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Ramalingam

Ramalingam Kalirajan  |3951 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 23, 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
Prajwal Question by Prajwal on May 22, 2024Hindi
Money

Hello. I need your financial advise here. Can we maintain a Mutual Fund for long-term? Suppose if I have these funds: Nippon India Large Cap fund (large cap), PGIM India Mid Cap fund, Quant Small cap fund. Can I decide to maintain this for long-term (10-15 years)? Or should we regularly monitor these funds and opt for other funds where we get better returns than these. I am looking for a long-term investment let it be retirement plan or kid's education. All I am looking for is long-term. Could you pls suggest what to do in this scenario? How can I manage this?

Ans: Long-Term Investment in Mutual Funds: A Strategic Approach
Understanding Your Current Investments
You have chosen three mutual funds for your long-term investment goals:

Nippon India Large Cap Fund (large cap)
PGIM India Mid Cap Fund
Quant Small Cap Fund
These funds cover large, mid, and small-cap categories, providing a diversified portfolio.

Your dedication to long-term investment planning is commendable. Balancing large, mid, and small-cap funds shows a strategic approach to diversification.

Benefits of Long-Term Mutual Fund Investment
Compounding Effect
Investing in mutual funds for the long-term allows you to benefit from the power of compounding. Over time, the returns on your investments can generate their own returns, significantly growing your wealth.

Reduced Market Volatility
Long-term investments help mitigate the impact of short-term market volatility. Staying invested through market ups and downs can lead to more stable and substantial growth.

Monitoring and Managing Your Investments
Importance of Regular Monitoring
While long-term investments are beneficial, regular monitoring is essential. Market conditions and fund performance can change, requiring adjustments to your portfolio.

Evaluating Fund Performance
Regularly review the performance of your mutual funds. Compare their returns with benchmark indices and peer funds. Consistent underperformance might indicate the need for a change.

Role of a Certified Financial Planner
A Certified Financial Planner (CFP) can provide professional guidance. They can help you evaluate fund performance, recommend adjustments, and ensure your investments align with your goals.

Actively Managed Funds vs. Index Funds
Disadvantages of Index Funds
Index funds track a specific market index and aim to replicate its performance. They lack the flexibility to adapt to market changes, potentially leading to lower returns compared to actively managed funds.

Benefits of Actively Managed Funds
Actively managed funds, like those you have chosen, are overseen by professional fund managers. They can adjust the portfolio based on market conditions, aiming for higher returns and better risk management.

Direct Funds vs. Regular Funds
Disadvantages of Direct Funds
Direct funds save on commission fees but lack the personalized guidance of a professional. Investing through a Mutual Fund Distributor (MFD) with CFP credentials ensures you receive expert advice and strategic insights.

Benefits of Regular Funds
Regular funds offer the expertise of professional advisors who can help you make informed decisions, optimize your portfolio, and achieve your long-term investment goals.

Long-Term Investment Goals
Retirement Planning
Investing in a mix of large, mid, and small-cap funds can help build a substantial corpus for retirement. Regular contributions and long-term growth can ensure financial security in your retirement years.

Kid's Education
Long-term investments are ideal for funding your child's education. Starting early and staying invested can generate the necessary funds to cover higher education expenses, even for overseas studies.

Strategic Portfolio Management
Asset Allocation
Maintain a balanced asset allocation across large, mid, and small-cap funds. This diversification helps manage risk and optimize returns.

Regular Rebalancing
Periodically rebalance your portfolio to maintain your desired asset allocation. This involves selling overperforming assets and buying underperforming ones, ensuring your portfolio stays aligned with your goals.

Managing Market Uncertainties
Staying Invested
Market fluctuations are inevitable. Staying invested through market cycles can yield better long-term returns. Avoid making impulsive decisions based on short-term market movements.

Systematic Investment Plan (SIP)
Continue investing through SIPs. SIPs allow you to invest a fixed amount regularly, averaging out the cost of investments and reducing the impact of market volatility.

