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New Investor Shankar Wants to Know if His SIP Investments for 10 Years Are Optimal

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 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
SHANKRAPPA Question by SHANKRAPPA on Jul 09, 2024Hindi
Money

My name is Shankar. I' m investing 10,000 Per Month thru SIP. One is in Motilal Oswal Midcap 30 Fund for 5000. Second one is in SBI Countra Find for 5000 each month in phone pe I had invested. It's been two month I had started. First my concern is here can I go for these two funds for longer period like 10 years, I need suggestion for that. Second one is how much return can I expect for 10 years. I am planning to start one more mutual fund for mid cap for 5000 I need to know which fund is best for long run.

Ans: Dear Shankar,

Firstly, congratulations on taking a significant step towards your financial goals by starting your investments. It is heartening to see individuals like you take proactive steps towards securing their future.

You mentioned investing Rs 5,000 per month in the Motilal Oswal Midcap 30 Fund and another Rs 5,000 in the SBI Contra Fund. Both funds have their merits, but let's delve deeper to assess if they align with your long-term goals.

Evaluating Your Current Funds
Motilal Oswal Midcap 30 Fund

This fund focuses on mid-sized companies with potential for growth. Mid-cap funds can be quite rewarding, especially in a growing economy like India. However, they also carry higher risk compared to large-cap funds. It's commendable that you are willing to take on some risk for potentially higher returns.

SBI Contra Fund

This fund follows a contrarian strategy, investing in undervalued stocks. This approach can be beneficial during market corrections and downturns, as these stocks may bounce back strongly. It provides a good balance to your portfolio by diversifying your investment style.

Long-Term Viability
For a ten-year investment horizon, these funds could be suitable, provided you are prepared for the market's ups and downs. Long-term investments in equity mutual funds generally yield better returns, as they smooth out short-term volatility. Staying invested for ten years can help you benefit from compounding and market growth.

Expected Returns
Estimating returns can be tricky as they depend on various factors, including market conditions, economic growth, and fund management. Historically, mid-cap funds have delivered 12-15% annual returns over the long term. Contrarian funds, while less predictable, can also yield substantial returns if their strategy pays off.

However, it is crucial to remember that past performance does not guarantee future results. Keeping realistic expectations and staying invested through market cycles is key.

Adding a New Mid-Cap Fund
Your interest in starting another Rs 5,000 monthly SIP in a mid-cap fund is a wise decision, given your long-term horizon. Mid-cap funds can be an excellent addition to your portfolio, offering potential for higher growth.

Benefits of Actively Managed Funds
Since you are considering mid-cap funds, it is essential to highlight the benefits of actively managed funds over index funds. Actively managed funds can adapt to market conditions and invest in promising companies, whereas index funds simply replicate a market index. This flexibility can lead to better performance, especially in the mid-cap segment where stock selection is crucial.

Recommendations for Mid-Cap Funds
Selecting the right fund requires thorough research. Here are some factors to consider when choosing a mid-cap fund:

Fund Performance: Look at the fund’s performance over different market cycles.
Fund Manager’s Track Record: An experienced and skilled fund manager can make a significant difference.
Expense Ratio: Lower expense ratios can improve net returns.
Fund House Reputation: Choose funds from well-established and reputable fund houses.
Considering these factors will help you make an informed decision. Consulting a Certified Financial Planner (CFP) can also provide personalized advice based on your risk tolerance and financial goals.

General Investment Tips
Diversification
Diversification is crucial to manage risk. Your current investments in mid-cap and contrarian funds provide a good mix. However, you might want to consider adding large-cap or multi-cap funds in the future for better balance.

Regular Review
Periodic review of your investments is essential. Market conditions and personal financial goals can change, requiring adjustments to your investment strategy.

Staying Informed
Keep yourself informed about market trends and economic indicators. This knowledge can help you make better investment decisions.

Emotional Discipline
It’s easy to get swayed by market volatility. Maintaining emotional discipline and staying invested during market downturns is vital for long-term success.

Potential Pitfalls of Direct Funds
Direct funds might seem attractive due to lower expense ratios, but they have some disadvantages. Direct funds require continuous monitoring and management, which can be time-consuming and challenging. Investing through a CFP can provide professional management, regular reviews, and tailored advice, ensuring your investments align with your goals.

