial goals. If you have major life events coming up, like buying a house or planning for children’s education, these will influence your decision.

Loan Tenure: The remaining tenure of your loan is crucial. If you have a long tenure left, paying off the loan early might make more sense. However, if the tenure is short, focusing on investment might be more beneficial.

Final Insights
Balanced Approach: You might consider a balanced approach, where you increase your SIP but also make occasional extra payments towards your loan. This way, you can grow your investments while gradually reducing your debt.

Emergency Fund Importance: Ensure you have an emergency fund before committing to either option. This fund should cover at least 6 months of expenses, providing a safety net in case of unexpected financial needs.

Consult a Certified Financial Planner: Though you are well-informed, it could be beneficial to discuss your situation with a Certified Financial Planner. They can provide personalized advice based on your financial goals, risk tolerance, and current financial status.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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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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