Hello, My name is AB from Delhi. My age is 34. I have my own house. Having rented income of 20k. In my family my wife she is 33 and Housewife, my daughter 10months and planning for a baby in a year. I am earning around 50k month. No...

Hello, My name is AB from Delhi. My age is 34. I have my own house. Having rented income of 20k. In my family my wife she is 33 and Housewife, my daughter 10months and planning for a baby in a year. I am earning around 50k month. No loan, no debt nothing. I have 2 lacs in emergency fund. I am having 15k medical insurance for all 3 of us of 5lac and will increase it to 10lakh or more from next year. Term insurance of 1crore. Sukanya opened in April 2024. I am doing stock market but not more than 50k overall and not planning to invest more. I am doing 6 SIPs. Below are the details. All are Direct Plans. PFA Mirae large and Mid - 2500 (22nd Nov 2023) Parag Flexi cap - 3500 (22nd Nov 2023) Quant small cap - 3000 (18th Dec 2023) HDFC Flexi Cap - 2500 (15th March 2024) Nippon India small cap - 2500(28th March 2024) UTI Nifty 50 Index Fund - 2500(26th March) I have some 25lacs with me because I sold one of my property. So planning for property is there anything else I can do with 25lacs? My questions are as follows:- 1. Review my portfolio I will invest Max 20k a month Should I add more SIP's or should I change some from above? 2. My goals are my children's education and marriage. 3. Wealthy and Retirement plan 4. Lumsum Amount 5. Need some lacs in every 4-5 years like for admission or for some emergency. 6. Want a luxury life for my family. 7. After 20 years I want 2.5cr. How much and where I have to invest?

Ans: It's evident that you've taken proactive steps to secure your family's financial future, AB. Let's address your questions systematically:
1. Portfolio Review: Your current portfolio reflects a well-diversified approach with exposure to large-cap, mid-cap, flexi-cap, and small-cap funds. However, since your investment horizon is long-term, you might consider adding more mid-cap and small-cap funds to potentially enhance returns. Additionally, periodically review your portfolio to ensure it remains aligned with your goals and risk tolerance.
2. Children's Education and Marriage: Your SIP investments can serve as a solid foundation for funding your children's education and marriage. Consider increasing your SIP contributions gradually over time to meet these goals effectively.
3. Wealth and Retirement Planning: Given your current financial situation and goals, focusing on building a diversified investment portfolio comprising equity, debt, and other asset classes is crucial. Consult a Certified Financial Planner to develop a comprehensive wealth and retirement plan tailored to your specific needs and aspirations.
4. Lump Sum Investments: With the 25 lakhs from selling your property, consider diversifying your investments across various asset classes such as mutual funds, stocks, bonds, and fixed deposits to optimize returns and manage risk.
5. Emergency Fund: Your emergency fund of 2 lakhs is a prudent move. As your financial responsibilities increase, consider gradually increasing this fund to cover at least 6-12 months of living expenses.
6. Luxury Life: Achieving a luxury lifestyle requires careful financial planning and disciplined savings. Allocate a portion of your monthly income towards discretionary expenses while ensuring you prioritize long-term goals.
7. Long-term Wealth Target: To achieve your target of 2.5 crores in 20 years, focus on consistent investing in equity mutual funds, which historically have provided higher returns over the long term. Review your portfolio periodically and make adjustments as needed to stay on track towards your wealth accumulation goal.
Remember, financial planning is an ongoing process, and it's essential to periodically review and adjust your strategy based on changes in your life circumstances, financial goals, and market conditions. By staying disciplined and seeking professional guidance when needed, you can work towards building a secure financial future for you and your family.

Ans: You are 50 years old, potentially having 1-2 more years in your job. Your monthly salary is Rs 2 lakh, with Rs 1 lakh as basic income after tax. Your expenses are Rs 60,000, and you reside in your own home. You also rent out another house valued at Rs 50 lakh, generating Rs 6,000 monthly.

Your investment portfolio consists of:

Rs 2.3 crore in investments
Rs 11 lakh cash
Rs 30 lakh fixed deposits
Rs 11 lakh in corporate bonds
Rs 2.5 lakh in LIC
Rs 7 lakh in PPF
Rs 13 lakh in SSY
Rs 72 lakh in EPF
Rs 15 lakh in SGB (203 units)
Rs 55 lakh in mutual funds with 30% depreciation for tax and market peak
Rs 11 lakh in shares with 30% depreciation for tax and market peak
Rs 6 lakh in ICICI Health Saver with Rs 10 lakh health cover
Your employer may contribute to NPS soon, and you are considering starting a SIP in an index fund. You want to know whether your portfolio is too scattered and if you should book profits in mutual funds and move into safer options like deposits.

Let’s go step by step.

Portfolio Analysis

Your portfolio is well-diversified, but there is some room for simplification. Let’s evaluate your current holdings:

Cash and Fixed Deposits: Rs 11 lakh in cash and Rs 30 lakh in deposits are reasonable for liquidity. However, deposits don’t beat inflation over time. Consider shifting a part of these funds to higher-yielding options.