Final Insights
Your current investment strategy is promising, with a good mix of mid-cap and contrarian funds. These funds have the potential to deliver substantial returns over a ten-year period, provided you stay invested and maintain discipline.

Starting another mid-cap fund is a prudent decision, given your long-term horizon. Carefully selecting an actively managed mid-cap fund can further enhance your portfolio's growth potential.

Remember to diversify, review your investments regularly, and consult a Certified Financial Planner for personalized advice. Your commitment to investing Rs 10,000 monthly through SIPs is commendable, and with the right strategy, you can achieve your financial goals.

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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Hello sir , I am 40 years old , I have below investment. FD - 60 lacs. Mediclaim - 10 lacs NPS - 50K Per year PPF - 150K Per Year I am investing in below mutual funds through SIP. ( 22K) ICICI balanced Advantage 2K HDFC Balanced Advantage 3K Tata Midcap and Largecap 3K Nippon India Small Cap 2K Motilal Midcap 2K ICICI Prudential Commodities 5K Quant Small Cap 5K Is it good funds for long terms ( Horizon of 8/10 years) ? I want to invest more 10K in SIP then which fund should I chose ? Thanks
Ans: It's great to see your disciplined approach towards investments. Let's assess your portfolio and potential additions:

Your current SIP portfolio seems well-diversified across different market segments, which is beneficial for long-term growth.
Given your investment horizon of 8 to 10 years, these funds offer a mix of growth potential and stability.
Considering adding another 10K to your SIP, you may want to focus on funds that complement your existing portfolio.
Look for funds with a track record of consistent performance and a strong investment thesis aligned with your financial goals.
Consider funds that provide exposure to sectors or themes with potential for future growth.
Consult with a Certified Financial Planner to evaluate your risk tolerance, financial goals, and investment strategy before making any changes.
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Asked by Anonymous - Oct 20, 2024Hindi
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Hello sir , I am 40 years old , I have below investment. No EMI No Loan. FD - 60 lacs. Mediclaim - 15 lacs ( 20K per year) NPS - 50K Per year ( Since last 5 years) PPF - 150K Per Year ( Since Last 5 years) I am investing in below mutual funds through SIP. ( 32K Total) - Since last 3 Years ICICI balanced Advantage 2K HDFC Balanced Advantage 3K Tata Midcap and Largecap 3K Nippon India Small Cap 2K Motilal Midcap 2K ICICI Prudential Commodities 5K Quant Small Cap 5K HDFC Top 100 5K Parag Parikh Flexi 5K Is it good funds for long terms ( Horizon of 8/10 years) ? My income is arround 1.80 lac monthly , no home loan and emi. Shall I increase my SIP and my concern is 60 lacs is in FD ..Please suggest. Plus I want to invest 3 lacs lumpsum. Where to invest ? For long term 5/10 years.
Ans: Hello;

You may reallocate your sip portfolio(request to increase it to 50 K monthly sip)as follows:

1. PPFAS flexicap fund: 15 K
2. Kotak Emerging Opportunities Fund: 15 K
3. Nippon India Small cap fund: 10 K
4. Sundaram Mid Cap fund: 10 K

All growth options.

For a 10 year horizon this is a good mix. Your allocation to PPF and NPS(non equity portion) are debt allocations in your overall asset allocation so no need for BAF & commodities here.

You may invest your FD corpus of 60 L in a equity savings type mutual fund (low to moderate risk) but better than FD returns.

It is recommended that you invest lumpsum of 3 L in Kotak Gold FOF/ETF.

After end of 10 years you may have combined corpus of 5.4 Cr. which may yield you a monthly income of 1.89 L (post-tax) if you buy an immediate annuity for your corpus. 6% annuity rate considered.

(Returns assumed as given: PPF-6.9%, NPS-9%, 3 yr SIP-10%, 10 year sip-13%, Gold-7%, Equity Savings Fund -9%)

Happy Investing;

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

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Best Wishes.

