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Ramalingam

Ramalingam Kalirajan  |6995 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 17, 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
Narra Question by Narra on Apr 23, 2024Hindi
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Dear Nikunj, Is it worth buying HDFC Nifty Reality Index Fund

Ans: Investing in HDFC Nifty Realty Index Fund may not be the most prudent decision for several reasons. While sectoral funds offer targeted exposure to specific industries like real estate, they come with inherent disadvantages compared to diversified funds. Additionally, index funds, including sectoral ones, have their drawbacks when compared to actively managed funds.

Disadvantages of Sectoral Funds
Concentrated Risk
Sectoral funds focus on a specific industry, such as real estate in the case of HDFC Nifty Realty Index Fund. This concentration increases the risk because the performance of the fund is closely tied to the performance of that sector. Any adverse developments in the real estate sector can significantly impact the fund's returns.

Cyclical Nature
Real estate is a cyclical industry prone to fluctuations based on economic conditions, government policies, and market sentiments. Investing solely in a real estate index fund exposes you to the cyclicality of the sector without the benefit of diversification across other industries.

Lack of Diversification
Diversification is a key principle of sound investing. Sectoral funds lack the diversification benefits offered by multi-cap or diversified equity funds, which spread investments across various sectors and companies. This diversification helps mitigate risks associated with a single sector's performance.

Disadvantages of Index Funds
Limited Flexibility
Index funds passively track a specific index, such as the Nifty Realty Index in this case. They lack the flexibility of actively managed funds to respond to changing market conditions or exploit investment opportunities. As a result, they may underperform during certain market phases.

Inability to Outperform
Since index funds aim to replicate the performance of their underlying index, they cannot outperform the market. In contrast, actively managed funds have the potential to generate alpha by selecting high-performing stocks or sectors, thereby outperforming the benchmark index.

Sectoral Risks Amplified
While index funds provide exposure to a specific sector, such as real estate, they magnify the risks associated with that sector. In the case of HDFC Nifty Realty Index Fund, any downturn in the real estate sector would directly impact the fund's performance without the cushion of diversification.

Conclusion
In summary, while HDFC Nifty Realty Index Fund provides exposure to the real estate sector, it comes with inherent risks due to its sectoral focus and passive management approach. Investing in diversified equity funds offers better risk-adjusted returns by spreading investments across multiple sectors and adopting an active management strategy. Before making any investment decision, it's advisable to consult with a Certified Financial Planner who can assess your financial goals, risk tolerance, and recommend suitable investment options tailored to your needs.

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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Ramalingam

Ramalingam Kalirajan  |6995 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 25, 2024

Asked by Anonymous - Jun 24, 2024Hindi
Money
Is it advisable to invest in hdfc MF basket of four funds total investment 10.5L for a monthly income of 20k?
Ans: It’s fantastic that you are considering a strategic investment to secure a monthly income. Investing Rs. 10.5 lakh in a mutual fund basket aiming for a Rs. 20,000 monthly income requires careful evaluation. Let’s analyze the feasibility and implications of this strategy.

Understanding Your Financial Goals
First, let's identify your financial goals:

Generating Regular Income: Your primary goal is to generate a monthly income of Rs. 20,000.

Capital Preservation: Ensuring your principal amount of Rs. 10.5 lakh remains safe is crucial.

Growth Potential: You might also want some growth in your investment over time.

The Nature of Mutual Funds
Equity Funds
Equity funds primarily invest in stocks. They have high growth potential but come with significant risk and volatility. These are generally not ideal for generating stable monthly income due to market fluctuations.

Debt Funds
Debt funds invest in fixed-income securities like bonds. They provide more stable returns and are less volatile than equity funds. These are more suited for regular income.

Hybrid Funds
Hybrid funds invest in both equity and debt instruments, offering a balance of growth and stability. They might provide moderate returns and are less volatile than pure equity funds.

Evaluating HDFC MF Basket
Income Generation Potential
To achieve a monthly income of Rs. 20,000, your investments need to yield approximately 2.29% monthly, or about 27.5% annually. This is a high target and usually not feasible with regular mutual funds, especially with a focus on stability and low risk.

Risk Assessment
Equity Funds: High risk and high return. They are not suited for generating stable monthly income due to market volatility.

