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Ramalingam

Ramalingam Kalirajan  |6986 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 06, 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
Asked by Anonymous - Jun 25, 2024Hindi
Money

Sir I have LIC jeevan saral policy running for last 10 years. If I surrender it today, I get 7.2 L. Please advice where should I invest it ( lumpsum or elsewhere), keeping a horizon of 5-10 years for maximum returns.

Ans: First of all, kudos to you for taking a proactive approach to managing your finances and considering how to best utilize your LIC Jeevan Saral policy surrender value. With Rs. 7.2 lakhs available for reinvestment, it's crucial to plan wisely, especially given your 5-10 year investment horizon.

Understanding Your Financial Goals
To start, let's define your goals more clearly. With a horizon of 5-10 years, it seems you’re looking to achieve significant growth without taking on excessive risk. Are you aiming for higher returns, steady growth, or a balance of both? Clarifying this will guide us in choosing the right investment strategy.

Assessing Risk Tolerance and Investment Strategy
Before diving into specific investment avenues, consider your risk tolerance. Since you have a medium-term horizon, you might be comfortable with a balanced approach that includes both growth and stability. Let’s look at some options that can provide good returns while balancing risk and security.

Investment Options for Rs. 7.2 Lakhs
1. Mutual Funds: A Balanced Portfolio
Mutual funds offer diversified exposure to various asset classes. Given your horizon, a mix of equity and debt funds can be optimal.

Equity Mutual Funds: These funds invest in stocks and have the potential for high returns. Over a 5-10 year period, equity mutual funds can outperform most traditional saving instruments. However, they come with higher volatility. Consider large-cap or multi-cap funds, which invest in well-established companies and provide stable growth.

Debt Mutual Funds: These funds invest in fixed-income securities like bonds and government securities. They offer lower but more stable returns compared to equity funds. Including debt funds can reduce overall portfolio volatility and provide some level of predictability. Options like corporate bond funds or dynamic bond funds could be suitable.

Balanced or Hybrid Funds: These funds invest in a mix of equity and debt. They aim to provide moderate returns with lower risk compared to pure equity funds. A balanced advantage fund or aggressive hybrid fund could be a good middle ground.

Advantages: Diversification, professional management, liquidity.

Disadvantages: Market risk, costs associated with fund management.

Strategy: You could allocate 60% to equity funds and 40% to debt funds to maintain a balanced approach. Review and rebalance the portfolio periodically to stay aligned with your goals.

2. Systematic Investment Plan (SIP) in Mutual Funds
Instead of investing the entire Rs. 7.2 lakhs at once, you might consider spreading it over time through a SIP. This method averages out the purchase price and reduces the impact of market volatility.

SIP in Equity Funds: Allocate a portion of your capital to a SIP in equity mutual funds. This strategy leverages rupee cost averaging, where you buy more units when prices are low and fewer units when prices are high.

SIP in Hybrid Funds: If you prefer a slightly less aggressive approach, SIPs in hybrid funds can balance between equity and debt, providing stability while still offering growth potential.

Advantages: Reduces impact of market volatility, disciplined investing, and more manageable investments.

Disadvantages: May miss out on bulk investment gains if markets rise sharply.

Strategy: Allocate Rs. 3 lakhs for SIPs over the next 1-2 years while keeping the rest in liquid or short-term debt funds. This phased approach allows you to benefit from potential market corrections.

3. Direct Investment in Equity: For the Savvy Investor
If you are comfortable with direct stock market investing and have the knowledge or support, consider this option. You can invest in blue-chip stocks or companies with strong growth potential. This route requires more active monitoring and involvement.

Advantages: Potentially higher returns, control over stock selection.

Disadvantages: Higher risk, requires time and knowledge for management.

Strategy: If you decide to go this route, allocate no more than 20% of your corpus to direct equities to manage risk effectively. Diversify across sectors to mitigate company-specific risks.

4. Fixed Income Instruments: Stability and Predictability
For a safer bet, you might consider fixed income instruments like bank fixed deposits (FDs), Public Provident Fund (PPF), or non-convertible debentures (NCDs).

Bank FDs: They provide guaranteed returns and capital protection but may not keep up with inflation in the long run.

PPF: Offers tax benefits and decent returns with a 15-year lock-in period, but it can be withdrawn after 5 years for specific purposes.

