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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 10, 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
Arvind Question by Arvind on Jun 17, 2024Hindi
Money

Hi – I’m now 42 and I’ve been working since my UG years but never really was focussed on investments. However, in the recent past mostly since Jan 2022 I have started investing Rs 80k monthly into Mutual Funds and have so far accumulated Rs 47Lakhs of Rs 30.3lakh investments. I also have taken Jeevan Labh 936 policy for myself and wife which is for sum assured Rs 20lakhs for 16 years premium of Rs 8k monthly for each policy. In addition, my EPF is at 45lakhs and shares are worth 9lakhs. I have taken a home loan for Rs 75lakhs in Jan 2021 of which I have cleared I have paid 10lakhs and 1 lakh lumpsum and in the past 2 years and brought down the outstanding to Rs 55lakhs with Rs 75k EMI p.m. I also have a personal loan outstanding for Rs 5.5 lakhs with Rs 20k EMI p.m. I have 2 kids and aged 4 and 6 respectively and their school fees is Rs 2.5 lakhs put together per annum. I have a bike hand loan to clear viz., 3.5 lakhs which is due in Sep 2024. My take home salary is Rs. 2.4 lakhs p.m and I get a rental income of Rs 30k p/m and I’m the only earning member of the family. My home expenses including parents and home running and maintenance is around 50k per month. I want to retire in exactly 10years and hence seeking your inputs managing my investments vs liabilities even if that means clearing out liabilities and focussing towards investments. I willing to sell the car of which I will get around 7.5 lakhs and will get a bonus around 6 lakhs in September. Please advice if it is wise to close up the home loan with the MF funds and start MF from 0 with double the SIP.

Ans: It's great to see your proactive approach to managing your finances. You've made significant progress in the past few years. Let's break down your current situation and explore the best steps forward.

Your Current Assets and Liabilities
Assets:

Mutual Funds: Rs 47 lakhs
EPF: Rs 45 lakhs
Shares: Rs 9 lakhs
Rental Income: Rs 30k per month
Liabilities:

Home Loan: Rs 55 lakhs (EMI Rs 75k per month)
Personal Loan: Rs 5.5 lakhs (EMI Rs 20k per month)
Bike Loan: Rs 3.5 lakhs due by Sep 2024
Monthly Expenses: Rs 50k (including family and maintenance)
Jeevan Labh Policy: Rs 8k monthly per policy (yours and wife's)
Income:

Salary: Rs 2.4 lakhs per month
Rental Income: Rs 30k per month
Analyzing Your Situation
You have a good income and substantial investments. However, your liabilities are also significant. Let's assess your financial goals and how to balance investments and liabilities.

Understanding Your Financial Goals
You aim to retire in 10 years. To achieve this, you need to:

Clear your liabilities.
Build a substantial retirement corpus.
Ensure your children's education is funded.
Maintain a comfortable lifestyle.
Managing Your Liabilities
Clearing liabilities is crucial for financial freedom.

Home Loan: Paying Rs 75k EMI monthly is significant. With Rs 55 lakhs outstanding, you could consider clearing it partially or fully.

Personal Loan: Rs 20k EMI monthly is also a burden. Prioritizing its closure can free up monthly cash flow.

Bike Loan: This loan of Rs 3.5 lakhs is due soon. Planning for its closure is necessary.

Evaluating Investments vs. Liability Clearance
Using your Mutual Funds to clear the home loan can be an option. Let’s weigh the pros and cons.

Clearing Home Loan with Mutual Funds
Pros:

Reduces monthly EMI burden.
Provides a sense of financial freedom.
Interest saved on the home loan can be significant.
Cons:

Drains a substantial part of your investment corpus.
Restarting Mutual Funds means losing out on compounding benefits.
Power of Compounding
Mutual funds grow significantly over time due to compounding. Redeeming them now means missing out on potential future growth. However, reducing liabilities also frees up funds for future investments.

Evaluating Other Liabilities
Personal Loan: Clearing this should be a priority. Rs 5.5 lakhs is a manageable amount. You can use your bonus or car sale proceeds.

Bike Loan: This is a smaller amount and can be cleared with your bonus or monthly savings.