Corporate Bonds and LIC: Your Rs 11 lakh in corporate bonds offer decent returns but carry credit risk. LIC policies offer low returns. It may be worthwhile to evaluate the benefits of continuing LIC, considering the low returns. A Certified Financial Planner can help assess the surrender value and suggest better options.

PPF and SSY: These are safe and tax-free long-term instruments. They serve as a good part of your retirement and child’s education corpus. Continue holding these.

EPF: With Rs 72 lakh, your EPF offers stability and tax benefits. It's a strong foundation for retirement planning.

Sovereign Gold Bonds (SGB): Rs 15 lakh in SGB (203 units) is a solid hedge against inflation. Keep this as part of your portfolio for the long term.

Mutual Funds and Shares: You have Rs 55 lakh in mutual funds across 11 schemes and Rs 11 lakh in shares. With 30% depreciation for tax and market peak, your equity exposure is subject to market volatility. Let's dive into these categories for a detailed understanding.

Mutual Fund Portfolio Assessment

Your mutual fund portfolio is diversified across large-cap (33%), mid-cap (21%), small-cap (9%), debt (22%), and others (18%). Having exposure to large, mid, and small caps is good for growth potential. However, 11 funds can make the portfolio scattered and harder to manage.

Key Insights on Mutual Fund Portfolio:
Actively Managed Funds Over Index Funds: You’re considering starting a SIP in an index fund. However, index funds simply mirror the market and don’t offer the flexibility of active management. In actively managed funds, professional fund managers make strategic decisions to outperform the market. Over time, this approach can offer better returns, especially in volatile markets.

Regular Funds Over Direct Funds: If you're investing in direct mutual funds, you miss out on personalized advice. Regular funds, through an MFD or a Certified Financial Planner, provide ongoing guidance, performance tracking, and portfolio adjustments. This can help you stay on track with your financial goals.

Booking Profits: Considering the market volatility and potential peaks, booking partial profits in your mutual fund portfolio could be wise. However, instead of moving completely into safe options like deposits, consider a mix of debt mutual funds for stability and equity mutual funds for long-term growth. This will balance your risk and reward.

Shares: Managing Depreciation

Your Rs 11 lakh in shares has depreciated by 30%. Rather than panicking, assess whether these stocks still have long-term growth potential. If they are fundamentally strong, holding on to them could allow for a market recovery. If the fundamentals are weak, consider exiting and reallocating those funds into more stable investments like mutual funds or bonds.

Should You Invest in NPS?

Your employer may soon start contributing to the National Pension System (NPS). NPS is a good retirement planning tool as it offers tax benefits and helps accumulate a pension corpus. However, NPS has a long lock-in period until the age of 60, and part of the withdrawal is taxable. Given your existing corpus in EPF and other investments, you could limit NPS contributions and focus more on investments that offer better liquidity and tax efficiency.

SIP Decision: Is an Index Fund Ideal?

While you are contemplating starting a SIP in an index fund, it may not be the most effective strategy for your retirement planning. Here's why:

Disadvantages of Index Funds: Index funds offer market returns, but they cannot beat the market. In volatile or down-trending markets, index funds may underperform. They also lack the flexibility that actively managed funds provide, where fund managers make decisions based on market trends and opportunities.

Benefits of Actively Managed Funds: Actively managed funds have the potential to outperform benchmarks. Fund managers make informed decisions to protect your capital and seek growth opportunities. This is especially important when you are nearing retirement and cannot afford significant market downturns.

You should consider a mix of actively managed funds rather than relying solely on index funds.

Health Cover: Adequacy and Enhancement

Your current health cover is Rs 10 lakh through ICICI Health Saver. This is good, but with rising healthcare costs, you may want to consider enhancing your health cover to at least Rs 25 lakh. Health emergencies can severely impact your retirement corpus if you don’t have adequate coverage.

Emergency Fund

Your Rs 11 lakh cash reserve serves as an emergency fund. This is sufficient for now, given that your monthly expenses are Rs 60,000. Aim to keep at least 6-12 months’ worth of expenses as an emergency fund. Any excess cash can be invested for better returns.

Child’s Education Planning

Your child is in 10th standard, and you’ll need to start planning for their higher education soon. The Rs 13 lakh in SSY and Rs 7 lakh in PPF are good instruments for this. However, depending on the cost of education, you may need to build a larger corpus. Consider supplementing these investments with child-focused mutual funds or equity funds with a horizon of 5-7 years.

Final Insights

You have built a strong portfolio, but there are areas where you can improve:

Simplify your mutual fund portfolio: Reduce the number of schemes and focus on actively managed funds rather than index funds. Booking some profits may be wise, but don’t move completely into safe assets like deposits.

NPS Contribution: Contribute to NPS but don’t park all your money there. You need liquidity and flexibility, which NPS lacks.

Shares: Hold on to fundamentally strong stocks or exit weak ones. Reallocate those funds into more stable options if needed.

Health Cover: Consider increasing your health insurance to safeguard your retirement corpus against medical emergencies.

Child’s Education: Build a dedicated corpus for your child’s education through long-term investments.

By taking these steps, you can align your portfolio for steady growth, manage risk effectively, and ensure a comfortable retirement in the next few years.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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