Debt Funds: Lower risk and lower return. They provide more predictable returns but typically do not yield as high as required for your income goal.

Hybrid Funds: Moderate risk and moderate return. They offer a balance but still may not achieve the required monthly income consistently.

Alternative Strategies for Monthly Income
Systematic Withdrawal Plan (SWP)
Instead of relying solely on fund returns, you can use a Systematic Withdrawal Plan (SWP). SWP allows you to withdraw a fixed amount regularly from your mutual fund investments. This can provide the desired monthly income while allowing your investments to grow over time.

Monthly Income Plans (MIPs)
Monthly Income Plans (MIPs) are mutual funds that aim to provide regular income through a mix of equity and debt investments. They might not guarantee Rs. 20,000 per month but can provide relatively stable returns.

Practical Steps for Implementation
Step 1: Asset Allocation
Equity Funds: Allocate a smaller portion (20-30%) to equity funds for growth.

Debt Funds: Allocate a significant portion (60-70%) to debt funds for stability.

Hybrid Funds: Consider hybrid funds (10-20%) for balanced risk and return.

Step 2: Setting Up SWP
Select Suitable Funds: Choose funds with a good track record and consistent performance.

Determine Withdrawal Amount: Set up an SWP for Rs. 20,000 monthly. Monitor the fund's performance regularly to ensure sustainability.

Step 3: Regular Monitoring
Performance Review: Regularly review your investments' performance and adjust the allocation if needed.

Rebalancing: Rebalance your portfolio periodically to maintain the desired asset allocation.

Benefits of Diversified Investment
Stability and Growth
Diversifying your investment across different types of funds can provide both stability and growth. This reduces the risk of loss from any single investment.

Flexibility
With a diversified portfolio and an SWP, you have the flexibility to adjust withdrawals based on market conditions and personal financial needs.

Considerations and Challenges
Market Risks
While debt funds and hybrid funds are relatively stable, they still carry market risks. Interest rate changes and economic conditions can impact returns.

Inflation
Your investment strategy should account for inflation. Regularly review and adjust your withdrawal amount to maintain your purchasing power over time.

Professional Guidance
Consulting a Certified Financial Planner (CFP) can help tailor your investment strategy to your specific needs and risk tolerance. They can provide personalized advice and help you navigate complex financial decisions.

Final Insights
Evaluate Goals: Align your investment strategy with your goal of generating Rs. 20,000 monthly income.

Diversify Investments: Use a mix of equity, debt, and hybrid funds for a balanced portfolio.

Utilize SWP: Implement a Systematic Withdrawal Plan to ensure regular income while allowing your investments to grow.

Monitor and Adjust: Regularly review and adjust your investments to stay on track with your financial goals.

Seek Professional Advice: Consulting a Certified Financial Planner can provide valuable insights and personalized guidance.

Investing with a clear strategy and regular monitoring can help you achieve your financial goals while managing risks effectively. Stay informed, stay flexible, and make decisions that best suit your financial well-being.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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I am engineer with 16 years of IT experience and now a break of 11 yrs. But in 11 yrs I had been taking Quantitative aptitude lectures as a visiting faculty in various engineering and MBA colleges and also done Mutual fund certification. I haven't been siting but doing many things professionally in last 11 yrs(In my subject of interest as Maths, Teaching, Finance, Accounting, Wealth Management). I was thinking of doing ESG certification. What kind of role I would get if i am CFA ESG certified.I am looking for Professionally and intellectually engaging role where I can contribute to Society. Not a very NGO type( I have tried working with few NGO's)
Ans: I won't recommend you to go for ESG certification unless you are having a background of Env. Engg and Environmental Impact Assessment. The certificate course of ESG is costly also. I would request you to open your own academy ( if off line not possible then online) and go for only one subject. Let me know your age.Focus only on one subject. You have explored many areas and now you are perplexed. Here the questions are assigned to me through rediffmail. So second time whether your question will come to me or not is not known to anyone of us. Due to the policy I can’t share my email ID and Phone Number. But I would request you to follow me in LINKEDIN and send request so that I can accept you, then through LINKEDIN I can counsel you in the future multiple times. Through LINKEDIN I will be readily and easily accessible. I have counselled and changed thousands of lives. As long as I am there I won’t allow you to be defeated. Mind that always I am there with you like an invisible shadow to show you the right career path.

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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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