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Ramalingam

Ramalingam Kalirajan  |4759 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 29, 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
Rohit Question by Rohit on Dec 04, 2023Hindi
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I have only invested in Industrial and Residential real estate and built a strong portfolio. Now I want to spread my risk and I have 1 Cr which I plan to invest in MF’s , FD’s, Liquid schemes and Shares. My target is CAGR of 12-15 % over a short term period 3-5 years with liquidity. I have not invested in shares/ MF till now but am studying pattern of blue chip shares live HDFC , Reliance etc for past 6 months to understand a pattern. How do I start ? Create my own portfolio of blue chip shares or go for mutual fund or mix of both? Could you suggest an allocation of 1 CR to achieve desired CAGR?

Ans: You’ve done well in building a strong real estate portfolio. Now, you want to diversify your investments to reduce risk. With Rs 1 crore to invest, let's discuss mutual funds, fixed deposits, liquid schemes, and shares. Your target is a CAGR of 12-15% over 3-5 years, with good liquidity. Let's create a balanced investment plan.

Understanding Your Goals
Your goals are clear: achieve a 12-15% CAGR over 3-5 years. You also seek liquidity, which is important for financial flexibility. Diversifying beyond real estate is a smart move.

Risk and Return
Different investments have different risk levels. Mutual funds and shares can offer high returns but come with higher risk. Fixed deposits and liquid schemes are safer but offer lower returns. Balancing these can help you achieve your desired CAGR.

Mutual Funds
Mutual funds are a great way to invest in a diversified portfolio. They are managed by professionals who aim to outperform the market. Actively managed funds can potentially provide better returns than index funds, especially in volatile markets.

Shares
Investing in blue-chip shares like HDFC and Reliance can be rewarding. These companies have strong track records and stable performance. However, individual stock picking requires time and expertise. You must monitor the market closely and stay informed about each company's performance.

Fixed Deposits
Fixed deposits offer safety and assured returns. They are ideal for preserving capital and earning steady income. However, their returns are lower compared to equities and mutual funds. They are suitable for the conservative part of your portfolio.

Liquid Schemes
Liquid schemes provide high liquidity with lower risk. They are ideal for parking funds temporarily or for emergency needs. While they offer lower returns compared to equities, they provide stability and easy access to funds.

Creating a Balanced Portfolio
A balanced portfolio can help you achieve your CAGR target while managing risk. Here’s a suggested allocation:

Mutual Funds: Allocate 50% (Rs 50 lakhs) to a mix of equity mutual funds. Choose funds with a track record of high performance and good management. Actively managed funds can help achieve higher returns.

Shares: Allocate 20% (Rs 20 lakhs) to blue-chip shares. Invest in companies with strong fundamentals and growth potential. This portion requires regular monitoring and knowledge of market trends.

Fixed Deposits: Allocate 20% (Rs 20 lakhs) to fixed deposits. This will ensure safety and provide a steady return. It’s a good way to balance the riskier part of your portfolio.

Liquid Schemes: Allocate 10% (Rs 10 lakhs) to liquid schemes. This ensures high liquidity and funds availability for emergencies or short-term needs.

Actively Managed Funds vs. Index Funds
Actively managed funds aim to outperform the market through expert management. They can provide higher returns compared to index funds, especially in volatile markets. Index funds simply track market indices and may underperform in uncertain conditions.

Regular Funds vs. Direct Funds
Investing through a certified financial planner in regular funds has benefits. They provide expert advice, tailored recommendations, and ongoing portfolio management. Direct funds lack professional guidance and can be more challenging for inexperienced investors.

Importance of Professional Guidance
Working with a Certified Financial Planner can help you make informed decisions. They can offer tailored advice, adjust your portfolio based on market conditions, and help you achieve your financial goals.

Monitoring and Rebalancing
Regularly review and rebalance your portfolio. Monitor performance, market trends, and adjust allocations as needed. This ensures your investments stay aligned with your goals.

Conclusion
Your plan to diversify beyond real estate is wise. By balancing mutual funds, shares, fixed deposits, and liquid schemes, you can achieve your desired CAGR with manageable risk. Consulting a Certified Financial Planner can further enhance your investment strategy.

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.. Im 41 years old. My portfolio comprises as below: 1. Mirae asset emerging bluechip fund - ₹2500 per month 2. Axis long term equity fund - ₹5000 per month 3. Nippon ELSS growth fund - ₹5000 per month 4. Axis mid cap fund - ₹1500 per month 5. Kotak emerging equity fund growth plan - ₹2000 per month Im looking at accumulating ₹3 cr. in next 20 years. Pls suggest
Ans: Creating a corpus of Rs 3 crore in 20 years is a significant but achievable goal. Your current portfolio has a good mix of equity and ELSS funds. Let's review your portfolio and suggest an optimized plan to achieve your target.

