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Should I invest in more than 12 mutual funds?

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 31, 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
Kotte Question by Kotte on Aug 30, 2024Hindi
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Iam 59 yrs old and I invested two laks Rs in 12 mfs of different fund houses of large, small, large&mid cap funds also thematic funds. Is it correct option to invest in more no of funds. Can you suggest me pl.

Ans: You are 59 years old and have invested Rs. 2 lakhs across 12 mutual funds. These funds are diversified across large-cap, small-cap, large & mid-cap, and thematic funds. While diversification is important, over-diversification can lead to a scattered portfolio that is difficult to manage and may not yield optimal returns.

Evaluating the Number of Funds
Investing in too many funds can dilute the benefits of diversification and make it harder to track performance.

Over-Diversification: Holding 12 mutual funds, especially with a relatively small corpus of Rs. 2 lakhs, might not be the most efficient strategy. Each fund may have overlapping stocks, reducing the overall diversification benefit.

Concentration Risk: By spreading your investment across too many funds, you may be inadvertently increasing your risk if these funds are not carefully selected to complement each other.

Simplifying Your Portfolio
A well-structured portfolio typically has a few carefully chosen funds that cover different segments of the market. Here’s how you can simplify:

Consolidate Funds: Consider reducing the number of funds. A portfolio with 3-5 funds can provide sufficient diversification without being overly complex.

Focus on Core Funds: Choose funds that have a strong track record and align with your risk tolerance and financial goals. Large-cap and large & mid-cap funds can form the core of your portfolio, providing stability and growth.

Thematic Funds: These can be a good addition but should be limited to a small portion of your portfolio due to their higher risk. Ensure they align with your long-term goals.

Rebalancing and Portfolio Review
At 59 years old, your investment strategy should also consider the proximity to retirement. It’s important to balance growth with safety.

Review Asset Allocation: Ensure your portfolio is aligned with your retirement goals. This might mean increasing your allocation to debt or hybrid funds to reduce risk.

Regular Monitoring: Keep an eye on the performance of your remaining funds. Periodic reviews will help you make informed decisions about rebalancing or further consolidation.

Final Insights
While diversification is crucial, over-diversification can lead to a diluted and hard-to-manage portfolio. Simplifying your investment by consolidating into a few well-chosen funds can provide better returns and easier management. As you approach retirement, ensure your portfolio is balanced to provide both growth and safety, aligning 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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Hello Sir, I am investing in MF from last one year in Mirae Assest Large cap fund Rs1000, Parag Parikh Flexi Cap Fund Rs2500, Nippon India Small cap Fund 2000, Tata small cap fund Rs 500. Please review my funds and planning to increase my investment from Rs 6000 to 16000/-. So kindly suggest some more funds or should I increase amount in same fund?
Ans: I'm here to help you navigate the world of investments and financial planning. It's great that you're thinking about your financial future and seeking guidance. Let's dive in!

• Firstly, I want to commend you for taking the initiative to invest and plan for your future. That's a significant step towards financial security and stability.

• Planning for the future can seem daunting, but with the right approach, you can achieve your financial goals and aspirations.

• As a Certified Financial Planner with 24 years of experience, my goal is to assist you in creating a robust financial plan tailored to your needs and aspirations.

• It's important to recognize that investing is a journey, and there may be ups and downs along the way. However, staying committed to your financial goals will ultimately lead to success.

• One of the key principles of successful investing is diversification. By spreading your investments across different asset classes, you can mitigate risk and maximize returns.

• Another crucial aspect is to invest according to your risk tolerance and time horizon. Understanding your risk appetite will help you choose investments that align with your comfort level.

• Additionally, regular review and adjustments to your investment portfolio are essential. Market conditions and personal circumstances may change over time, requiring you to adapt your financial plan accordingly.

• When it comes to investing, it's essential to focus on the long term. Short-term fluctuations in the market are normal, but staying invested and maintaining discipline is key to achieving your financial goals.

• Remember that financial planning is not just about investments; it's also about protecting what you've worked hard to build. This includes having adequate insurance coverage for yourself and your loved ones.

• Lastly, I want to encourage you to stay engaged with your finances and continue learning about different investment options and strategies. Empowering yourself with knowledge will help you make informed decisions and navigate the financial landscape with confidence.

In conclusion, by taking proactive steps towards financial planning and investing wisely, you can pave the way for a secure and prosperous future. I'm here to support you every step of the way on your financial journey. Feel free to reach out if you have any questions or need further assistance.