NCDs: Typically offer higher returns than FDs but come with credit risk. Choose those with high credit ratings to minimize default risk.

Advantages: Lower risk, predictable returns, and safety.

Disadvantages: Lower returns compared to equity, limited growth potential.

Strategy: Consider putting 20-30% of your corpus in fixed income instruments to ensure stability and liquidity.

5. Gold: A Hedge Against Inflation
Gold has historically been a good hedge against inflation and currency fluctuations. Investing in gold ETFs or sovereign gold bonds can be a strategic part of a diversified portfolio.

Advantages: Safe haven in times of uncertainty, liquidity, and protection against inflation.

Disadvantages: No regular income, price volatility.

Strategy: Allocate up to 10% of your portfolio to gold to add a layer of safety and diversification.

Creating Your Investment Mix
Based on your risk tolerance and financial goals, here’s a suggested allocation:

Equity Mutual Funds (via SIP): 40% - Rs. 2.88 lakhs
Debt Mutual Funds: 30% - Rs. 2.16 lakhs
Fixed Income Instruments: 20% - Rs. 1.44 lakhs
Gold: 10% - Rs. 72,000
This diversified portfolio aims to balance growth with stability. Adjust the proportions based on your comfort and risk appetite.

Monitoring and Rebalancing
Investing isn’t a one-time activity. Regularly review your portfolio to ensure it aligns with your goals. Market conditions and personal circumstances change, so it's important to rebalance your investments periodically.

Annual Review: Check your portfolio’s performance and adjust as needed. Ensure that your asset allocation remains in line with your objectives.

Rebalance: If your equity investments grow significantly, they might exceed your target allocation. Rebalance by shifting some gains into debt or other safer assets.

How a CFP Can Help You with Your Rs. 7.2 Lakhs Investment
Assessment and Goal Setting:

A CFP will start by understanding your current financial situation, goals, and risk tolerance.
They will help you articulate your investment objectives and set realistic expectations for returns.
Portfolio Construction:

Based on your goals and risk profile, the CFP will recommend a diversified investment portfolio.
They will balance between growth-oriented investments (like equity mutual funds) and stable options (like debt funds and fixed-income instruments).
Tax Planning:

The CFP will suggest tax-efficient investment strategies to maximize your after-tax returns.
They will guide you on how to utilize tax-saving instruments effectively.
Ongoing Management and Rebalancing:

The CFP will monitor your portfolio regularly and suggest rebalancing to maintain your target asset allocation.
They will keep you updated on market trends and adjust your investments as needed.
Risk Management:

The CFP will help you understand the risks associated with different investments and recommend strategies to mitigate them.
They will ensure that your investment choices align with your risk tolerance.
Review and Adjustments:

Periodic reviews with your CFP will ensure that your investments remain aligned with your evolving financial goals.
They will make necessary adjustments based on changes in market conditions or your personal circumstances.
Conclusion
Reinvesting the surrender value of your LIC Jeevan Saral policy into a well-planned investment portfolio can significantly impact your financial future. Whether you opt for mutual funds, fixed income instruments, direct equities, or a combination, each option has its unique advantages and risks.

Consulting a Certified Financial Planner (CFP) can provide invaluable insights and tailored strategies to help you make informed decisions. A CFP’s expertise ensures that your investment plan is aligned with your financial goals, risk tolerance, and time horizon, ultimately leading to a more secure and prosperous financial future.

If you have further questions or need specific recommendations, feel free to reach out!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
Asked on - Jul 08, 2024 | Answered on Jul 09, 2024
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Thanks a lot Sir. Read about RBI Retail Direct App, where you can buy Govt bonds directly. Shall I invest here? Would be grateful for your inputs. Thanks again.
Ans: Investing in government bonds via the RBI Retail Direct App is a good idea for safety and steady returns. Government bonds are low-risk and provide stable income.

Use them to diversify your portfolio, especially if you seek low-risk investments. However, consider the lower returns compared to equity funds.

Balance your investments between high-growth options like mutual funds and safe options like government bonds. Consult a Certified Financial Planner for a tailored strategy.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
Asked on - Jul 09, 2024 | Answered on Jul 10, 2024
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Thanks a tonne Sir????
Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

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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Mutual Funds, Financial Planning Expert - Answered on May 20, 2024

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Sir I have purchased 200000 sum assured for 35 years lic jeevan saral in year 2009 at that time my age was 38. Can I surrender the policy or should I continue the policy please suggest.
Ans: Evaluating LIC Jeevan Saral Policy Surrender
Policy Overview
The LIC Jeevan Saral policy offers a sum assured with flexibility in premium payments and attractive features.

