Matured FD - What now?

Ans: You've done a commendable job so far in building your savings and investments. With a portfolio of Rs 50 lakh in mutual funds and Rs 60-70 lakh in fixed deposits (FDs), you've laid a solid foundation. Your objective to accumulate Rs 5-7 crore in the next 12-13 years for your younger son's future and your retirement is achievable, especially given your increased risk appetite.

Your query suggests two distinct paths:

Investing fresh capital with a focus on wealth creation.

Utilizing your existing fixed deposits to further contribute to your investment goals.

Let's explore both options in detail.

Option 1: Fresh Investment Strategy
Given your higher risk appetite and experience with mutual funds, focusing on equity-oriented investments is prudent. Here's how you can structure your portfolio:

1. Diversification Across Mutual Funds
Mutual funds are excellent for long-term wealth creation, especially for investors like you with a good risk appetite. Your portfolio should include:

Large-Cap Funds: These funds provide stability and consistent returns by investing in large, established companies.

Mid-Cap and Small-Cap Funds: These funds are more volatile but offer higher growth potential. Include them for capital appreciation over the long term.

Multi-Cap or Flexi-Cap Funds: These funds allow fund managers to invest across market capitalizations, providing a balanced approach.

Sectoral or Thematic Funds: Allocate a smaller portion to sectors that align with your views on future growth potential, like technology or healthcare.

2. Systematic Investment Plans (SIPs)
Starting fresh SIPs in the funds mentioned above will allow you to invest consistently over time. This helps in averaging out market volatility and building a substantial corpus.

Set Clear SIP Amounts: Based on your goal of Rs 5-7 crore, calculate the required SIP amount. Your Certified Financial Planner (CFP) can assist in determining the precise amount, considering your existing investments.

Monitor and Rebalance: Regularly review your portfolio’s performance and rebalance if necessary. This ensures your investments stay aligned with your goals.

3. Consider Balanced or Hybrid Funds
Balanced or hybrid funds invest in a mix of equities and debt instruments. They provide a cushion during market downturns, making them a suitable option for part of your portfolio.

Option 2: Utilizing Fixed Deposits
Your current FDs offer safety, but they might not deliver the returns needed to meet your Rs 5-7 crore target. Let's consider how you can strategically utilize them:

1. Partial Redemption and Reallocation
Redeem Part of Your FDs: Consider breaking a portion of your FDs, especially those with lower interest rates. Reallocate these funds into higher-yielding investment options like mutual funds.

Systematic Transfer Plan (STP): If you're hesitant to move a large sum into mutual funds at once, use an STP. Transfer money from a debt fund to equity funds systematically, reducing market timing risk.

2. Maintain a Safety Net
Emergency Fund: Retain a portion of your FDs as an emergency fund. This should cover at least 6-12 months of expenses, ensuring financial security.

Senior Citizen Savings Scheme (SCSS): For a portion of your FDs, consider reinvesting in safer options like SCSS once you or your spouse reach the eligible age. It offers higher interest rates than regular FDs and tax benefits under Section 80C.

Evaluating Direct and Regular Funds
Since you've been investing in mutual funds, it's important to address the choice between direct and regular funds:

1. Direct Funds
Lower Expense Ratios: Direct funds have lower expense ratios since they don't involve intermediaries. However, this doesn't always translate to better returns. Managing investments without professional guidance can lead to suboptimal decisions.

Self-Management Challenges: Direct funds require constant monitoring and active decision-making. If you're not equipped with the time or expertise, it might not be the best route.

2. Regular Funds with a CFP
Professional Guidance: Investing through regular funds with a Certified Financial Planner (CFP) ensures professional oversight. Your investments are aligned with your goals, and portfolio adjustments are made as needed.

Long-Term Support: A CFP provides ongoing support, helping you navigate market changes, tax implications, and any financial challenges that arise.

Final Insights
Building a corpus of Rs 5-7 crore in 12-13 years is achievable with the right strategy. By leveraging your existing assets and investing fresh capital wisely, you can meet both your retirement and your son's educational needs.

Here’s a summary of the recommended approach:

Diversify across large-cap, mid-cap, small-cap, and multi-cap mutual funds.

Start new SIPs and regularly monitor and rebalance your portfolio.

Consider balanced or hybrid funds for added stability.

Utilize a portion of your FDs through partial redemption and STP.

Retain some FDs as an emergency fund and consider safer reinvestment options like SCSS.

Choose regular funds with CFP support for ongoing professional guidance.

