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27 Year Old Investing 1 Lac Per Month in Mutual Funds: How to Diversify Risks for Long Term?

Ramalingam

Ramalingam Kalirajan  |9668 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 19, 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 - Jul 14, 2024Hindi
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Hello Gurus, I'm a 27-year-old. Currently, I'm investing 1 lac pm in MFs. The allocation is as follows - Nippon India LC - 20k, Aditya Birla PSU - 10k, Quant SC - 1k (Reduced post SEBI notice), Nippon India SC - 10k, ICICI Pru Bharat 22 FOF - 15k, Motilal Oswal midcap - 25k, HDFC multicap - 10k, Motilal Oswal Nifty Defence (NFO) - 9k. I'm investing aggressively right now since I've limited liabilities and save most of what I earn. It's been around a year since I started this plan and I know at some point in time, I'll have to reduce the pace. I occasionally invest in stocks as well. Keeping in mind a longer horizon, say 20 years. How should I diversify my risks? I already have a life insurance that I'm paying premiums for, and I don't invest in Gold/SGB right now. Also, is it the right time to invest in a property/land in Bangalore, or is it better to continue renting a place and building a decent lump sum first? I stay in North Bangalore and hence the rent is relatively low here. Thanks

Ans: Assessing Your Current Financial Position
You are 27 years old and investing Rs. 1 lakh per month in mutual funds. Your current allocation is:

Nippon India Large Cap: Rs. 20,000
Aditya Birla PSU: Rs. 10,000
Quant Small Cap: Rs. 1,000 (Reduced post SEBI notice)
Nippon India Small Cap: Rs. 10,000
ICICI Pru Bharat 22 FOF: Rs. 15,000
Motilal Oswal Midcap: Rs. 25,000
HDFC Multicap: Rs. 10,000
Motilal Oswal Nifty Defence (NFO): Rs. 9,000
You have limited liabilities and save most of what you earn. You also invest occasionally in stocks and have life insurance. Let's explore how to diversify your risks and secure your financial future.

Diversifying Your Investments
Reduce Over-Exposure to Small Caps
Small-cap funds can be volatile. While they offer high returns, they also come with high risk. You are already reducing exposure to Quant Small Cap. Consider reallocating some funds from small caps to more stable large-cap or multi-cap funds.

Increase Exposure to Mid and Large Caps
Increase your investments in mid and large-cap funds. These funds provide more stability and can balance the risk in your portfolio. Your allocation to Motilal Oswal Midcap and Nippon India Large Cap is good. Consider adding more to these or similar funds.

Explore Debt Funds
Debt funds can add stability to your portfolio. They provide regular returns with lower risk. Allocate a portion of your investment to debt funds. This diversification can protect your portfolio during market downturns.

International Funds
Consider investing in international funds. These funds give exposure to global markets and reduce the risk of being solely dependent on the Indian market. They also provide a hedge against currency fluctuations.

Balanced Funds
Balanced or hybrid funds invest in both equities and debt. They offer a balanced risk-reward ratio. Including these in your portfolio can provide steady growth with reduced risk.

Real Estate Considerations
Renting vs. Buying Property
Currently, you are renting in North Bangalore. Renting offers flexibility and lower financial commitment. Buying property involves significant investment and long-term commitment. Here are some considerations:

Renting: Continue renting if the rent is low and you can invest more in high-return assets. This strategy helps build a significant corpus faster.

Buying: Buy property if you are looking for long-term stability and a place to call your own. Ensure you have a significant down payment to reduce loan burden.

Current Market Conditions
Real estate prices in Bangalore can be high. Analyze the market trends and future growth potential before investing. If property prices are expected to rise, buying could be beneficial. Otherwise, focus on building a strong investment portfolio first.

Tax Planning and Insurance
Tax-Saving Investments
Utilize tax-saving instruments under Section 80C. This helps reduce your taxable income. Ensure your mutual fund investments also include tax-saving funds like ELSS.

Adequate Insurance Coverage
Ensure you have adequate life and health insurance. This protects your savings in case of emergencies. Review your insurance policies regularly to ensure they meet your needs.

Regular Portfolio Review
Periodic Assessment
Review your investment portfolio periodically. Assess the performance and adjust based on market conditions and personal financial goals. A Certified Financial Planner can provide professional guidance.