Surrender Considerations
1. Current Financial Situation
Assess your current financial situation to determine if the surrender value of the policy aligns with your immediate needs or long-term financial goals.

2. Surrender Value Calculation
Understand the surrender value of the policy, which may vary based on the duration of the policy, premiums paid, and applicable charges.

3. Investment Alternatives
Explore alternative investment options that may offer better returns or align more closely with your financial objectives.

4. Future Premium Commitments
Consider the impact of surrendering the policy on future premium commitments and the potential loss of insurance coverage.

Recommendation: Surrendering the Policy
Given the duration of the policy since 2009 and your current age, surrendering the LIC Jeevan Saral policy may be a prudent decision for the following reasons:

Limited Growth Potential: The policy's surrender value may not have grown substantially over the years, and continuing it may not offer significant benefits compared to alternative investment avenues.

Enhanced Flexibility: Surrendering the policy provides access to the accumulated cash value, offering flexibility to invest in more lucrative options or address immediate financial needs.

Cost-Benefit Analysis: Evaluate the surrender value against the premiums paid and potential returns from alternative investments to make an informed decision.

Next Steps
Contact LIC to obtain the surrender value and understand the surrender process in detail.
Consult with a certified financial planner to assess the impact of surrendering the policy on your overall financial plan and explore suitable investment alternatives.
Conclusion
Based on the assessment of your financial situation and the features of the LIC Jeevan Saral policy, surrendering the policy may be a viable option to consider. However, it's essential to conduct a thorough analysis and seek professional advice to make an informed decision aligned with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Ramalingam

Ramalingam Kalirajan  |6986 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 27, 2024

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Thank you, Very Much Sir, I have Jeevan Saral Policy starting from 2010 to still now and its mature on September-2023, I have checked and surrender the value comes to Rs. 6 Lacs, overall, i check and confirm only 5 to 6% comes in LIC Policy. Please advise only 5 years remaining for maturity. Also, in My monthly income i can easily save Rs. 1.05 Lacs if consider Rs. 45k Monthly expense. Issue is I am from Market since long 15 years and Right Now Market is very high so its advisable to start a SIP. or invest on safe place like FD & RD. Can I increase NPS contribution Rs. 50 k to Rs. 1.50 LACS or invest in PPF account of Rs. 1.5 Lacs annually and also open a PPF account for daughter. Regards
Ans: Assessing Your Jeevan Saral Policy
It's commendable that you’re evaluating your investments. With only 5 years left on your Jeevan Saral policy, you should consider your options carefully.

Consider Surrendering Your Policy
Surrendering your Jeevan Saral policy now might be beneficial. You mentioned a surrender value of Rs. 6 lakhs, which could be reinvested for potentially higher returns.

Investing in Mutual Funds
Starting a SIP in mutual funds can be a wise choice, even if the market is high. Over the long term, mutual funds generally provide better returns than traditional savings options like FDs and RDs.

Increasing NPS Contribution
Increasing your NPS contribution from Rs. 50,000 to Rs. 1.5 lakhs annually is a good move. It provides tax benefits and helps in building a substantial retirement corpus.

Investing in PPF
Investing Rs. 1.5 lakhs annually in a PPF account is a safe and tax-efficient option. Opening a PPF account for your daughter will also help in securing her future.

Balancing Your Portfolio
Diversify your investments between mutual funds, NPS, and PPF. This balance offers growth potential with safety, meeting both short-term and long-term financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Ramalingam Kalirajan  |6986 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 27, 2024

