Hello, I had previously asked the question about creating contingency fund, and buying a car around 8-9 Lakhs. Both things have equal weightage. My monthly income is Rs. 30k. Kindly help me with this. Also should contingency fund be created by keeping aside some amount every month or by investing in mutual funds and scripts?

Ans: If your question is where to invest the 2L, split the same into 2 funds I mentioned below and STP over the next 6 months,

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Ans: Creating an Emergency Fund

For an emergency fund, investing in the liquid fund category is ideal. Liquid funds offer high liquidity and low risk, making them suitable for quick access during emergencies.

Recommended Category
Liquid Fund Category
These funds invest in short-term, high-quality debt securities, ensuring better returns than savings accounts while maintaining ease of access to your money.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You both are in a strong financial position. Earning Rs. 1.5 to 2 lakh monthly is commendable. You’re looking to start a family, which is a significant step. Before that, clearing your car loan is a priority. You also want to start investing in mutual funds. Let's assess your situation and create a clear plan.

Prioritising Car Loan Repayment
Current Liability:
You have a car loan of Rs. 10 lakh at an interest rate of 9.6%. The EMI is Rs. 21,000 for 5 years. This loan is a burden, especially with plans to start a family. Clearing it should be your first priority.

Early Repayment Strategy:
You can consider prepaying your loan. Use any extra savings or bonuses for this. Even partial prepayments can reduce the interest burden significantly. Clearing this loan early will free up your cash flow.

Managing Expenses:
Currently, you have Rs. 35,000 in house expenses, Rs. 8,000 in fuel costs, and Rs. 21,000 in EMI. After these expenses, you have about Rs. 1 lakh left monthly. This is a healthy surplus that can be used for loan prepayment and future investments.

Building a Strong Investment Foundation
Starting with Mutual Funds:
You want to start investing in mutual funds, which is a wise decision. Mutual funds offer diversified exposure to the stock market, which can help you grow your wealth over time.

Avoid Index Funds:
Many suggest index funds for beginners, but they simply mirror the market. Actively managed funds, overseen by expert fund managers, can potentially outperform the market, giving you better returns. This is crucial for long-term wealth building.

Regular Funds through a Certified Financial Planner (CFP):
Direct funds might seem cost-effective but lack the professional guidance offered by regular funds through a CFP. A CFP can help you select the right funds, monitor your investments, and make adjustments as needed. This personalized advice can lead to better financial outcomes.

Suggested Fund Categories
Large-Cap Funds:
These funds invest in well-established companies. They are less risky and offer steady returns. They form the backbone of your portfolio.

Mid-Cap Funds:
These funds invest in medium-sized companies that are growing. They offer higher returns but come with moderate risk. Including them in your portfolio can enhance your overall returns.

Small-Cap Funds:
Small-cap funds are more volatile but have the potential for significant gains. A small allocation here can boost your returns, especially if these companies perform well.

Flexi-Cap Funds:
These funds have the flexibility to invest across different market capitalizations based on the market conditions. They provide a balanced approach to investing.

Leveraging Existing PPF Account
Wife’s PPF Account:
Your wife has Rs. 7 lakh in her PPF account, which is a good start. PPF is a safe investment with tax benefits. However, it offers moderate returns compared to mutual funds.

Maximizing PPF Benefits:
Continue contributing to the PPF account for the tax benefits. However, focus more on mutual funds for higher returns over the long term.

Allocating Monthly Savings Wisely
Monthly Surplus:
You have about Rs. 1 lakh left after your expenses. Use this wisely. Here’s a suggested allocation:

Rs. 30,000 towards Car Loan Prepayment:
This will help in reducing the loan tenure and interest burden.

Rs. 50,000 towards Mutual Funds:
Start SIPs in a mix of large-cap, mid-cap, small-cap, and flexi-cap funds. This will help in building a robust investment portfolio.

Rs. 20,000 towards Emergency Fund:
Building an emergency fund is crucial. It should cover at least 6 months of your expenses. This fund should be easily accessible, so consider keeping it in a liquid fund or a high-interest savings account.

Planning for Future Family Expenses
Preparing for Family:
Starting a family will bring additional expenses. It's important to plan for these now. Ensure you have sufficient health insurance to cover maternity and child-related expenses. You may also want to start saving for your child's education early on.

Revisiting Your Insurance Needs:
Since you’re planning to start a family, revisit your insurance coverage. Ensure you have adequate life and health insurance. Term insurance is a must to secure your family’s future.

Regular Monitoring and Adjustments
Periodic Reviews:
Investing is not a one-time activity. Regularly review your investments with the help of a Certified Financial Planner. Adjust your SIPs based on your changing financial situation.

Stay Invested:
Market fluctuations are normal. Don't panic during market corrections. Staying invested is key to achieving your financial goals.

Final Insights
You are on the right path by prioritizing your liabilities and planning for investments. Clearing your car loan early and starting SIPs in mutual funds will set you on the path to financial security. With disciplined saving and investing, you can achieve your goals and ensure a bright future for your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You have a strong financial base and are disciplined in saving.

Let’s analyze your current position and plan for your goal.

I will give you a 360-degree view as a Certified Financial Planner.

We will look at your investments, savings, insurance, and future corpus target.

                     

Current Financial Position Assessment

Your monthly salary in hand is Rs. 2 lakhs. This is a good steady income.

You are debt-free. This is a great advantage for future planning.

You invest Rs. 1 lakh every month in various portfolios. That shows good discipline.

