I Love your detailed explanation. I have seen lots of answers from you for other people's question and you have clearly pointed many times the importance of Emergency fund which I will definitely look into it. I also do SIP of 22k on psu and other MF and invest 15k on gold schemes which matures after 11 month from the start date. I invest on ppf as well on yearly basis with 1.5 lakhs. I always calculate the interest component and that's the reason I pay as much as possible from both our income. The only deep regret is that I'm not able to buy a flat for my parents who stay in a society in Mumbai since I invested everything in Chennai which I still feel even after earning I failed in it and now the flat rates are around 1.70 crores which is too much for me . As you said about rental income is it advisable to construct house where I can see I can divide the land into two parts of 1000sqft and build 6 houses from which i can get around 70 to max 80k every month but the cost to build those houses is around 1.2 crores minimum. My family also helped me to complete the loan term by giving me 12 lakhs but I do need to pay that in coming months without any interest. Is it a good strategy to build house or wait and invest for another 5 years and then take appropriate action. Please recommend me a CFP

Ans: Given your current financial situation and objectives, here's a tailored plan to help you secure your future income and meet your requirements:
Review Real Estate Portfolio: Consider diversifying.

Optimize Loan Repayment: Maintain timely payments.

Maximize Savings and Investments: Start SIPs in mutual funds.

Utilize Recurring Deposit and Fixed Deposit: Continue RD and FD for liquidity.

Evaluate Insurance Coverage: Ensure coverage meets needs.

Create a Retirement Plan: Estimate corpus requirements.

Consult a Financial Advisor: Seek professional guidance.

Monitor and Adjust Regularly: Stay disciplined with savings and investments.

By implementing these steps and seeking professional advice, you can work towards securing a comfortable and financially stable future while maintaining your lifestyle requirements.

Ans: Hello;

I am sure you have some EPF corpus accumulated over the years.

It may be utilised to prepay the home loan because that is your biggest liability as of now. (High ROI). If EPF withdrawal is an issue please think about selling the under construction flat by disputed builder.

Home loan repayment has to be priority number 1.

Typically home loan lenders demand term life insurance as collateral security but I am bit surprised in your case it has not happened so.

Nevertheless you should buy pure term plan with adequate sum assured including riders for critical illness and accident benefit.

Once home loan is completely prepayed you may start 2 additional monthly SIPs as follows:
10 K PPFAS flexicap fund
10 K ICICI Pru equity and debt fund

The existing corpus should be earmarked against elder daughter's education.

10 K ppfas flexi cap sip will be for your marriage corpus for daughters.
(55.5 L corpus expected in 15 years)

10 K ICICI Pru equity and debt fund sip will be for education of younger daughter. (~ 25 L corpus expected in 10 years)

36 K sip continued for another 20 years will grow into a retirement corpus of 4.12 Cr.

A modest return of 13% considered for all workings.

Happy Investing!!

You may follow us on X at @mars_invest for updates.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

Ans: You've already taken some good steps with SIPs and your current investments. Let’s examine your requirements and see how to optimise your strategy to meet your goals.

Current Financial Situation and Analysis
You have a monthly income of Rs. 1,80,000 and SIP contributions of Rs. 32,000 in a mix of equity mutual funds. Additionally, you’re paying rent of Rs. 22,000 and have an EMI of Rs. 25,000, soon to increase to Rs. 35,000 after possession. You also own a small flat valued at Rs. 45 lakh, generating rental income of Rs. 14,000 per month.

Your financial goals are:

Funding your elder daughter’s education within the next 2-4 years
Creating a corpus for your younger daughter’s future in 10 years
Building a retirement fund
Let’s address each goal systematically and suggest ways to enhance your investment strategy.

1. Funding Elder Daughter’s Education in 2-4 Years
Education costs are rising every year, and the time horizon is short, requiring a low-risk approach.

Investment Strategy: For short-term goals, avoid equities as they are volatile. Consider shifting a portion of your SIPs or rental income to safer debt funds, fixed deposits, or recurring deposits. Debt mutual funds like ultra-short-term or low-duration funds are preferable here, as they offer better returns than savings accounts while keeping risks minimal.

Corpus Estimation: Estimate the total funds required based on your daughter’s anticipated course. Since you already have SIPs, you may consider partially redeeming the debt funds at the required time.

Additional Savings: If possible, allocate Rs. 10,000-15,000 from your current income to these safer investments to reach your goal faster.

2. Corpus Creation for Younger Daughter’s Future in 10 Years
This is a mid-term goal, which allows you to benefit from equity market growth, though a balanced approach is advisable.