Strategic Recommendations
Here's a strategic plan to manage your finances efficiently:

Step 1: Use Bonus and Car Sale Proceeds
Use the Rs 6 lakhs bonus in September to clear the personal loan.
Use Rs 7.5 lakhs from selling the car to clear part of the home loan.
Step 2: Monthly Savings Allocation
With the personal loan cleared, your monthly savings increase by Rs 20k.
Allocate this Rs 20k towards higher SIP in mutual funds.
Step 3: Reviewing and Optimizing Insurance
Jeevan Labh Policy: Evaluate if it’s an investment cum insurance policy. Such policies often have low returns.

Consider surrendering these policies and investing the premium in mutual funds for better returns.
Get term insurance for adequate coverage at a lower cost.
Step 4: Increasing Mutual Fund Investment
With the liabilities managed, focus on increasing your mutual fund investments.

Equity Funds: Higher returns, suitable for long-term goals like retirement.

Debt Funds: Safer, suitable for short-term goals and stability.

Hybrid Funds: Balanced approach, offering both growth and safety.

Step 5: Building Emergency Fund
Ensure you have an emergency fund covering at least six months of expenses.

Monthly Expenses: Rs 50k (home expenses) + Rs 75k (home loan EMI) + Rs 16k (Jeevan Labh policy) = Rs 1.41 lakhs.

Emergency Fund Needed: Rs 8.46 lakhs. This can come from savings or liquidating some shares.

Investing in Mutual Funds
Types of Mutual Funds
Equity Funds: Ideal for long-term growth. They invest in stocks and have high return potential but come with higher risk.

Debt Funds: Suitable for short-term needs and stability. They invest in bonds and are less risky but offer lower returns.

Hybrid Funds: These invest in both equities and debt. They offer a balanced risk-return profile.

Advantages of Mutual Funds
Diversification: Reduces risk by investing in a variety of assets.
Professional Management: Managed by experts who make informed decisions.
Liquidity: Easily buy and sell mutual fund units.
SIP Option: Invest small amounts regularly, making it easier to build wealth over time.
Power of Compounding
Compounding is a powerful wealth-building tool. The longer you stay invested, the more your money grows. Starting SIPs early and staying invested for a long period maximizes returns.

Risk Management
Investing always involves risk. Understanding and managing risk is crucial.

Equity Funds: High risk, high return. Suitable for long-term goals.
Debt Funds: Low risk, low return. Suitable for short-term goals.
Hybrid Funds: Medium risk, balanced return. Suitable for moderate risk tolerance.
Reviewing and Adjusting Your Plan
Regularly review your financial plan. Adjust it based on changes in your life, market conditions, and financial goals.

Consulting a Certified Financial Planner
Consulting a CFP can provide personalized advice. They can help you navigate complex financial decisions and optimize your investments.

Final Insights
Balancing investments and liabilities is key to financial success. Clear high-interest liabilities first, then focus on building a substantial investment corpus. Mutual funds offer excellent growth potential through the power of compounding. Stay disciplined with your SIPs and review your financial plan regularly. Consulting a CFP can provide additional guidance tailored to your specific situation.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
Asked on - Jul 17, 2024 | Answered on Jul 17, 2024
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Thank you for the response sir, this gives me an insight for better planning. Appreciate your help on the below 2 things please: 1. Regarding Clearing home loan with mutual fund. Do you suggest that the pros of retaining MFs is better than using it to clear home loan? 2. I'm not able to find the right CFP, any suggestions from your end is highly appreciated
Ans: 1. Clearing Home Loan with Mutual Fund
Pros of Retaining MFs:

Compounding Benefits: Mutual funds grow significantly over time due to compounding.
Higher Returns: Potential to achieve higher returns compared to the interest saved from home loan repayment.
Liquidity: Flexibility to withdraw funds when needed without impacting your entire corpus.
Pros of Clearing Home Loan:

Reduced EMI Burden: Lowers your monthly outflow, freeing up cash for other uses.
Financial Freedom: Offers peace of mind by eliminating debt.
Interest Savings: Saves interest paid over the loan tenure.
Recommendation: If your mutual funds are yielding higher returns than your home loan interest rate, it’s better to retain them and continue investing. Otherwise, consider partially clearing the loan.

