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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 26, 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
MANU Question by MANU on Nov 21, 2023Hindi
Money

Hello Nikunj, I am 41 years old IT professional and looking to build a corpus of 3 crores for retirement. I have recently started investing in MF as below: 10k in UTI Nifty fifty 50 index fund 5k in Parag Parikh flexi cap fund 3k in Kotak small fund. Please guide what changes needs to be done to achieve my goal.

Ans: Your decision to build a corpus of Rs. 3 crores for retirement is commendable. At 41, you're taking a proactive approach to secure your financial future. Investing in mutual funds is a smart strategy. Let's review your current investments and suggest adjustments to help you achieve your goal.

Understanding Your Current Investments
Currently, you are investing Rs. 18,000 per month in mutual funds:

Rs. 10,000 in UTI Nifty 50 Index Fund
Rs. 5,000 in Parag Parikh Flexi Cap Fund
Rs. 3,000 in Kotak Small Cap Fund
This is a good start, but some changes can optimize your portfolio.

Evaluating Index Funds vs. Actively Managed Funds
You are investing a significant amount in an index fund. Index funds track a market index, offering lower costs but limited flexibility. They don’t outperform the market.

Disadvantages of Index Funds

Limited Flexibility: Index funds can't adjust to market changes quickly.
Average Returns: They only match market returns, not exceed them.
Missed Opportunities: Actively managed funds can capitalize on market opportunities.
Benefits of Actively Managed Funds
Actively managed funds have professional managers who make investment decisions. They aim to outperform the market by selecting high-performing assets.

Advantages of Actively Managed Funds

Expert Management: Professional managers use research and analysis to pick assets.
Higher Potential Returns: These funds aim to exceed market returns.
Flexibility: Managers can adapt to market changes and economic conditions.
Direct Funds vs. Regular Funds
Direct funds have lower expense ratios but require self-management. Regular funds come with expert guidance from a Certified Financial Planner (CFP).

Disadvantages of Direct Funds

Self-Management: Requires time and knowledge to manage investments.
Risk of Poor Decisions: Without expert advice, you may make suboptimal choices.
Limited Support: No professional guidance during market volatility.
Benefits of Regular Funds
Investing through a CFP provides expert advice and tailored investment strategies.

Advantages of Regular Funds

Professional Guidance: CFPs offer personalized investment strategies.
Better Decision-Making: Expert advice helps in choosing the right funds.
Comprehensive Support: CFPs provide ongoing support and adjustments to your portfolio.
Assessing Your Investment Goals
To achieve your goal of Rs. 3 crores, you need a diversified and balanced portfolio. Your current investments are a mix of index, flexi cap, and small cap funds. Let's refine this mix for better growth and stability.

Suggested Portfolio Allocation
1. Equity Mutual Funds

Equity funds should form the core of your portfolio due to their growth potential.

Large-Cap Funds: Invest in large, stable companies. They offer moderate risk and steady returns.
Mid-Cap and Small-Cap Funds: Invest in medium and small companies. They have higher risk but can offer significant returns.
Multi-Cap Funds: Invest across companies of all sizes, providing diversification and balanced risk-reward.
2. Balanced or Hybrid Funds

Balanced funds invest in both equities and debt instruments. They provide growth and stability.

Equity-Oriented Hybrid Funds: These have a higher equity component, offering growth with some stability.
Debt-Oriented Hybrid Funds: These have a higher debt component, offering stability with some growth.
3. Debt Mutual Funds

Debt funds are less risky and offer stable returns. They should form a part of your portfolio for risk management.

Short-Term Debt Funds: Invest in short-term bonds, providing liquidity and stability.
Long-Term Debt Funds: Invest in long-term bonds, offering higher returns with moderate risk.
4. Tax-Saving Funds (ELSS)

Equity Linked Savings Schemes (ELSS) offer tax benefits under Section 80C. They are suitable if you want to save taxes and earn good returns.

Creating a Balanced Portfolio
A well-balanced portfolio might include:

50% Equity Funds: Split between large-cap, mid-cap, and multi-cap funds.
30% Balanced Funds: For growth and stability.
20% Debt Funds: For low-risk, stable returns.
This diversified approach balances growth potential with risk management.

Increasing Your SIP Amount
Considering your goal and time horizon, you might need to increase your SIP amount. Regularly reviewing and increasing your SIP can help you stay on track.

Monitoring and Adjusting Your Portfolio
Regularly review your portfolio with your CFP. Market conditions and your financial goals might change. Adjust your investments accordingly to stay on track.


Your proactive approach to securing your retirement is commendable. At 41, taking these steps shows foresight and financial acumen. You're on the right path, and with a few adjustments, you can achieve your goal.