Suggested Allocation: For this goal, equity mutual funds are suitable due to their growth potential over a 10-year horizon. A diversified portfolio combining large-cap, flexi-cap, and mid-cap funds can balance growth and stability.

Fund Allocation:

Large Cap: 40% of your SIPs in large-cap funds provides stable growth with moderate risk.
Flexi Cap: 30% for flexibility to switch between market capitalisations, potentially capturing higher returns.
Mid Cap: 20% for higher growth potential, though mid-cap funds can be more volatile.
Debt Component: 10% to create a cushion against volatility and ensure liquidity for immediate needs.
SIP Increase: Consider increasing your SIP allocation by Rs. 5,000-10,000 in these funds gradually, if possible, to help accumulate the corpus required over time.

3. Building a Retirement Corpus
Retirement planning is crucial, especially with your responsibilities. With your current age, you have around 16 years to plan.

Target Corpus: Aim for a retirement corpus that can generate monthly income covering your expenses post-retirement. Estimate based on projected monthly expenses and expected returns.

EPF and PPF Contributions: Your EPF contribution of Rs. 24,000 monthly is beneficial. Additionally, investing in PPF can provide tax-free returns and add to your retirement security. Consider increasing PPF contributions if within your budget, as it is safe and offers compounding benefits.

SIP Allocation: Continue SIPs in flexi-cap and large-cap funds for long-term growth. Mid-cap funds can add extra returns but should be balanced with large-cap stability.

Regular Fund Investment via MFD with CFP: Since direct funds do not provide advisory support, investing through an MFD with CFP credentials can help you make strategic adjustments as market conditions change. A Certified Financial Planner’s guidance will keep your retirement goal on track.

Should You Sell the Old Flat?
Selling your old flat has pros and cons. Let’s analyse them to see which option might be better for you.

Option 1: Sell and Invest the Proceeds in SIPs
Selling the flat will release Rs. 45 lakh. If this is invested in SIPs, it could help fund your goals without taking on extra debt.

Advantages:

Higher Growth Potential: If invested in mutual funds, this amount can grow faster than real estate.
Enhanced Liquidity: You have better liquidity, with the option to redeem partial investments when needed.
Disadvantages:

Rental Income Loss: You will lose the Rs. 14,000 per month rental income, which currently adds to your cash flow.
Market Risks: Although SIPs have growth potential, they are subject to market volatility.
Option 2: Retain the Flat and Pay Home Loan EMI
Retaining the flat means you keep the rental income and pay the EMI on your new home loan.

Advantages:

Stable Rental Income: This monthly income supports your expenses or can be saved for future goals.
Equity Growth: You’ll continue to have real estate as a diversified asset in your portfolio.
Disadvantages:

EMI Burden: The increased EMI (Rs. 35,000) can strain your cash flow.
Limited Liquidity: Real estate is an illiquid asset, making it harder to access funds for immediate needs.
Recommendation: If your retirement and children’s corpus goals require more funding, selling the flat could be a practical choice. The proceeds can be invested to grow faster. However, if you value the rental income, consider retaining it and adjusting your SIPs and other investments accordingly.

Optimal SIP Strategy for Goal Achievement
Given your goals, here is a potential SIP structure for better returns and risk balance:

Large-Cap Funds: 40% of your SIPs for steady growth and reduced volatility.
Flexi-Cap Funds: 30% allocation, allowing fund managers to shift between small, mid, and large caps.
Mid-Cap Funds: 20% allocation for high growth with moderate risk.
Debt Mutual Funds: 10% in debt mutual funds for safety and liquidity, especially for the education goal.
Consider maintaining this allocation with regular monitoring by an MFD with CFP credentials. Actively managed funds can offer a better edge than index funds, with fund managers striving for optimal returns over time.

Additional Recommendations for Long-Term Stability
Health Insurance for Parents: Since your parents do not have any income or medical insurance, consider purchasing a family floater or senior citizen health insurance plan. This will prevent high medical costs from affecting your finances.

Emergency Fund: Ensure an emergency fund of at least six months' expenses in a high-interest savings account or liquid fund. This keeps funds accessible for unforeseen needs.

Regular Review: Financial markets change, and it’s essential to periodically review your SIPs and asset allocations. Adjustments based on your goals and risk tolerance will keep your financial plan effective.

Finally
You’re on the right track, having taken proactive steps in SIPs and real estate. With a focused approach to SIP allocation, goal-based planning, and periodic reviews, you can meet your family’s needs comfortably. Ensure a consistent increase in your SIPs, protect your family with insurance, and aim for long-term wealth growth.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment