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Omkeshwar

Omkeshwar Singh  | Answer  |Ask -

Head, Rank MF - Answered on Nov 02, 2022

Mutual Fund Expert... more
Udit Question by Udit on Nov 02, 2022Hindi
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Kindly advice me on monthly SIPs for investment purpose. I am 43 years & currently having below SIP since 5 years.

Aditya Birla SL Frontline Equity Fund (G) - 2500/m
ICICI Pru MidCap Fund (G) - 2500/m
HDFC Mid-Cap Opportunities Fund (G)-2500/m
Parag Parikh Flexi Cap Fund (G) - 2500/m
Franklin India Focused Equity Fund (G) - 1500/m
Invesco India Dynamic Equity Fund (G) - 2500/m

Also I want to invest Rs 500,000 lump sum.

Goal:

Child 1 education - 15-20 lakh after 5 years
Child 2 education - 20-25 lakh after 10 years
Retirement - 1.5 Cr, after 18 years
Kindly advice the best option to proceed.

Ans: Goal 1: Monthly Investment required is of Rs. 20000 for 5 years

Goal 2: Monthly Investment required is of Rs. 10000 for 10 years

Goal 3: Monthly Investment required is of Rs. 15000 for 18 years

Schemes selected are fine, allot them to each goal

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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Ramalingam

Ramalingam Kalirajan  |5295 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 10, 2024

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Hi , i am 31 year old working women and i earn 35K per month, i have two children age 9 and 5 year. i would like to invest in SIPs of Rs 5000 each for my children for 15 year and 20 year respectively and Rs 5000 per month for my retirement, Kindly guide which SIP would be best suited for my purpose.
Ans: It’s wonderful that you’re planning ahead for your children’s future and your retirement. Your approach to investing through SIPs is a smart and disciplined way to achieve long-term financial goals. Let’s break down your financial situation and explore the best strategies for you.

Your Current Financial Situation
Monthly Income: Rs 35,000

Monthly Investment Plans:

SIP for Child 1 (15 years): Rs 5,000
SIP for Child 2 (20 years): Rs 5,000
SIP for Retirement: Rs 5,000
You have allocated Rs 15,000 monthly towards investments, which is a commendable step.

Setting Clear Financial Goals
Your goals are well-defined: securing your children’s future and ensuring a comfortable retirement. Let’s delve into how SIPs can help you achieve these goals.

Importance of Systematic Investment Plans (SIPs)
SIPs are an excellent way to invest in mutual funds. They allow you to invest a fixed amount regularly, bringing discipline to your savings. SIPs also leverage the power of compounding and rupee cost averaging, which helps in accumulating wealth over time.

Understanding Different Types of Mutual Funds
Equity Funds: These invest in stocks and are suitable for long-term goals like your children’s education and your retirement. They offer higher returns but come with higher risk.

Debt Funds: These invest in bonds and are suitable for short-term goals or as a safer investment option. They offer lower returns but with lower risk.

Hybrid Funds: These invest in both equities and debt, providing a balanced risk-return profile. They can be a good option for moderate risk tolerance.

Power of Compounding
Compounding is a powerful concept in investing. It means earning returns on your initial investment as well as on the accumulated returns over time. Starting early and staying invested maximizes the benefits of compounding.

Risk Management in Investments
Investing always involves some level of risk. Understanding and managing these risks is crucial to achieving your financial goals.

Equity Funds: High risk, high return. Best for long-term goals.
Debt Funds: Low risk, low return. Best for short-term goals.
Hybrid Funds: Medium risk, balanced return. Suitable for moderate risk tolerance.
SIPs for Your Children’s Education
You want to invest Rs 5,000 each for 15 and 20 years for your children’s education. Let’s explore the best strategies for these investments.

Long-Term Growth with Equity Funds
For a 15-year and a 20-year investment horizon, equity funds are ideal. They offer the potential for higher returns, which is crucial for long-term goals like education.

Benefits of Equity Funds
Higher Returns: Equity funds have the potential to deliver higher returns over the long term.

Diversification: These funds invest in a diversified portfolio of stocks, spreading risk across various sectors and companies.

Professional Management: Managed by professional fund managers who make informed investment decisions.

SIPs for Your Retirement
You want to invest Rs 5,000 monthly for your retirement. Given your long-term horizon, equity funds are again a suitable option.

Maximizing Retirement Corpus
To build a substantial retirement corpus, investing in equity funds can be highly beneficial due to their high return potential. Over a long period, the compounding effect will significantly increase your savings.

Evaluating Actively Managed Funds
Actively managed funds can be more beneficial than index funds. They aim to outperform the market by selecting the best stocks.

Disadvantages of Index Funds
Lower Returns: Index funds typically provide lower returns compared to actively managed funds.