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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 15, 2024

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Sir, I am earning Rs 40000/- (Rs Forty thousand only) per month And aged 51 years old I can still work till 55 years I have very good knowledge in mutual funds and specially small cap funds My portfolio is as under 1) Quatt small cap fund 2) HSBC SMALL CAP FUND 3) TATA SMALL CAP FUND sip 25000 4) NIPPON SMALL CAP FUND sip 35000 5) AXIS 50 SMALL CAP NIFTY INDEX FUND 6) HDFC 250 SMALL CAP NIFTY INDEX FUND 7) MAHINDRA MANULIFE SMALL CAP FUND All investments are direct schemes I had received money from PPF account which is in lakhs should I invest more in mutual funds ?? Mohan Satpal
Ans: Your portfolio reflects a strong inclination towards small-cap funds, indicating a higher risk appetite and a belief in the growth potential of smaller companies. Let's evaluate your current portfolio and explore whether additional investments in mutual funds are suitable given your financial circumstances.

Portfolio Analysis
Focus on Small-cap Funds: Your portfolio is heavily concentrated in small-cap funds, which are known for their high growth potential but also carry increased volatility and risk. This concentration amplifies the risk-reward dynamics of your portfolio.
Active vs. Passive Management:
While you've included both actively managed mutual funds and index funds (ETFs) in your portfolio, it's important to understand the differences between the two. Actively managed funds aim to outperform the market through active stock selection and portfolio management, while index funds passively track a specific index's performance.
Benefits of Actively Managed Funds:
Actively managed funds offer the potential for higher returns compared to index funds, especially during market inefficiencies or when skilled fund managers can identify lucrative investment opportunities. Additionally, active management allows for flexibility in portfolio construction and adjustments based on market conditions.
Potential Disadvantages of Index Funds:
While index funds offer low expense ratios and broad market exposure, they may lack the potential for outperformance compared to actively managed funds. Additionally, they're subject to tracking error, which occurs when the fund's performance deviates from the index it's designed to replicate.


Direct Scheme Investments: Opting for direct schemes indicates your confidence in making independent investment decisions. However, it also requires active monitoring and research to ensure optimal fund selection and performance.
There are some advantages to consider direct funds, and the cost savings can be significant in the long run. However, there are some potential benefits to using a regular MFD:
Advantages of Investing Through a Mutual Fund Distributor (MFD):
• Personalized Advice: MFDs can be helpful for beginners or those who lack investment knowledge. They can assess your risk tolerance, financial goals, and investment horizon to recommend suitable mutual funds. This personalized guidance can be valuable, especially if you're new to investing.
• Convenience: MFDs handle all the paperwork and transactions on your behalf, saving you time and effort. They can help with account setup, SIP registrations, and managing your portfolio across different funds.
• Investor Support: MFDs can be a point of contact for any questions or concerns you may have about your investments. They can provide ongoing support and guidance throughout your investment journey.


Financial Situation
Monthly Income and Expenses: With a monthly income of Rs 40,000 and nearing retirement age at 55, it's essential to assess your financial stability and readiness for retirement. Consideration of future expenses and income sources is crucial in planning your investment strategy.

Lump Sum from PPF: The lump sum amount received from your PPF account presents an opportunity to bolster your investment portfolio. However, it's essential to evaluate your risk tolerance, investment horizon, and financial goals before allocating these funds.

Investment Decision
Given your age, income, and existing investment portfolio, further investments in mutual funds should be approached cautiously. Here are some considerations:

Risk Management: With retirement approaching, it's prudent to reassess your risk appetite and gradually transition to a more conservative investment approach. Consider reallocating a portion of your small-cap holdings to diversified equity or balanced funds to reduce portfolio volatility.

Diversification: While small-cap funds offer growth potential, diversifying across different market segments can help mitigate risk. Consider adding large-cap or multi-cap funds to your portfolio to achieve a balanced allocation.

Professional Advice: Consulting a Certified Financial Planner can provide personalized guidance tailored to your financial goals, risk tolerance, and retirement timeline. They can help you optimize your investment portfolio and make informed decisions.

Conclusion
As you near retirement age, it's essential to review your investment strategy to align with your financial goals and risk tolerance. While small-cap funds offer growth potential, diversification and risk management are key considerations. Consulting a Certified Financial Planner can provide valuable insights and guidance in navigating your investment journey.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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A bit long story I'm 21 student preparing for medical competative entrance exam for past 3 years (21-24).2 year ago this phase I was in a long distance relationship for 4 months with a girl I met in my class .But it didn't last long due to the problems created due to distance as she couldn't understand myself and I couldn't understand herself.so there was a misunderstanding and I couldn't hold on as I was in heavy pressure by exams and financial problems.so I couldn't handle and I felt like too early and broke up with her by losing my mind.she was completely disappointed as I didn't speak to her for more than an year due to one more year preparation.i missed her very much but I didnt tell her.I missed govt seat in border mark and the same year she got into a relationship with another guy in her class.i don't blame her. But I feel like my entire life is shattered and I couldn't move on from that girl till now.I couldn't concentrate on my career too.im kind of person who is always confident in all aspects but I have totally lost my mind .I can see that in an danger situation as age is running and family pressure, everyone of my classmates are far ahead of me I couldn't withstand this situation and couldn't make proper decision in any aspect. Mam please help me out.
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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

Milind Vadjikar  |682 Answers  |Ask -

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

Money
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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