I appreciate your trust and willingness to connect for CFP services.
Let's embark on this financial journey together.
You can reach me through my website mentioned below.
This platform has restrictions on sharing personal contact. Hope you understand.


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 06, 2024

Asked by Anonymous - Apr 11, 2024Hindi
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Hello Sir, I lost my job in layoff . I am 46 year old . I had a home loan of 1.18 cr with EMI of 1.07L per month . I have 2 kids, Daughter is in 12th and Son is in 9th . I am selling my other 2 flats so that i can repay the loan and left money i will put in FD. I have to plan my children education 60 L and Retirement planning ( Next Month onwards i require 1 L ). After paying home loan I left with 70 L which i will put in FD . I have 70 L in EPF, 30 L in PPF maturity in 2026, 19 L FD, 3.3 L NSC ( Maturity at 2032/ 6.6L), 14 L Mutual Fund. My wife earns 50 K per month . Monthy expenses are 75K . My goals of havinng 1 L from next month and kids education can be achieved with these investment .
Ans: I'm sorry to hear about your job loss, but it's commendable that you're taking proactive steps to manage your finances during this challenging time. Let's create a plan to address your immediate needs and long-term goals:

• Home Loan Repayment: Selling your other two flats to repay the home loan is a prudent decision, as it will relieve you of the burden of the EMI and reduce financial stress.

• Emergency Fund: It's essential to maintain an emergency fund to cover unexpected expenses and loss of income. Since you'll have 70 lakhs from the sale of your flats, consider keeping a portion of this amount aside as your emergency fund, ideally in a liquid and accessible form like a savings account or short-term FD.

• Children's Education: With 60 lakhs earmarked for your children's education, you can explore investment options that offer growth potential over the medium to long term. Consider a combination of equity mutual funds, balanced funds, and fixed-income instruments to achieve your education goals. Since your daughter is in 12th grade, you may need to prioritize her education expenses in the near term.

• Retirement Planning: Your goal of having 1 lakh per month from next month onwards for retirement can be achieved by structuring your existing investments wisely. With 70 lakhs in EPF, 30 lakhs in PPF (maturing in 2026), and other fixed deposits and mutual funds, you have a solid foundation. You can explore options like Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS), and systematic withdrawal plans (SWPs) from mutual funds to generate a regular income stream in retirement.

• Income Replacement: Since you'll no longer have a regular income from employment, it's crucial to plan for income replacement. Your wife's income of 50,000 per month will provide some support, but you may need to supplement it with income generated from your investments.

• Expense Management: Given your monthly expenses of 75,000, it's essential to budget carefully and prioritize your spending. Look for areas where you can cut costs without compromising on essentials.

• Professional Advice: Consider consulting with a Certified Financial Planner who can help you develop a comprehensive financial plan tailored to your specific circumstances and goals. They can provide valuable guidance on investment strategies, tax planning, and retirement planning.

In conclusion, while losing your job is undoubtedly challenging, with careful planning and prudent financial management, you can navigate this period of transition successfully. By leveraging your existing assets and making strategic investment decisions, you can work towards achieving your children's education goals and securing a comfortable retirement for yourself. Stay focused, stay positive, and remember that you're not alone in this journey.

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Ramalingam Kalirajan  |7101 Answers  |Ask -

