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41 Years Old, Investing in Six SIP Funds - Advice Needed for 15-Year Retirement Plan

Ramalingam

Ramalingam Kalirajan  |7207 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 15, 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 - Oct 15, 2024Hindi
Money

I m 41 years old, currently investing 15k in SIP in the following funds 1.kotak elss 2.5k, 2. Nifty 50 2.5k, 3. Nifty next 50 2.5k, 4. Midcap - 2.5k, 5. Small cap - 2.5k, 6. Flexi cap - 2.5 k. Please advise whether I need to add or exclude any fund, planning to retire in 15 years.

Ans: Evaluating Your Existing Portfolio

Your current SIP investment in multiple funds reflects a well-diversified strategy. However, since you are planning to retire in 15 years, you need to review the portfolio periodically. Let’s evaluate each aspect of your portfolio to determine if adjustments are needed.

Current Fund Selection

You have invested Rs 15k across six funds. This includes Kotak ELSS, Nifty 50, Nifty Next 50, Midcap, Small Cap, and Flexi Cap. The broad range of categories is good. But we need to check if it aligns with your retirement goal and risk appetite.

Kotak ELSS (2.5k)

You are investing in an ELSS, which is great for tax savings under Section 80C. However, after three years, ELSS funds can be treated as regular equity funds. If you’ve already exhausted your 80C limit or don’t need additional tax savings, you can reconsider this allocation. ELSS funds also tend to be highly volatile since they are equity-based.

Nifty 50 (2.5k) and Nifty Next 50 (2.5k)

Investing in index funds like Nifty 50 and Nifty Next 50 gives you exposure to large-cap and mid-large-cap companies. However, index funds don’t give the flexibility of stock-picking like actively managed funds. They only mirror the performance of the underlying index.

Disadvantages of Index Funds:

Lack of active management.

Performance depends entirely on the index.

It may miss potential opportunities that actively managed funds could capture.

Benefits of Actively Managed Funds:

Active stock-picking to maximise returns.

Potential for better performance over time compared to index funds.

It may be beneficial to reduce index fund exposure and increase allocation to well-managed active funds.

Midcap (2.5k) and Small Cap (2.5k)

You have invested in both midcap and small-cap funds. These funds can provide high returns, but they are also high-risk. Given your 15-year horizon, they can work well, but you must monitor their performance closely.

Small caps tend to have higher volatility compared to midcaps, but both play important roles in long-term wealth creation. Make sure your risk tolerance supports this allocation.

Flexi Cap (2.5k)

Flexi Cap funds give you the flexibility to invest across large, mid, and small-cap stocks. This is a good strategy as it adapts to changing market conditions. Since you are already investing in large, mid, and small caps individually, it’s crucial to ensure there is no overlap in your investments.

Need for Portfolio Review and Simplification

Your portfolio has a good mix of funds, but too many funds can cause overlaps and make monitoring difficult.

You may be over-diversifying by spreading Rs 15k across six funds.

Consider consolidating your portfolio to 4-5 funds for better clarity.

You could combine your Nifty 50 and Nifty Next 50 investments into one actively managed large-cap or Flexi Cap fund.

Assessing Your Retirement Goal

Since you plan to retire in 15 years, your portfolio needs a balanced mix of growth and stability. Let’s assess if the current funds meet your retirement target.

Growth-Focused Funds

Funds like small cap, midcap, and Flexi Cap are growth-oriented. They can offer high returns but are volatile in the short term. With 15 years to retirement, you can afford this volatility, but you should rebalance as you near retirement to ensure stability.

ELSS for Long-Term

Since ELSS has a lock-in of three years, it’s fine to keep it. However, as you approach retirement, you might want to shift from ELSS to more conservative funds that offer stability.

Creating a Stable Income Plan

Given that you want to retire in 15 years, here’s what you can do to ensure a stable post-retirement income:

Start considering hybrid funds as you near retirement.

Shift a portion of your portfolio into debt or balanced funds as you get closer to retirement.

Systematic Withdrawal Plan (SWP) can help you withdraw money post-retirement in a structured way.

SIP Increase Strategy

While Rs 15k per month is a good start, increasing your SIP over time can help you reach your retirement corpus faster. Consider increasing your SIP by 10-15% each year to stay on track.

Taxation Consideration

Keep in mind the capital gains tax implications. The new rules tax long-term capital gains (LTCG) above Rs 1.25 lakh at 12.5%. Short-term capital gains (STCG) are taxed at 20%. For debt funds, LTCG and STCG are taxed as per your income slab.