To achieve your goal of Rs. 3 crores, consider shifting from index funds to actively managed funds. Invest through a Certified Financial Planner for expert guidance. Diversify your portfolio with equity, balanced, and debt funds. Regularly review and adjust your investments. Stay disciplined, and you will achieve 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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I understand your concerns. The first step is to focus on moving on; she has, and you should too. Prioritize your career, your family, and your future. Next, what has happened to your career progress has already happened. It's unfortunate, but there's no way to change that. But give yourself a second chance; work harder and achieve greater things than you even imagined before. Trust me, you are not the only person who is standing in a situation like this. Many have, and many more will. But the ones who have passed this time will give you the same advice that I did.

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Milind

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Insurance, Stocks, MF, PF Expert - Answered on Nov 22, 2024

Asked by Anonymous - Nov 13, 2024Hindi
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Sir, I am 40yrs old. Having monthly takehome salary of 1.1 lakh and rental income of 36000. My investment are 2 flats worth of 1cr. 4 plots in Bhubaneswar worth of 2crs. EPF balance 50 lakh, LIC policies worth of 16 lakhs, NPS worth of 10 lakhs. My monthly saving commitments are - EPF (employee+employer) 28000 NPS 15000 MF 7500 Gold scheme 5000 Financial burden - HL emi of 24000 Monthly expanses 50000 I would like to retire at 50. Please advise for retirement plan with life expectancy of 80yrs.
Ans: Hello;

The value of your investments after 10 years;

A. EPF Corpus+Contribution: 1.6 Cr
B. NPS Corpus+Contribution: 53 L
C. MF(sip) + Gold(sip): 25 L
D. Real estate (land): 3.26 Cr

So sum of A, C & D gives us a corpus of 5.11 Cr

Since you will withdraw NPS before 60 age 80% of corpus will go into annuity while 20% will be available to you.

So you may expect monthly income of around 21 K from annuity(42.4 L).

Balance 10.6 L get added to 5.11L taking your total corpus to ~ 5.2 Cr.

If you invest 5 Cr in a conservative hybrid debt fund and do a SWP at the rate of 3%, you may expect a monthly income of around 1.1 L(post-tax).

Add your monthly rental income of 36 K(No growth factored) and annuity income of 21 K to this and you have total monthly income of 1.67 L after 10 years.

Your current monthly expenses of 50 K after 10 years would be around 90 K and 1.6 L after 20 years.

Considering return of around 7-7.5% from the conservative hybrid debt fund you will still generate inflation adjusted return at 3% SWP after 80 years of age.

Assumptions:
Inflation rate-6%
Return from EPF-8%
Return from NPS-9%
Return from MF-10%
Return from gold-7%
Return from Land-5%
Annuity rate-6%

The spare flat is not considered in this because it will continue to yield you rental income in retirement.

Since real estate(land) returns may fluctuate over 10 years suggest to increase MF sip(6X) as a back-up, also in this case you may decide to retain & invest in NPS upto 60 age.

Of course MF returns are also not assured but you are improving the odds by backing two appreciable assets(RE & equity) over long-term.

Happy Investing;
X: @mars_invest

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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 22, 2024

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My age 62, male, getting rental income Rs. 90k nett. Already subscribing 12.5k in PPF for the past 2 1/2 years. No other investments. My target is 5 crores in 10 years. I already have Mediclaim Rs.50 lakhs for me & wife . Please advice me what to do.
Ans: Your current financial foundation is strong and shows promise:

A rental income of Rs. 90,000 per month provides consistent and predictable cash flow. This stability can serve as the backbone for your investment strategy.

PPF contributions of Rs. 12,500 per month for 2.5 years reflect disciplined saving. However, its returns may be insufficient to achieve a high-growth target like Rs. 5 crores in 10 years.

A robust Mediclaim policy of Rs. 50 lakhs for you and your wife ensures adequate health coverage. This safeguard allows you to focus on wealth-building without worrying about medical emergencies.

Despite these positive factors, achieving Rs. 5 crores in 10 years requires a carefully crafted and growth-oriented strategy.

Defining and Prioritising Your Financial Goals
Achieving Rs. 5 crores is ambitious yet achievable with a focused approach:

Define this target as your primary financial goal over the next decade.

Break it into manageable milestones: for example, Rs. 50 lakhs every 1-2 years in cumulative investments and growth.

Prioritise high-return investments that align with your risk tolerance and financial capacity.

Optimising Existing PPF Contributions
While PPF is a secure investment, its growth potential is limited:

Returns: PPF currently offers an interest rate of approximately 7-7.5%, which barely outpaces inflation.

Contribution Review: Consider capping your PPF contributions at Rs. 1.5 lakh annually (to utilise the Section 80C benefit). This ensures that excess funds are redirected to higher-return investments.