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

Asked by Anonymous - Jul 13, 2024Hindi
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I am 35 years old, living in Noida earns Rs 1 Lakh per month. I have a home loan of 45L with an emi of Rs 37k per month. Apart from this I hold MF investments in equity amounts to 56L, ppf investments worth 15L. In addition to this I have an emergency fund of Rs 6L invested in fixed deposit and 50gm SGB. My current SIP in equity is 30k per month and monthly expenses are around 30-35k per month. Now my question is should I break my MF and ppf investments to pay off my home loan of should I take the benefit of compounding and let it grow. Moreover my future goals is to accumulate 50L for my kids education in next 15 years and plan for retirement with a corpus of 6Cr. In terms of insurance I have a term insurance of Rs 2 Cr and health insurance of Rs 25L.
Ans: Evaluating Your Financial Strategy
Current Financial Situation
Monthly Income: Rs 1 Lakh
Home Loan: Rs 45 Lakh with an EMI of Rs 37,000
Mutual Fund Investments: Rs 56 Lakh
PPF Investments: Rs 15 Lakh
Emergency Fund: Rs 6 Lakh in FD and 50 gm SGB
Monthly SIP in Equity: Rs 30,000
Monthly Expenses: Rs 30,000 - 35,000
Insurance: Term Insurance of Rs 2 Crore, Health Insurance of Rs 25 Lakh
Assessing the Home Loan
Current EMI: Rs 37,000, which is 37% of your monthly income.
Interest Rates: Home loan interest rates are usually lower compared to equity returns.
Recommendation: If possible, continue with your SIPs and emergency fund while managing the EMI.
Impact of Breaking Investments
Mutual Funds: Breaking these could impact your long-term wealth accumulation due to the loss of compounding benefits.
PPF: This is a long-term, low-risk investment. Withdrawing it might not be ideal.
Recommendation: Avoid breaking investments unless it's crucial for financial stability.
Future Goals and Planning
Children’s Education: Targeting Rs 50 Lakh in 15 years.
Retirement Corpus: Aiming for Rs 6 Crore.
Investment Strategy for Education:

Continue investing in equity mutual funds and SIPs.
Consider increasing SIP amounts as income grows or expenses reduce.
Investment Strategy for Retirement:

Regular investments in mutual funds with a diversified portfolio.
Include equity for growth and debt for stability.
Emergency Fund and Liquidity
Current Emergency Fund: Rs 6 Lakh is a good start.
Recommendation: Maintain this fund to cover unexpected expenses. Consider increasing it as your income grows.
Insurance Coverage
Term Insurance: Adequate coverage with Rs 2 Crore.
Health Insurance: Rs 25 Lakh coverage is good, but ensure it meets all family needs.
Financial Strategy Moving Forward
Maintain Investments: Continue with your mutual funds and SIPs to benefit from compounding.
Increase SIPs: As your financial situation improves, increase SIPs for better accumulation.
Review Regularly: Regularly assess and adjust your investment and financial strategies with a certified financial planner.
Final Insights
Balancing between paying off the home loan and growing your investments is crucial. Avoid breaking your investments unless absolutely necessary. Focus on maintaining and increasing your SIPs and keep a robust emergency fund. Regularly review your financial goals and strategies to stay on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Insurance, Stocks, MF, PF Expert - Answered on Nov 19, 2024

Asked by Anonymous - Nov 19, 2024Hindi
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I am 42 years old working as a Senior Manager with a public sector company. I have already completed 20 years of service and planning to take VRS after 6 years. I have a son who is 11 years of age and wife who is a homemaker. My net monthly income is around Rs 3 lacs . I have one home loan of Rs 140 lacs and car loan of Rs 10 lacs availed recently for 6 years. My monthly expenses are total Rs 154000/- ( Rs 133000 EMI and Rs 60000 household and education expenses). I am presently investing SIP of Rs 1.00 lac per month. My present portfolio is Rs 83 lacs in MF and Rs 50 lacs in Provident fund of employer. I have two house property and one of them is debt free. My wife have jewelry of around Rs 25 lacs. After VRS, I would receive monthly pension of around Rs 85k which would increase every year by around 5% due to dearness relief and would be sufficient to cover my monthly expenses. After 6 years I would receive around Rs 150 lacs as terminal benefit after retirement. My MF corpus would grow to around 250 lacs (assuming growth of 12% as all MF are in equity-based funds). The car loan would be closed by then and home loan outstanding would be around 120 lacs. I am planning to utilize total corpus of Rs 400 lacs in following manner: Fixed Deposit: Rs 80 lacs ( Rs 40 lacs for education of kid and Rs 40 lacs for emergency needs) Pre payment of Rs 40 lacs towards home loan Invest Rs 150 lacs in debt and hybrid MF and avail 6% yearly STP for repayment of home loan o/s Rs 80 lacs ( as EMI would reduce to around Rs 69k). I want to continue home loan to avail interest and 80C rebate. Invest Rs 20 lacs in renovation of another existing old home. Keep Rs 100 lacs invested in equity based mutual funds Saving Account: Rs 10 lacs for recurring and emergency fund I have one term insurance of Rs 3 cr and health insurance of Rs 20 lacs for my family. I want to know whether with this planning I would be able to retire comfortably. Thanking you in advance.
Ans: Hello;

You have mentioned STP but I believe it is SWP(6%) from a debt hybrid MF.