Your financial journey is already on the right path. With disciplined investing and strategic decisions, you can confidently achieve your long-term goals.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Ans: Given your risk appetite and investment horizon of 12-13 years, here are two investment strategies to achieve a corpus of 5-7 crore:

Option 1: Fresh Investment

Equity Mutual Funds: Allocate 60% of the portfolio (30 lac) to diversified equity mutual funds with a proven track record.
Direct Equity: Invest 20% (10 lac) directly in blue-chip stocks or through a well-researched stock portfolio.
Debt Mutual Funds: Allocate 10% (5 lac) to debt funds for stability and to balance the portfolio.
Gold or Gold ETFs: Allocate 10% (5 lac) to gold as a hedge against market volatility and inflation.
Option 2: Utilizing FDs

Equity Mutual Funds: Transfer 50% of the FDs (30-35 lac) into diversified equity mutual funds.
Debt Mutual Funds: Transfer 30% (20-25 lac) to debt funds for stability.
Direct Equity: Invest 10% (5-7 lac) directly in blue-chip stocks or a stock portfolio.
Gold or Gold ETFs: Allocate 10% (5-7 lac) to gold.
Regularly review and rebalance the portfolio to maintain the desired asset allocation. Consider SIPs for equity investments to take advantage of rupee-cost averaging. Consult with a Certified Financial Planner to tailor the investment strategy to your specific needs and objectives.

Ans: Based on your query, we understand that you are looking for investment options to plan for your younger son’s future (Education and Marriage) and your retirement life. You have mentioned that both goals have a similar time duration of about 12-13 years. You also mentioned that you have a good risk appetite now and have seen a good 5-year cycle in mutual funds (MFs).

To achieve a corpus of around Rs 5Cr by then, we have evaluated both the options:-

Option 1: Fresh Investment: This is the most recommended option from our end as considering your investment horizon and knowledge, we suggest you to rebalance your current fixed income oriented investments to equity orient funds with 20-25% allocation towards mid and small caps.
Benefits on shifting:
• Lower tax liability on returns generated.
• Tax deferment and compounding (higher returns) in long run.

Option 2: Continuing with Fixed Deposits (FDs) (Not suggested by us)
As you know, FDs are very safe asset class and yielding higher returns due to current interest rate scenario. Although, we all know sooner and later rates will came down to support the economy so does the FD rates.
Also, FDs as investment are not considered good for horizon of more than 5 years because:
a) Yearly taxation reduce the compounding and returns.
b) Equity generally outperform in terms of returns over the same horizon.

Final Recommendation:
We suggest you to shift 30-40 Lakhs from FDs and reinvest the same in a well-diversified portfolio of Equity and hybrid funds. Also, considering your goal of reaching a corpus of 5cr with current mutual fund investments it will require whopping returns of 20%+ on annual basis for a period of 12-13 years which is not very likely to achieve.

As a summary, allocate a total of Rs 80-90 Lakhs towards diversified equity-oriented funds and keep invested Rs 20-30 Lakhs in FDs in your wife’s name for taxation benefit.

Ans: Have 6-12 months of your monthly expenses as contingency in FD's, everything else can be deployed towards your goal.

Assuming you have 1cr today to allocate to the goals & need 6 cr in 12 years, you will have to do an SIP of 70K over & above the 1cr that you will allocate towards the goals.

MF's are the best way for you. Invest in 4-5 well diversified MF's & start an SIP in the same MF's

Ans: At 78, ensuring your investments provide a stable income is crucial. While FDs offer safety, they might not always provide the returns you desire, especially considering inflation and the need for higher returns to match your budgetary needs.

Considering your age and need for higher returns, you might want to consider Debt Mutual Funds or Balanced Advantage Funds. Debt Mutual Funds predominantly invest in fixed-income securities and can offer better returns than FDs with a moderate risk profile. On the other hand, Balanced Advantage Funds dynamically manage equity-debt mix based on market conditions, aiming for consistent returns.

However, Mutual Funds, even debt funds, come with some risk. They are subject to market fluctuations, and while they aim to provide better returns than FDs, they might not always guarantee fixed returns.

Given your situation, consulting with a Certified Financial Planner would be highly beneficial. They can assess your risk tolerance, financial needs, and recommend a suitable investment strategy tailored to your requirements.

Remember, while aiming for higher returns, it's also essential to maintain a balance between risk and returns, ensuring your investments align with your financial goals and peace of mind in retirement.