Assessing Your Current Mutual Fund Portfolio
Your portfolio includes various equity funds, which is essential for long-term growth. However, fine-tuning can help optimize your returns and achieve your goal of Rs 3 crore.

Equity Funds
Equity funds are crucial for wealth creation over the long term. They offer higher returns compared to other asset classes. Your portfolio has a mix of large-cap, mid-cap, and emerging equity funds, which is a good strategy for capturing market growth.

ELSS Funds
ELSS funds provide tax benefits under Section 80C and also offer equity exposure. This dual advantage makes them a valuable addition to your portfolio. Your investments in ELSS funds are a wise strategy for tax-efficient growth.

Evaluating Direct and Regular Funds
Disadvantages of Direct Funds
Direct funds might seem cost-effective due to lower expense ratios. However, they lack professional advice and guidance. Investing through a Certified Financial Planner (CFP) ensures you get valuable insights and tailored strategies.

Benefits of Regular Funds Through MFD
Regular funds, managed by Mutual Fund Distributors (MFD) with CFP credentials, offer expert advice. They help you navigate market fluctuations and optimize your portfolio for better returns. This guidance can significantly impact your investment success.

Optimizing Your Portfolio for Rs 3 Crore in 20 Years
To achieve Rs 3 crore in 20 years, consider these adjustments and additions to your portfolio:

Increase Equity Exposure
Allocate more to equity funds for higher growth potential. Equity funds generally outperform other asset classes over the long term. Increasing your investment in diversified and large-cap equity funds can help you achieve your target.

Focus on Actively Managed Funds
Actively managed funds can adapt to market changes and aim to outperform benchmarks. Choose funds with strong track records and experienced fund managers. Actively managed funds have the potential to provide better returns compared to passive index funds.

Systematic Investment Plans (SIPs)
Continue with SIPs to maintain discipline and average out costs. SIPs are effective for long-term wealth creation and mitigating market volatility. Regular investments through SIPs ensure you benefit from compounding and market fluctuations.

Diversify Across Asset Classes
While equity should dominate your portfolio, maintaining some exposure to hybrid and debt funds can ensure a balanced risk-return profile. This diversification provides stability and reduces overall portfolio risk.

Regular Monitoring and Rebalancing
Review your portfolio regularly and rebalance it to maintain alignment with your goals and risk tolerance. Regular monitoring ensures your investments stay on track and are adjusted according to market conditions and your evolving financial situation.

Suggested Investment Plan
Based on your current investments and the goal of Rs 3 crore, consider the following approach:

Equity Funds
Increase your SIPs in diversified and large-cap equity funds. These funds offer higher growth potential and are less volatile than small-cap funds. A balanced mix of large-cap and mid-cap funds can enhance your portfolio’s growth.

ELSS Funds
Continue investing in ELSS funds for tax benefits and equity exposure. Ensure these investments align with your overall asset allocation strategy. ELSS funds can play a vital role in achieving your long-term goals while providing tax efficiency.

Hybrid and Debt Funds
Maintain or slightly increase your investment in hybrid and debt funds. They offer stability and moderate returns, balancing your overall portfolio risk. This ensures that part of your portfolio is protected against market downturns.

Professional Guidance
Seek regular advice from a Certified Financial Planner (CFP). They can provide tailored strategies and help optimize your portfolio based on market conditions and your goals. Professional guidance ensures your investment decisions are well-informed and aligned with your objectives.

Conclusion
Your current portfolio is diversified and suitable for long-term growth. By increasing your equity exposure and focusing on actively managed funds, you can achieve your goal of Rs 3 crore in 20 years. Regular monitoring and professional guidance will keep your investments on track and help you navigate market fluctuations effectively.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Hi Samraat, ( My goal - 1 CR in next 10-15 year) As a beginner, I have been making SIP's since last 5 months in ( Parag P Flexi 2k Pm, Axis Small cap 2.5kPm, Motilal oswal midcap 1.5K, ICICI Pru Value Discovery 1 K ) total @7000 per month. returns are reasonable and good. (step up 30% every year). (Thanks for your earlier advice on these) . Going forward, >> Now for lumpsum I have identified 1. Nippon India power and Infra , ( as i want to invest in Power sectoral funds) 2. Canara Robeco Bluechip Equity fund ( Direct Growth @ 10000 initially) , I plan to add 5k Quarterly ntil i reach a reasonable lumpsum amount. Please share your valuable suggestions on my plan. Thanks,
Ans: Assessment of Current SIPs:

Your SIP portfolio is well-diversified across different categories like flexi cap, small cap, mid cap, and value discovery funds. It's commendable that you've started your SIP journey, and the step-up strategy of increasing investments by 30% annually demonstrates a disciplined approach towards wealth accumulation.