Conservative hybrid debt fund returns generally are in 8-9% range and if you do 6% SWP, your corpus will not be inflation proof and prone to significant decrease during negative or flat returns from funds. Pure equity funds should not be considered for SWP in retirement due to high risks.

Therefore I strongly recommend SWP rate should not go beyond 3% at any time.

So accordingly you may have to allocate 300 L in conservative hybrid debt funds and SWP at 3% can yield monthly income of around 67.5 K (post-tax).

You may invest balance 100 L as 40 L for kid's education, 40 L for partial home loan repayment, 10 L for old house renovation and 10 L for emergency.

Carrying home loan into retirement for some income tax deduction is not a good idea but it is ultimately your choice.

You have another option of buying a joint annuity for life for yourself and your spouse with return of purchase price to your nominee (250 L).

Considering 6% annuity rate you may expect post tax monthly income of 87.5 K. You may get a better annuity rate if you check with different life insurance companies.

This gives you scope for allocating funds as, 40 L for kid's education, 40 L for home loan repayment, 20 L for old house renovation, 10 L as emergency fund and balance 40 L invested in balanced advantage and muti asset allocation funds instead of pure equity mutual funds.(Relatively lower risk).

Best wishes;
X: @mars_invest

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T S Khurana   |197 Answers  |Ask -

Tax Expert - Answered on Nov 23, 2024

Asked by Anonymous - May 11, 2024Hindi
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Can you please suggest on capital gains as per Indian taxation laws arising in the below two queries : 1) property purchased with joint ownership, me and my wife’s name in 2015 at a cost of 64,80,000, housing improvements done for the cost of 1000000 and brokerages of 200000 paid and sold the same property at 10000000 in Dec 2023? 2) 87% of the proceeds got from the deal i.e 8700000, have been reinvested to pay 25% amount in purchasing another joint ownership property in Dec 2023, 3) I have invested in another under construction property in Nov 2023 by taking housing loan, which is on me and my wife’s name worth 1.4 cr, here the primary applicant is me only while wife is just made a Co applicant in the builder buyer agreement and also on the housing loan . So what are the LTCG tax liabilities arising from the above 3 scenarios for FY 2023-2024 and FY 2024-2025. I intend to sale off the property acquired in (2) by Dec 2024 and use that proceeds to close the housing loan for the property acquired in (3), will this sale of property be inviting any tax liabilities if the complete proceeds received from the sale of the property in (2) would be utilised to close the housing loan taken in Nov 2023 for the property in (3) ? Since in FY 23-24, I would be claiming the LTCG from the sale proceeds of 1) invested in the purchase of property in 2), and I intend to sale off this property in Dec 2024, will the LTCG claim be forfeited on the property sale in (1), should I hold this property at least for further 1 year so that sale of this property in 2) will not invite STCG?
Ans: (A). Let's first talk about F/Y 2023-24 :
You jointly sold a Property during the year for Rs.76.80 lakhs (64.80+10.00+2.00), & sold the same for Rs.100.00 lakhs.
You have jointly also purchased Property No.3 (I suppose it is Residential only), for Rs.140.00 lakhs.
You should avail exemption u/s-54 & file your ITR accordingly. Please disclose all details about sale & purchase in your ITR.
02. Now coming to the F/Y 2024-25 :
You intend to Sell Property No.2, which was acquired in 2023-24. Any Gain on Sale of it would be Short Term capital Gains & taxed accordingly.
Alternatively, you may hold this sale of property no.2 (for 2 years from its purchase) & avoid STCG
You are free to utilize the sale proceeds in a way you like, including paying off your housing Loan.
Please note to avail exemption u/s 54 only from investment in property no.3 & not 2.
Most welcome for any further clarifications. Thanks.

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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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