Hello Sir, I am NRI 40.7 years old now married with 2 kids & planning to relocate to Mumbai within next 6 months to work there for next 4 years and then retire from work. I have 4 apartments in and around Mumbai market worth Rs. 1.85 Cr(getting rent Rs. 30k each month from 3 apartments). Invested in gold worth Rs. 17lacs, invested in bajaj allianz, Tata AIA, Max life policies and monthly premium paying is Rs. 33K(bajaj started 2 years ago & rest policies started a year ago), PPF has 5K monthly payment & SSY has 1k monthly payment. At age 45, I am expecting to get Rs. 150,000 every month.

Ans: You are planning to relocate to Mumbai and retire in four years. You have a variety of investments and sources of income.

Your portfolio includes:

Four apartments worth Rs. 1.85 Cr, generating Rs. 30k monthly rent from three apartments.

Gold investments worth Rs. 17 lakhs.

Insurance policies from Bajaj Allianz, Tata AIA, and Max Life with a total monthly premium of Rs. 33k.

Contributions to PPF and SSY with Rs. 5k and Rs. 1k monthly respectively.

Your goal is to ensure a stable monthly income of Rs. 1.5 lakh upon retirement at age 45. Let’s delve into how you can achieve this.

Evaluating Your Current Assets
Real Estate Investments
You have four apartments valued at Rs. 1.85 Cr. Three of them provide a steady rental income of Rs. 30k per month.

Real estate can provide a stable income, but it also involves maintenance costs, tenant issues, and the risk of property devaluation.

Consider the following:

Are you prepared to handle property management responsibilities?

Will rental income remain stable in the Mumbai market?

Real estate investment is not as liquid as other investments. It may take time to sell a property if you need quick cash.

Gold Investments
You have invested Rs. 17 lakhs in gold, which can be a good hedge against inflation. However, gold prices can be volatile.

Gold doesn't generate regular income like interest or dividends.

Its value can fluctuate based on market conditions.

While gold is a good safety net, relying solely on it for income isn't advisable.

Analyzing Insurance Policies
You are paying Rs. 33k monthly for insurance policies from Bajaj Allianz, Tata AIA, and Max Life.

These policies provide life cover, but their investment component may not be the best.

Consider the following:

Are the returns from these policies meeting your financial goals?

Could you get better returns by investing in other financial instruments?

Since these policies are relatively new, it might be beneficial to surrender them and reinvest in more lucrative options.

Contributions to PPF and SSY
You are contributing Rs. 5k monthly to PPF and Rs. 1k monthly to SSY.

Both of these are safe investments with decent returns and tax benefits.

PPF offers a fixed interest rate and is a long-term investment.

SSY is specifically for your daughter's future and offers attractive interest rates.

These should be part of your retirement planning, but additional investments are needed to meet your Rs. 1.5 lakh monthly income goal.

Exploring Mutual Funds
Categories of Mutual Funds
Mutual funds are a great way to diversify your investment and potentially earn higher returns. They come in various categories:

Equity Funds: Invest in stocks and can provide high returns. Suitable for long-term goals.

Debt Funds: Invest in fixed income instruments like bonds. Lower risk and provide regular income.

Hybrid Funds: Combine equity and debt investments. Offer balanced risk and returns.

Advantages of Mutual Funds
Mutual funds offer several advantages:

Diversification: Spreads your investment across various assets, reducing risk.

Professional Management: Managed by experienced fund managers.

Liquidity: Easy to buy and sell units, providing flexibility.

Compounding: Reinvesting earnings can significantly grow your investment over time.

Risk Assessment
While mutual funds have the potential for high returns, they come with risks:

Market Risk: Equity funds are subject to market fluctuations.

Interest Rate Risk: Debt funds can be affected by changes in interest rates.

Credit Risk: The possibility of issuers defaulting on their payments.

It's essential to choose funds that align with your risk tolerance and investment goals.

Power of Compounding
One of the most significant benefits of mutual funds is the power of compounding.

Compounding means earning returns on both your initial investment and the returns that investment has already generated.

For example, if you invest Rs. 10,000 in a mutual fund and it earns 10% annually, after one year, you'll have Rs. 11,000. The next year, you earn 10% on Rs. 11,000, not just your original Rs. 10,000.

Over time, this can significantly increase your wealth. The key is to start early and remain invested for the long term.

Benefits of Actively Managed Funds
While some investors prefer index funds, actively managed funds have their benefits:

Expert Management: Fund managers actively select stocks, aiming to outperform the market.

Flexibility: Managers can quickly adjust the portfolio in response to market changes.

Potential for Higher Returns: Skilled managers may achieve better returns than passive funds.

However, actively managed funds often have higher fees than index funds. But the potential for higher returns can justify the costs.

Disadvantages of Direct Funds
Direct funds allow you to invest without a middleman, but they come with drawbacks:

Lack of Guidance: You miss out on professional advice and insights.

Time-Consuming: Managing your investments can be time-consuming and complex.

Risk of Mistakes: Without expert guidance, there's a higher risk of making poor investment choices.

Investing through a Certified Financial Planner (CFP) can help you make informed decisions and avoid common pitfalls.

Surrendering Insurance Policies
If you hold investment cum insurance policies, like ULIPs, consider surrendering them.

These policies often have high charges and lower returns compared to mutual funds.

Reinvest the proceeds in diversified mutual funds for potentially higher returns.

Building a Balanced Portfolio
To achieve your retirement goal of Rs. 1.5 lakh per month, consider building a balanced portfolio with the right mix of investments.

Equity Mutual Funds
Investing in equity mutual funds can provide high returns over the long term.

Choose funds with a good track record and consistent performance.

Debt Mutual Funds
Include debt mutual funds for stability and regular income.

These funds are less volatile and can provide a steady stream of income.

Hybrid Mutual Funds
Hybrid funds offer a balance between equity and debt, providing moderate returns with balanced risk.

They can be an excellent addition to your portfolio.

Systematic Investment Plan (SIP)
Investing through SIPs can help you build wealth over time.

By investing a fixed amount regularly, you can benefit from rupee cost averaging and the power of compounding.

Reviewing and Adjusting Your Plan
Regularly review your investment plan to ensure it aligns with your goals.

Adjust your portfolio as needed based on market conditions and your financial situation.

Consult with a Certified Financial Planner (CFP) to get personalized advice and make informed decisions.

Final Insights
You have a diversified investment portfolio, but to achieve your retirement goal, you need to optimize it further.

Consider the following steps:

Reevaluate your real estate investments and rental income potential.

Assess the returns on your gold investments.

Review and possibly surrender your insurance policies for better investment options.

Continue contributing to PPF and SSY for long-term benefits.

Diversify into mutual funds, focusing on equity, debt, and hybrid funds.

Leverage the power of compounding through SIPs.

Regularly review your plan and adjust as needed with the help of a CFP.

This comprehensive approach will help you achieve a stable monthly income of Rs. 1.5 lakh and secure your financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in