Your existing investments include SIPs worth Rs. 20 lakhs.

You hold Rs. 17 lakhs in Senior Citizens Savings Scheme (SCSS).

You have Rs. 7 lakhs in Public Provident Fund (PPF), and Rs. 5 lakhs in Employee Provident Fund (EPF).

NPS investment of Rs. 8 lakhs adds retirement benefits.

Fixed Deposits of Rs. 12 lakhs and gold worth Rs. 10 lakhs add diversification.

Land worth Rs. 80 lakhs is part of your assets but not a liquid investment.

You have two children pursuing B.Tech, in their 3rd and 1st years.

Term insurance coverage is Rs. 2.5 crore. This protects your family’s financial security.

Your goal is to create a corpus of Rs. 3 crore by age 62, i.e., in 14 years.

                     

Evaluating Your Corpus Goal

Rs. 3 crore in 14 years is a realistic goal, given your income and savings.

Corpus depends on your investment returns and savings rate.

Your current monthly saving of Rs. 1 lakh is a good start for this target.

You should continue with disciplined monthly SIPs across asset classes.

The mix of equity, debt, and gold helps reduce risk and improve returns.

However, you can optimize the allocation to meet the target faster or with less risk.

Equity investments through actively managed mutual funds can give better returns.

Avoid index funds; they offer average market returns and do not protect during downturns.

Regular mutual funds, chosen via a Certified Financial Planner and through MFD channels, offer better review and monitoring.

Avoid direct mutual funds unless you have expert guidance, as wrong choices may hurt returns.

Diversification is key, but monitor funds regularly to avoid underperformers.

                     

Reviewing Your Investment Mix

SIPs of Rs. 20 lakhs is a good equity base but check fund categories.

PPF and EPF together of Rs. 12 lakhs give stable, tax-efficient returns.

NPS of Rs. 8 lakhs adds pension and tax benefits; continue this consistently.

SCSS of Rs. 17 lakhs is good but locks money with moderate returns.

FDs of Rs. 12 lakhs provide safety but low returns; consider shifting some portion.

Gold of Rs. 10 lakhs is a good hedge but avoid overexposure.

Land worth Rs. 80 lakhs is illiquid; it cannot fund emergencies or short-term needs.

Review whether the SCSS and FD portions can be partially moved to debt mutual funds for better returns.

Debt mutual funds are taxed as per your income slab but give better liquidity and slightly higher returns than FDs.

Keep some funds in safe fixed income to reduce portfolio volatility at your age.

                     

Term Insurance Coverage Evaluation

Rs. 2.5 crore term cover is good, considering your salary and liabilities.

Term insurance should cover at least 10 to 15 times your annual income.

Also consider liabilities like home loan, children’s education, and other debts if any.

Since you are debt-free, this cover looks adequate.

But check if it covers family’s living expenses for 10 years or more.

Consider increasing coverage if your spouse is financially dependent.

Also, consider future inflation and rising education costs of your children.

It is good to review term cover every 3 to 5 years or after major life changes.

Keep health insurance in place for the family, as medical costs can be unpredictable.

                     

Children’s Education Funding

Your children are in engineering, so education costs are high but nearing completion.

Ensure education loans or higher studies funds are planned separately.

If you can fund the education fully, good. Else plan loans or scholarships.

Avoid interrupting retirement corpus savings for children’s education now.

Postpone new large expenses till children finish education.

After children complete education, savings can increase for retirement corpus.

                     

Tax Planning and Asset Allocation

Use tax-saving instruments wisely, like PPF, NPS, and ELSS if applicable.

Maximise benefits under Section 80C and other applicable sections.

Balance between equity and debt according to your risk tolerance and age.

At 48, equity exposure around 50-60% is reasonable for growth.

Keep 40-50% in safer debt instruments and liquid funds.

Regularly review asset allocation, especially when nearing retirement.

Rebalance portfolio yearly to maintain risk-return balance.

Avoid chasing high returns by taking unnecessary risks.

Actively managed funds provide flexibility to adapt to market changes.

Your current monthly SIP of Rs. 1 lakh can be allocated carefully among equity, debt, and gold funds.

                     

Emergency Fund and Liquidity

Keep at least 6 to 12 months’ expenses in liquid savings or short-term funds.

This fund helps during medical emergencies or sudden income loss.

Your fixed deposits and liquid mutual funds can serve as emergency funds.

Avoid locking all money in illiquid instruments like land or SCSS.

Review liquidity every year to adjust for changing expenses.

                     

Final Insights

You are on a good track with disciplined savings and diversified investments.

The Rs. 3 crore corpus goal in 14 years is achievable with your current savings and review.

Continue investing monthly Rs. 1 lakh and review asset allocation regularly.

Increase equity portion via actively managed funds for better growth potential.

Avoid index funds and direct funds unless you have expert guidance.

Consider moving some FD and SCSS amounts into debt mutual funds for better returns.

Term insurance coverage looks sufficient but review periodically as family needs grow.

Maintain emergency funds and health insurance to protect your wealth creation.

Monitor and rebalance your portfolio yearly to meet your retirement goal safely.

Planning your children’s education funding separately will help keep retirement funds intact.

Consult a Certified Financial Planner for annual reviews and adjustments.

This approach will keep you financially strong and prepared.

You deserve a secure and comfortable retirement at 62 years.

Keep investing wisely and reviewing often.

Your discipline and planning will reward you well.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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