Building a Contingency Fund
Importance of Liquidity
Ensure you have an adequate contingency fund. This fund provides liquidity for emergencies, reducing the need to withdraw from your long-term investments.

Planning for Future Financial Goals
Setting Clear Goals
Define your financial goals clearly. Whether it's retirement, your child's education, or other long-term objectives, having specific targets helps create a focused investment strategy.

Professional Guidance
Seek regular advice from a Certified Financial Planner. They can help you set realistic goals, develop a strategic investment plan, and adjust your portfolio as needed.

Conclusion
Maintaining a long-term mutual fund portfolio is a sound strategy for achieving financial goals. Regular monitoring, professional guidance, and a balanced approach can help you optimize returns and manage risks. Your commitment to securing your financial future is commendable, and with the right strategy, you can achieve your retirement and education goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
Asked on - May 23, 2024 | Answered on May 23, 2024
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Thank you very much for your professional assistance here. This has a detailed explanation of every element needed for investment. One question - Can we use these online SIP/Lumpsum calculators to get to know our goal-based investment amount? For example, I tried the SIP calculator by INDMoney (online) where I entered the following details under "I know my goal amount" under SIP as: Goal amount: 3,00,00,000 Time period: 15 years Growth rate: 12% (approx) And, it shows the monthly required amount to be 63k/month to reach this goal. I am not sure if this is the correct way to calculate the monthly investments required for our goals. Could you provide your guidance here.
Ans: Using online SIP (Systematic Investment Plan) or Lumpsum calculators can be a convenient way to get a rough estimate of the monthly investment required to reach your financial goals. However, these calculators come with several limitations:

Limitations of Free Online Calculators:
Simplistic Assumptions: Most online calculators use a fixed rate of return assumption (e.g., 12% in your case), which might not reflect market volatility and actual performance over time.
Lack of Personalization: These tools don't account for your individual financial situation, risk tolerance, inflation rates, tax implications, and other factors that could impact your investment strategy.
No Consideration for Market Dynamics: Real-world investments are subject to market risks and fluctuations. A steady growth rate assumption can be overly optimistic or pessimistic depending on market conditions.
Inflation Impact: Many calculators do not properly factor in inflation, which can erode the purchasing power of your goal amount over time.
Periodic Review and Adjustment: Financial goals and market conditions change. Free calculators do not provide a mechanism for periodic review and adjustment of your investment plan.
Seeking Professional Guidance:
To develop a more accurate and personalized investment strategy, it is highly recommended to consult with a certified financial planner (CFP). A CFP can:

Conduct a Comprehensive Financial Assessment: Understand your current financial situation, future goals, and risk tolerance.
Develop a Tailored Plan: Create a customized investment plan that takes into account various factors like inflation, market conditions, tax implications, and your personal financial goals.
Ongoing Monitoring and Adjustments: Provide continuous monitoring of your investments and make adjustments as necessary based on changes in your life circumstances and market conditions.
Holistic Advice: Offer advice on a wide range of financial matters beyond just investment, including retirement planning, estate planning, and insurance needs.
Practical Steps:
Use Calculators as a Starting Point: Use online calculators to get a basic idea of the investment required.
Consult a Financial Planner: Schedule a meeting with a CFP to get a comprehensive and personalized financial plan.
Review Regularly: Periodically review your investment plan with your financial planner to ensure it remains aligned with your goals and market conditions.
By taking these steps, you'll be better equipped to achieve your financial goals with a well-rounded and realistic investment strategy.
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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Sir I am a regular reader of rediffguru, pls check my Mutual funds for long term 7-10 year investing from last 3 years Parag parikh flexi cap-6k/month SBI Contra fund 6k/month SBI focus fund 2500/month Axis blue chip 5000/month SBI nifty50 index fund 5000/month PPF 8000/month Please advise for long term and I can add another 15k per month to the mutual fund, where I should add 15k per month Thank you
Ans: It's great to see your commitment to long-term investing. Your current portfolio showcases a mix of flexi-cap, contra, focused, and index funds, which is a good start. Given your 7-10 year horizon, it's essential to maintain a balance between growth and stability.