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Sir, I am 40yrs old. Having monthly takehome salary of 1.1 lakh and rental income of 36000. My investment are 2 flats worth of 1cr. 4 plots in Bhubaneswar worth of 2crs. EPF balance 50 lakh, LIC policies worth of 16 lakhs, NPS worth of 10 lakhs. My monthly saving commitments are - EPF (employee+employer) 28000 NPS 15000 MF 7500 Gold scheme 5000 Financial burden - HL emi of 24000 Monthly expanses 50000 I would like to retire at 50. Please advise for retirement plan with life expectancy of 80yrs.
Ans: Hello;

The value of your investments after 10 years;

A. EPF Corpus+Contribution: 1.6 Cr
B. NPS Corpus+Contribution: 53 L
C. MF(sip) + Gold(sip): 25 L
D. Real estate (land): 3.26 Cr

So sum of A, C & D gives us a corpus of 5.11 Cr

Since you will withdraw NPS before 60 age 80% of corpus will go into annuity while 20% will be available to you.

So you may expect monthly income of around 21 K from annuity(42.4 L).

Balance 10.6 L get added to 5.11L taking your total corpus to ~ 5.2 Cr.

If you invest 5 Cr in a conservative hybrid debt fund and do a SWP at the rate of 3%, you may expect a monthly income of around 1.1 L(post-tax).

Add your monthly rental income of 36 K(No growth factored) and annuity income of 21 K to this and you have total monthly income of 1.67 L after 10 years.

Your current monthly expenses of 50 K after 10 years would be around 90 K and 1.6 L after 20 years.

Considering return of around 7-7.5% from the conservative hybrid debt fund you will still generate inflation adjusted return at 3% SWP after 80 years of age.

Assumptions:
Inflation rate-6%
Return from EPF-8%
Return from NPS-9%
Return from MF-10%
Return from gold-7%
Return from Land-5%
Annuity rate-6%

The spare flat is not considered in this because it will continue to yield you rental income in retirement.

Since real estate(land) returns may fluctuate over 10 years suggest to increase MF sip(6X) as a back-up, also in this case you may decide to retain & invest in NPS upto 60 age.

Of course MF returns are also not assured but you are improving the odds by backing two appreciable assets(RE & equity) over long-term.

Happy Investing;
X: @mars_invest

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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 22, 2024

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My age 62, male, getting rental income Rs. 90k nett. Already subscribing 12.5k in PPF for the past 2 1/2 years. No other investments. My target is 5 crores in 10 years. I already have Mediclaim Rs.50 lakhs for me & wife . Please advice me what to do.
Ans: Your current financial foundation is strong and shows promise:

A rental income of Rs. 90,000 per month provides consistent and predictable cash flow. This stability can serve as the backbone for your investment strategy.

PPF contributions of Rs. 12,500 per month for 2.5 years reflect disciplined saving. However, its returns may be insufficient to achieve a high-growth target like Rs. 5 crores in 10 years.

A robust Mediclaim policy of Rs. 50 lakhs for you and your wife ensures adequate health coverage. This safeguard allows you to focus on wealth-building without worrying about medical emergencies.

Despite these positive factors, achieving Rs. 5 crores in 10 years requires a carefully crafted and growth-oriented strategy.

Defining and Prioritising Your Financial Goals
Achieving Rs. 5 crores is ambitious yet achievable with a focused approach:

Define this target as your primary financial goal over the next decade.

Break it into manageable milestones: for example, Rs. 50 lakhs every 1-2 years in cumulative investments and growth.

Prioritise high-return investments that align with your risk tolerance and financial capacity.

Optimising Existing PPF Contributions
While PPF is a secure investment, its growth potential is limited:

Returns: PPF currently offers an interest rate of approximately 7-7.5%, which barely outpaces inflation.

Contribution Review: Consider capping your PPF contributions at Rs. 1.5 lakh annually (to utilise the Section 80C benefit). This ensures that excess funds are redirected to higher-return investments.

PPF can serve as a low-risk component of your portfolio but should not dominate your investment strategy.

Building a Diversified Investment Portfolio
A diversified portfolio will provide a balance of risk and reward. Include the following components:

1. Equity Mutual Funds for Growth
Equity mutual funds are essential for achieving high returns over the long term:

Large-Cap Funds: These invest in established companies and offer stability with moderate growth. They are ideal for a portion of your portfolio to reduce risk.

Multi-Cap or Flexi-Cap Funds: These provide exposure to companies of all sizes, offering growth and diversification.