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Hi, my age is 40, I want to retire by 50 with Rs. 2 Crore of Corpus, Right Now i have Rs. 17 lacs in PF, Rs. 5 Lacs in NPS, Rs.1 Lacs in PPF and Home loan Completed this year. I have one LIC policy of Premium of Rs. 24000 Yearly. Now I don’t have single saving in my saving account. my monthly expense is 35k. I want to start from Zero. My monthly on hand salary is Rs. 1.5 Lacs and i am ready to take risk for Higher return. I have Jeevan Saral Policy starting from 2010 to still now and its mature on September-2023, I have checked and surrender the value comes to Rs. 6 Lacs, overall, i check and confirm only 5 to 6% comes in LIC Policy. Please advise only 5 years remaining for maturity. Also, in My monthly income i can easily save Rs. 1.05 Lacs if consider Rs. 45k Monthly expense. Issue is I am from Market since long 15 years and Right Now Market is very high so it’s advisable to start a SIP. or invest on safe place like FD & RD. Can I increase NPS contribution Rs 50 k to Rs. 1.50 lacs or invest in PPF account of Rs. 1.5 Lacs annually and also open a PPF account for daughter.
Ans: Building a Robust Retirement Plan: A Strategic Approach
Congratulations on completing your home loan! With no debts and a strong monthly income, you are in a great position to plan for retirement. Here’s a comprehensive strategy to achieve your goal of a Rs. 2 crore corpus by the age of 50.

Assessing Your Current Financial Health
Here’s a summary of your current financial standing:

Provident Fund (PF): Rs. 17 lakh
National Pension System (NPS): Rs. 5 lakh
Public Provident Fund (PPF): Rs. 1 lakh
LIC Policy: Surrender value Rs. 6 lakh
You have a solid foundation but need to optimize your investments to reach your goal.

Evaluating Your Current Investments
You have Rs. 6 lakh in an LIC policy with a return of 5-6%. Considering its low return, it might be wise to redirect this amount into higher-yielding investments. Surrendering it and reinvesting in better options could be beneficial.

Creating a Diversified Investment Strategy
Given your readiness to take risks for higher returns, a diversified approach is ideal. Here's how you can structure your investments:

Increasing Contributions to NPS and PPF
NPS: Increasing your contribution to Rs. 1.5 lakh annually can provide additional tax benefits and long-term growth. NPS is a good mix of equity and debt.
PPF: Maximizing your PPF contribution to Rs. 1.5 lakh annually ensures risk-free returns with tax benefits. Opening a PPF account for your daughter is also a good long-term strategy.
Investing in Mutual Funds
Starting a Systematic Investment Plan (SIP) in mutual funds is advisable despite current market levels. SIPs average out the cost over time, reducing market volatility risk. Actively managed funds can offer better returns than index funds due to professional management and strategic asset allocation.

Liquid Savings and Emergency Fund
Maintaining liquidity is crucial. Since you can save Rs. 1.05 lakh monthly, allocate a portion to build an emergency fund. Aim for 6-12 months' worth of expenses, i.e., Rs. 2.7 lakh to Rs. 5.4 lakh. This fund should be easily accessible, such as in a high-interest savings account or liquid mutual funds.

Tax Planning and Optimization
Maximize tax-saving investments to enhance returns. Utilize Section 80C benefits with investments in PPF, NPS, and ELSS funds. Consider tax-efficient investment options that offer higher post-tax returns.

Reviewing Insurance Coverage
You have term insurance for family protection, which is excellent. Ensure the coverage amount is adequate considering inflation and future needs. Health insurance provided by your company is beneficial, but consider a separate policy for comprehensive coverage during job transitions or retirement.

Rebalancing Your Portfolio
Regularly review and rebalance your portfolio to align with your risk tolerance and financial goals. As you approach retirement, gradually shift from high-risk equity investments to safer debt instruments to protect your corpus.

Financial Discipline and Monitoring
Maintain financial discipline by sticking to your savings plan. Regularly monitor your investments and adjust strategies as needed based on market conditions and life changes.

Retirement Corpus Calculation
Estimate the corpus required for a comfortable retirement by considering inflation, life expectancy, and desired lifestyle. Use retirement planning tools or consult a Certified Financial Planner for precise calculations.

Systematic Withdrawal Plan (SWP)
Upon retirement, implement a Systematic Withdrawal Plan (SWP) from your mutual fund investments. SWPs provide a steady income stream and tax efficiency, ensuring your corpus lasts longer.

Continuous Learning and Adaptation
Stay informed about financial markets and investment opportunities. Financial planning is dynamic; adapt your strategy based on changing economic conditions and personal circumstances.

Conclusion
Your financial health is solid with no debts and a high savings potential. By following a diversified investment strategy and maintaining financial discipline, you can achieve your goal of retiring with a Rs. 2 crore corpus by 50. Optimize tax savings, regularly review your portfolio, and adjust as necessary to stay on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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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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