Recommendations for Fund Changes

Reduce Index Funds Exposure: Switch part of your Nifty 50 and Nifty Next 50 investments to actively managed large-cap funds.

Reconsider ELSS: If you don’t need tax savings, consider reducing ELSS allocation.

Monitor Small and Midcaps: Keep an eye on small-cap and midcap performance. Be ready to shift some allocation to safer funds as retirement approaches.

Increase SIP Amount: Gradually increase your SIP amount to ensure that your corpus grows in line with inflation.

Balanced Investment Strategy

Review and consolidate your funds for better management.

Diversify, but don’t over-diversify to avoid fund overlap.

Increase your SIP contributions over time.

Final Insights

Your current fund choices reflect a good understanding of diversification, but it’s essential to streamline and focus on performance. Switching from index funds to actively managed funds may offer better returns.

As you approach retirement, shifting to safer investments like balanced or hybrid funds can help ensure a steady income post-retirement. Keep increasing your SIPs to match your long-term goals, and remember to monitor and rebalance your portfolio regularly.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment
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  |7207 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 19, 2024

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Hi i am 34 years old. I have started a 4 SIP each of 5000?, HDFC midcap opportunity fund direct growth, HDFC Index nifty fifty, Parag parekh flexi fund and Nippon India Small cap fund. Kindly suggest any changes or need to add more sip. I want to retire in next 12 years
Ans: Congratulations on taking proactive steps towards building your retirement corpus through SIP investments. Let's review your current portfolio and make necessary adjustments to align it with your retirement goal in the next 12 years.

Evaluating Your Current SIP Portfolio
Portfolio Composition
You've initiated SIPs in four funds, focusing on mid-cap, index, flexi-cap, and small-cap categories. This shows a well-diversified approach towards wealth creation.

Risk Profile
Your portfolio reflects a moderate to high-risk appetite, with exposure to mid-cap and small-cap funds known for their volatility.

Assessing the Need for Changes
Mid-Cap Fund
Advantage: Mid-cap funds have the potential for high growth, suitable for long-term wealth creation.
Consideration: Ensure you're comfortable with the higher risk associated with mid-cap stocks.
Index Fund
Advantage: Index funds offer broad market exposure at low costs, ideal for passive investors.
Consideration: While index funds offer stability, they may not outperform actively managed funds in bull markets.
Flexi-Cap Fund
Advantage: Flexi-cap funds provide flexibility to invest across market caps based on prevailing market conditions.
Consideration: Ensure the fund manager's strategy aligns with your investment goals and risk tolerance.
Small-Cap Fund
Advantage: Small-cap funds have the potential for high growth, but they come with higher volatility.
Consideration: Be prepared for fluctuations in returns and market risks associated with small-cap stocks.
Recommendations for Portfolio Optimization
Rebalancing the Portfolio
Consider rebalancing your portfolio to maintain an optimal asset allocation based on your risk tolerance and investment horizon.
Assess the current market conditions and performance of individual funds to make informed decisions.
Reviewing Fund Performance
Regularly monitor the performance of your SIP funds and assess their consistency in delivering returns.
Evaluate fund managers' track records, investment strategies, and portfolio compositions to ensure alignment with your goals.
Potential Addition of Debt or Hybrid Funds
Given the aggressive nature of your current portfolio, consider adding debt or hybrid funds to balance risk and provide stability.
Debt funds can provide steady returns with lower volatility, suitable for risk-averse investors approaching retirement.
Benefits of Regular Funds Investing through MFD with CFP Credential
Investing through a Certified Financial Planner (CFP) who is also a Mutual Fund Distributor (MFD) offers several advantages:

Personalized Advice: A CFP can provide tailored investment advice based on your financial goals, risk appetite, and investment horizon.

Portfolio Diversification: A CFP can help you build a diversified investment portfolio aligned with your objectives, spreading risk across various asset classes.

Ongoing Monitoring: With regular reviews and updates, a CFP ensures your investments stay on track to meet your goals.

Conclusion
Your current SIP portfolio demonstrates a proactive approach towards wealth creation for retirement. By reviewing and optimizing your portfolio periodically, you can ensure it remains aligned with your long-term financial goals. Consider consulting with a Certified Financial Planner (CFP) to receive personalized guidance and maximize your investment potential.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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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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