PPF can serve as a low-risk component of your portfolio but should not dominate your investment strategy.

Building a Diversified Investment Portfolio
A diversified portfolio will provide a balance of risk and reward. Include the following components:

1. Equity Mutual Funds for Growth
Equity mutual funds are essential for achieving high returns over the long term:

Large-Cap Funds: These invest in established companies and offer stability with moderate growth. They are ideal for a portion of your portfolio to reduce risk.

Multi-Cap or Flexi-Cap Funds: These provide exposure to companies of all sizes, offering growth and diversification.

Sectoral and Thematic Funds: Avoid these unless you have a high risk tolerance and understand market dynamics.

ELSS Funds: These not only provide tax savings under Section 80C but also deliver market-linked returns.

Why Avoid Index Funds?

Index funds may offer simplicity and lower expense ratios, but they lack flexibility. They cannot adapt to market conditions or capitalise on outperforming sectors. Actively managed funds, on the other hand, have the potential to outperform the market, especially in a developing economy like India.

Start with a Systematic Investment Plan (SIP) in selected funds to build wealth steadily.

2. Debt Mutual Funds for Stability
Debt funds add stability to your portfolio and reduce overall risk:

Choose funds with low credit risk and moderate duration to ensure safety and predictable returns.

Debt funds are suitable for short- to medium-term goals or as a fallback during market corrections.

Taxation Note: Both LTCG and STCG on debt funds are taxed as per your income tax slab. This should be factored into your planning.

3. Balanced Advantage Funds
Balanced advantage funds (BAFs) dynamically allocate assets between equity and debt. They:

Provide exposure to equity while minimising downside risk.

Offer a suitable option for someone nearing retirement but seeking growth.

4. Gold Investments for Diversification
Allocate a small portion (5-10%) of your portfolio to gold:

Gold serves as a hedge against inflation and currency depreciation.

Choose gold ETFs or sovereign gold bonds for ease of liquidity and better returns.

Emergency Fund Creation
Having an emergency fund is non-negotiable:

Maintain at least 6-12 months of expenses in liquid investments like liquid mutual funds or high-interest savings accounts.

This ensures liquidity for unforeseen events without disturbing your long-term investments.

Focus on Retirement Planning
At 62, balancing growth and safety becomes critical:

Estimate your monthly retirement expenses, considering inflation over the next 10-15 years.

Your target of Rs. 5 crores should primarily serve as your retirement corpus.

Allocate assets thoughtfully:

60-70% in equity funds for growth.
30-40% in debt funds for stability.
Periodically rebalance your portfolio to maintain this allocation.

Strategic Tax Planning
Tax efficiency can significantly impact your returns:

Continue using Section 80C to its full potential, including ELSS funds and PPF.

Consider the National Pension System (NPS) for an additional Rs. 50,000 deduction under Section 80CCD(1B).

Be mindful of the new taxation rules for mutual funds:

Equity Mutual Funds: LTCG above Rs. 1.25 lakh is taxed at 12.5%; STCG at 20%.
Debt Funds: LTCG and STCG are taxed as per your income slab.
Consult a Certified Financial Planner to optimise your tax strategy.

Regular Portfolio Monitoring and Rebalancing
Investing is not a one-time activity:

Review your portfolio every six months or annually to track performance.

Rebalance your asset allocation periodically to align with your financial goals and risk appetite.

Stay committed to SIPs even during market downturns, as this ensures cost-averaging.

Additional Suggestions
Avoid Over-Reliance on PPF
While PPF is safe, it is not sufficient for wealth creation. Shift excess contributions to equity-based investments for better returns.

Avoid Direct Stocks
Direct equity investing requires time, expertise, and constant monitoring. It carries higher risk and may lead to losses without proper research. Instead, rely on equity mutual funds managed by professionals.

Avoid Mixing Insurance and Investments
Do not invest in ULIPs or endowment plans, as they offer suboptimal returns. Stick to pure insurance products for protection and mutual funds for growth.

The Role of a Certified Financial Planner
To achieve Rs. 5 crores, a well-crafted financial plan is essential. A Certified Financial Planner (CFP) can:

Analyse your current investments and recommend improvements.

Design a customised strategy tailored to your income, expenses, and goals.

Provide periodic reviews to ensure you stay on track.

Finally
Achieving Rs. 5 crores in 10 years is a realistic goal if you adopt a disciplined and diversified approach.

Optimise your PPF contributions and channel excess funds into higher-growth investments.

Build a diversified portfolio with equity and debt mutual funds.

Include a small allocation to gold and maintain an emergency fund.

Stay consistent with your SIPs and review your investments regularly.

Work with a Certified Financial Planner to create a personalised roadmap.

By following these steps, you can secure your financial future and meet your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

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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