Proposed Lump Sum Investments:

Nippon India Power and Infra Fund:

Investing in sectoral funds like power and infrastructure can offer growth opportunities, especially if you believe in the long-term prospects of this sector.
However, it's essential to note that sectoral funds can be volatile and carry higher risk compared to diversified equity funds.
Ensure that your investment horizon aligns with the inherent volatility of the power sector, and consider diversifying across other sectors for risk mitigation.
Canara Robeco Bluechip Equity Fund (Direct Growth):

Opting for a blue-chip equity fund is a prudent choice for investors seeking stability and consistent returns.
Blue-chip funds typically invest in large-cap stocks with strong fundamentals, making them relatively safer than mid and small-cap funds.
Your strategy of initially investing a lump sum followed by quarterly additions is a systematic way to build wealth over time.
Overall Recommendations:

Diversification:

While your selection of funds seems reasonable, consider further diversification across different asset classes like debt, gold, and international funds to mitigate risk.
Diversification helps in spreading risk and optimizing returns, especially during market uncertainties.
Regular Review:

It's essential to review your portfolio periodically, preferably annually or bi-annually, to ensure it remains aligned with your financial goals and risk tolerance.
Rebalancing your portfolio based on changing market conditions and your investment objectives is crucial for long-term wealth creation.
Risk Management:

As you progress towards your goal of accumulating Rs. 1 crore in the next 10-15 years, consider your risk appetite and adjust your investment strategy accordingly.
Ensure that your asset allocation reflects your risk tolerance and investment horizon to achieve a balance between growth and stability.
In conclusion, your investment plan demonstrates a proactive approach towards wealth creation. However, remember to stay informed about market developments and seek professional advice whenever necessary to make informed investment decisions.

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Hello Sir, I am a private sector employee, aged 43 years, my monthly take home is 70k. I am new to share market and mutual funds. I have been investing in RD, FD and now want to invest in SIP, Mutual Funds and share market with a target of good returns in of next 5 years. I am planning as following: 1. Invest monthly 10k in SIP for 5 years, withdrawal after 10 years. Aiming for 25-30% returns. 2. Invest 2/3 lacks in MF, withdrawal after 5 years. Aiming for 25-30% returns. 3. Start trade with 5/10k and step by step invest 50k to 1 lac in next 6 months. I am positive that i will receive your guidance on above points with best options. Thanking you in advance.
Ans: I understand you're excited to explore new investment avenues beyond RDs and FDs. That's a great first step towards securing your financial future! Let's delve into your plan and discuss some key points to consider:

1. SIP for Long-Term Goals (10 Years +):

Thumbs Up! SIP (Systematic Investment Plan) is a fantastic way to invest in Mutual Funds regularly. It inculcates discipline and benefits from rupee-cost averaging, which helps you purchase more units when the market is low and fewer units when it's high.

Setting Expectations: A 25-30% return expectation over 5 years is quite aggressive for Mutual Funds. Historically, actively managed Equity Mutual Funds (diversified across sectors) have delivered average returns in the range of 12-15% p.a. Remember, past performance isn't a guarantee of future results, but it gives you a realistic idea.

Time is Your Friend: Extending your investment horizon to 10 years increases your chances of achieving better returns. The longer you stay invested, the more you benefit from compounding (earning returns on your returns).

2. Lump Sum Investment (2/3 Lakhs):

Good Thinking! A lump sum investment can potentially magnify your returns if the market performs well. However, keep in mind that it's a one-time shot.

Diversification is Key: Consider investing this amount in a diversified Equity Mutual Fund that spreads your investment across various sectors. This helps mitigate risk if a particular sector underperforms.

Stay Invested: The 5-year timeframe might be short for aggressive return expectations. Similar to SIPs, a longer investment horizon like 10 years can be more suitable for potentially achieving your goals.

3. Stock Market Trading:

Caution Advised: The stock market can be volatile, and success requires in-depth knowledge, experience, and discipline. Starting small and learning the ropes before risking a significant amount is advisable.

Consider Mutual Funds: Actively managed Equity Mutual Funds are helmed by experienced professionals who research, analyze, and invest your money in a basket of stocks. This approach can help you benefit from the market's growth without the risks associated with direct stock selection.

Building Knowledge: If you're keen on understanding the stock market, there are many online resources and courses available. However, remember that success in the stock market isn't guaranteed.

Here's a Recap and Next Steps:

SIP for Long-Term: Regular SIPs in diversified Equity Mutual Funds are a great way to build wealth over the long term (10 years or more).

Lump Sum Investment: Invest a lump sum in a diversified Equity Mutual Fund for potentially higher returns, but with a longer time horizon (ideally 10 years or more).

Start with Mutual Funds: Consider Equity Mutual Funds as an alternative to direct stock market trading, especially if you're new to investing.

Seek Professional Guidance: A Certified Financial Planner (CFP) can help you create a personalized investment plan aligned with your risk tolerance and financial goals. They can also guide you on selecting suitable Mutual Funds based on your investment needs.

Remember, investing is a marathon, not a sprint. Patience, discipline, and a well-diversified approach are key to achieving your financial goals.

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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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