Sectoral and Thematic Funds: Avoid these unless you have a high risk tolerance and understand market dynamics.

ELSS Funds: These not only provide tax savings under Section 80C but also deliver market-linked returns.

Why Avoid Index Funds?

Index funds may offer simplicity and lower expense ratios, but they lack flexibility. They cannot adapt to market conditions or capitalise on outperforming sectors. Actively managed funds, on the other hand, have the potential to outperform the market, especially in a developing economy like India.

Start with a Systematic Investment Plan (SIP) in selected funds to build wealth steadily.

2. Debt Mutual Funds for Stability
Debt funds add stability to your portfolio and reduce overall risk:

Choose funds with low credit risk and moderate duration to ensure safety and predictable returns.

Debt funds are suitable for short- to medium-term goals or as a fallback during market corrections.

Taxation Note: Both LTCG and STCG on debt funds are taxed as per your income tax slab. This should be factored into your planning.

3. Balanced Advantage Funds
Balanced advantage funds (BAFs) dynamically allocate assets between equity and debt. They:

Provide exposure to equity while minimising downside risk.

Offer a suitable option for someone nearing retirement but seeking growth.

4. Gold Investments for Diversification
Allocate a small portion (5-10%) of your portfolio to gold:

Gold serves as a hedge against inflation and currency depreciation.

Choose gold ETFs or sovereign gold bonds for ease of liquidity and better returns.

Emergency Fund Creation
Having an emergency fund is non-negotiable:

Maintain at least 6-12 months of expenses in liquid investments like liquid mutual funds or high-interest savings accounts.

This ensures liquidity for unforeseen events without disturbing your long-term investments.

Focus on Retirement Planning
At 62, balancing growth and safety becomes critical:

Estimate your monthly retirement expenses, considering inflation over the next 10-15 years.

Your target of Rs. 5 crores should primarily serve as your retirement corpus.

Allocate assets thoughtfully:

60-70% in equity funds for growth.
30-40% in debt funds for stability.
Periodically rebalance your portfolio to maintain this allocation.

Strategic Tax Planning
Tax efficiency can significantly impact your returns:

Continue using Section 80C to its full potential, including ELSS funds and PPF.

Consider the National Pension System (NPS) for an additional Rs. 50,000 deduction under Section 80CCD(1B).

Be mindful of the new taxation rules for mutual funds:

Equity Mutual Funds: LTCG above Rs. 1.25 lakh is taxed at 12.5%; STCG at 20%.
Debt Funds: LTCG and STCG are taxed as per your income slab.
Consult a Certified Financial Planner to optimise your tax strategy.

Regular Portfolio Monitoring and Rebalancing
Investing is not a one-time activity:

Review your portfolio every six months or annually to track performance.

Rebalance your asset allocation periodically to align with your financial goals and risk appetite.

Stay committed to SIPs even during market downturns, as this ensures cost-averaging.

Additional Suggestions
Avoid Over-Reliance on PPF
While PPF is safe, it is not sufficient for wealth creation. Shift excess contributions to equity-based investments for better returns.

Avoid Direct Stocks
Direct equity investing requires time, expertise, and constant monitoring. It carries higher risk and may lead to losses without proper research. Instead, rely on equity mutual funds managed by professionals.

Avoid Mixing Insurance and Investments
Do not invest in ULIPs or endowment plans, as they offer suboptimal returns. Stick to pure insurance products for protection and mutual funds for growth.

The Role of a Certified Financial Planner
To achieve Rs. 5 crores, a well-crafted financial plan is essential. A Certified Financial Planner (CFP) can:

Analyse your current investments and recommend improvements.

Design a customised strategy tailored to your income, expenses, and goals.

Provide periodic reviews to ensure you stay on track.

Finally
Achieving Rs. 5 crores in 10 years is a realistic goal if you adopt a disciplined and diversified approach.

Optimise your PPF contributions and channel excess funds into higher-growth investments.

Build a diversified portfolio with equity and debt mutual funds.

Include a small allocation to gold and maintain an emergency fund.

Stay consistent with your SIPs and review your investments regularly.

Work with a Certified Financial Planner to create a personalised roadmap.

By following these steps, you can secure your financial future and meet your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...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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