Considering your existing investments, adding 15k per month, you could diversify further. Given the current market scenario, you might consider adding to sectors or fund types that complement your existing holdings. For instance, you might look into international funds for geographical diversification, or debt funds for stability.

It's also worth considering your risk tolerance and investment goals when deciding where to allocate the additional funds. If you're comfortable with a bit more risk for potentially higher returns, you could lean towards mid or small-cap funds. Conversely, if you prefer stability, large-cap or balanced funds might be more suitable.

Remember, diversification is key to managing risk, so try not to put all your eggs in one basket. It might be beneficial to consult with a Certified Financial Planner to tailor a strategy that aligns with your financial goals and risk tolerance. Keep up the good work, and happy investing!

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Moneywize

Moneywize   |122 Answers  |Ask -

Financial Planner - Answered on Jun 25, 2024

Asked by Anonymous - Jun 13, 2024Hindi
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Ours is a family of 3 people -- My wife, I and my daughter who is 15. I am 39, my wife is 37 and our monthly expenses are Rs 90K. I own my house and expect to have no fixed income after 65 years, and expect to live till 75. Considering the ever increasing price rise what should be my corpus at 65 for me to continue living the life style I am living today?
Ans: Calculating your retirement corpus:

Here's how to estimate the corpus you'll need to maintain your current lifestyle after retirement:

1. Retirement period:

You plan to retire at 65 and expect to live till 75. So, your retirement period is 75 - 65 = 10 years.

2. Inflation adjustment:

You've rightly considered inflation. To estimate future expenses, we need to factor in inflation. A safe assumption for India is 5-7% inflation. Let's take an average of 6%.

3. Current monthly expenses:

You spend Rs 90,000 per month currently.

4. Future monthly expenses:

To find the monthly expense at retirement (at 65), we need to consider inflation for 26 years (39 years till retirement + 10 years retirement).

You can use an inflation calculator online or a simple formula:

Future monthly expense = Current monthly expense * (1 + Inflation rate)^number of years

In your case, Future monthly expense = Rs 90,000 * (1 + 0.06)^26 ≈ Rs 3,28,550 (approximately Rs 3.29 lakh)

5. Total corpus calculation:

Now you can calculate the total corpus needed. Here's a common approach:

Total corpus = Monthly expense * Number of years in retirement * 12 (months)

However, this method doesn't consider the fact that you'll be withdrawing money every month, reducing the corpus. A more accurate method is using the Time Value of Money (TVM) concept. There are online TVM calculators or Excel functions you can use.

Here's an alternative approach that provides a reasonable estimate:

Multiply the future monthly expense (Rs 3.29 lakh) by a factor considering inflation over the period. This factor can vary depending on your risk tolerance and investment strategy. A factor of 200 is often used as a conservative estimate.
Total corpus = Rs 3.29 lakh/month * 200 (factor) = Rs 6.58 crore (approximately Rs 658 million)

Additional factors to consider:

• Daughter's future expenses: Your daughter will be an adult by the time you retire. While she won't be financially dependent, consider any potential future support you might want to provide for her education or marriage.
• Healthcare costs: Healthcare expenses tend to increase with age. Factor in potential medical needs during retirement.
• Debt: If you have any outstanding debt by the time you retire, you'll need to account for its repayment in your corpus calculation.
• Investment returns: The corpus amount assumes a certain rate of return on your investments. Research different investment options and their potential returns to refine your calculations.

Recommendation:

Consult a financial advisor for a personalised retirement plan considering your specific financial situation, risk tolerance, and investment goals. They can help you create a more comprehensive plan and suggest suitable investment strategies to achieve your corpus target.

Remember, this is an estimate. Regularly review your plan and adjust it based on changing circumstances.

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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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