Final Insights
You are on a good path with aggressive investments and limited liabilities. Diversify your portfolio to include more mid and large caps, debt funds, and international funds. Consider balanced funds for steady growth. Renting might be a better option currently to build a significant corpus. Regularly review and adjust your portfolio to stay aligned with your financial goals.

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  |9668 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 17, 2024

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Hello Gurus, I am 41 years old and currently working in IT industries. My take home salary is more or less 1.8L/Month (After (income-tax, pf, etc.) all deductions). My monthly expenses (including everything + investments) are around 1.3L/Monthly. Family of four, kids are not started their major studies, still in primary school, dependant parents and relatives. My current investments. 1) LIC – 1.6L/Annum – approx. return would be 50+ Lakhs by 2038 2) HDFC Sanchya + - annually 4L return after 2038 3) PPF – annually 1.5L/Annum and expecting 40+Lakhs by 2034 4) PF – Right now around 20+Lakhs 5) One land – 25L 6) One Flat under construction – 25L invested/paid and total payment will be 1.15 Cr by 2028 7) One MF – Current value 8L, total investment 3.5L(Lumpsum in year of 2017) 8) Cash in hand – 70L(FD) 9) Emergency fund – 20L(FD) 10) Equity 1.6L Invested and current value 2.7L No Loans as of now. Apart from this I have 50L worth of term insurance, 20L health insurance cover for my Family. I am targeting to retire by another 14 years with a corpus of 15cr or more. Please guide me how I can achieve it. If I need to invest in MF then which all MFs I can invest in. (Risk taking appetite is moderate)
Ans: You have a well-diversified portfolio and a clear goal of retiring with a corpus of Rs 15 crores in 14 years. Let's break down a strategy to achieve this goal.

Current Financial Position
Age: 41 years
Monthly take-home salary: Rs 1.8 lakhs
Monthly expenses: Rs 1.3 lakhs
Family: Four members, with kids in primary school, dependent parents and relatives
Investments and Assets
LIC: Rs 1.6 lakhs/annum, expected return of 50+ lakhs by 2038
HDFC Sanchaya+: Rs 4 lakhs/annum, expected annual return after 2038
PPF: Rs 1.5 lakhs/annum, expected return of 40+ lakhs by 2034
PF: Current value around 20+ lakhs
Land: Worth Rs 25 lakhs
Flat under construction: Rs 25 lakhs invested, total payment will be Rs 1.15 crores by 2028
Mutual Funds: Current value Rs 8 lakhs, total investment Rs 3.5 lakhs (lumpsum in 2017)
Cash in hand (FD): Rs 70 lakhs
Emergency fund (FD): Rs 20 lakhs
Equity: Rs 1.6 lakhs invested, current value Rs 2.7 lakhs
Term insurance: Rs 50 lakhs
Health insurance: Rs 20 lakhs
Retirement Goal
Target corpus: Rs 15 crores
Time horizon: 14 years
Risk appetite: Moderate
Investment Strategy
1. Increase SIPs in Mutual Funds:

Considering your moderate risk appetite, invest in a mix of large-cap, mid-cap, and hybrid mutual funds. Actively managed funds can offer better returns compared to index funds.

2. Maximise Tax Savings:

Continue maximising your PPF and PF contributions for tax savings and secure returns.

3. Diversify Further:

Consider diversifying into debt funds for stability and fixed returns. This will balance your equity investments.

4. Real Estate Investments:

Be cautious with the flat under construction. Ensure timely completion and clear legal title to avoid future issues.

5. Emergency Fund:

You already have a substantial emergency fund. Maintain this for liquidity during unforeseen events.

6. Equity Investments:

Continue investing in equities. Direct stocks can offer high returns but require careful selection and monitoring.

7. Review Insurance Cover:

Ensure your term insurance cover is adequate. Consider increasing it to match your financial responsibilities and future goals.

Regular Monitoring and Review
Annual Review:

Regularly review your portfolio performance. Adjust investments based on market conditions and financial goals.

Financial Planner Consultation:

Seek advice from a Certified Financial Planner periodically. They can provide tailored advice and keep your investments on track.

Final Insights
You are on a good financial path with a diversified portfolio. Focus on increasing your SIPs in mutual funds and diversifying further into debt funds. Ensure your real estate investments are secure and maintain your emergency fund. Regularly review your portfolio and seek professional advice to stay on track for a comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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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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