Lack of Flexibility: They replicate a market index and cannot adjust to market conditions.

Benefits of Actively Managed Funds
Higher Returns: Aim to outperform the market by picking the best stocks.

Professional Management: Managed by experienced fund managers who can adapt to market changes.

Creating a Balanced Investment Portfolio
Diversifying your investments across different types of mutual funds can help manage risk and optimize returns. Here’s a suggested allocation:

Equity Funds: For long-term growth.
Hybrid Funds: For balanced risk and returns.
Debt Funds: For stability and short-term goals.
Regular Review and Rebalancing
Investing is not a one-time activity. Regularly reviewing and rebalancing your portfolio is essential to ensure it aligns with your goals and risk tolerance.

Recommendation: Review your investments at least once a year. Rebalance if necessary to stay on track with your financial goals.

Surrendering Investment-Cum-Insurance Policies
If you hold any LIC or ULIP policies, consider surrendering them. These policies often provide lower returns compared to mutual funds. Reinvest the proceeds into mutual funds for better growth.

Strategic Financial Plan
Let’s create a strategic financial plan to help you achieve your goals:

Step 1: Emergency Fund
Before increasing investments, ensure you have an emergency fund. This fund should cover at least six months of expenses. It provides a safety net for unexpected expenses.

Step 2: Investing in SIPs
Continue with your SIPs for your children and retirement. Gradually increase the SIP amount as your income grows.

Step 3: Diversifying Investments
Invest in a mix of equity, hybrid, and debt funds to balance risk and returns.

Step 4: Regular Review
Review and rebalance your portfolio regularly to ensure it aligns with your goals and risk tolerance.

Final Insights
You’re on the right path with your investment plans. To secure your children’s future and ensure a comfortable retirement, focus on increasing your SIP contributions, diversifying your investments, and regularly reviewing your portfolio. Equity funds, with their high return potential, are suitable for your long-term goals. Keep leveraging the power of compounding to maximize your savings.

Your dedication to planning ahead is commendable. Continue making informed decisions to secure a worry-free future for you and your children.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Asked by Anonymous - Jul 15, 2024Hindi
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I am 45 with 7 LPA salary. I have a purchased plot. I want to move out of my current house in 2 years. Should I build a house or purchase a flat?
Ans: Your Current Situation
At 45 years old with a salary of Rs 7 lakhs per annum, you own a plot and plan to move out of your current house in 2 years.

Key Considerations
Let's evaluate whether you should build a house or purchase a flat based on several factors.

Financial Assessment
Building a House
Pros:

Customization: You can design it according to your preferences and needs.

Potential Cost Savings: Building can be cheaper per square foot compared to buying a ready-made flat, depending on the area.

Appreciation: The value of a well-built house on your own plot may appreciate more over time.

Cons:

Time-Consuming: Construction can take a long time, potentially more than 2 years.

Management: Requires constant supervision and dealing with contractors, which can be stressful.

Initial Costs: High initial outlay for construction materials and labor.

Purchasing a Flat
Pros:

Convenience: Ready to move in, no waiting period or construction hassle.

Amenities: Flats often come with amenities like security, maintenance, gym, pool, etc.

Fixed Cost: Fixed price with no unexpected expenses compared to potential construction overruns.

Cons:

Less Customization: Limited to the builder's design and layout.

Maintenance Costs: Monthly maintenance charges can be high in some apartments.

Appreciation: Flats may appreciate less compared to individual houses on plots.

Lifestyle Considerations
Building a House
Privacy: More privacy and space compared to flats.

Expansion: Easier to expand or modify in the future as per your needs.

Community: Less communal living; more suited for those who prefer privacy.

Purchasing a Flat
Community Living: Better community interaction, good for families.

Security: Enhanced security measures compared to independent houses.

Maintenance: Professional maintenance of common areas and facilities.

Long-Term Goals
Financial Goals
Investment Potential: Consider long-term appreciation potential. A well-built house may offer better returns.

Future Expenses: Think about long-term maintenance and repair costs for both options.

Personal Goals
Retirement Plans: Consider which option suits your retirement lifestyle better. Flats often offer a more carefree lifestyle with less personal responsibility for maintenance.

Family Needs: Assess the needs of your family. Flats might be more suitable for small families or those who value community amenities.

Final Insights
Recommendation
Based on your situation, I recommend assessing the following before making a decision:

Time and Stress: If you have the time and are willing to manage construction, building a house can be rewarding. If not, purchasing a flat is convenient and less stressful.

Financial Position: Ensure you have a clear budget. Building a house can have unexpected costs. Flats have fixed pricing.

Long-Term View: Consider your long-term living and investment goals. Flats offer convenience and community, while a house offers privacy and potential higher appreciation.

Ultimately, the decision depends on your personal preferences, financial readiness, and long-term goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

...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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