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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 12, 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
Nazeer Question by Nazeer on Jul 02, 2024Hindi
Money

Dear Sir, I am an NRI, 40 year old, have 2 daughters (7 &3 years old). I have invested all in real estate till date i.e. 1.5 cr. From now onwards I would like to start monthly SIP with an amount of INR 1 lakh. Please advice best mutual funds or category of funds to start with. Thanks.

Ans: It's commendable that you are thinking of diversifying your investments and starting SIPs. Investing in mutual funds can be a prudent choice, especially for long-term goals like your daughters' education and your retirement. Let’s explore the best categories of mutual funds for your SIPs.

Understanding Mutual Funds
Mutual funds pool money from various investors to invest in securities like stocks, bonds, and other assets. They offer diversification, professional management, and liquidity, making them a popular investment choice.

Importance of Diversification
Investing solely in real estate, as you have done so far, has its benefits but also carries risks, including liquidity issues and market fluctuations. Diversifying into mutual funds will help spread your risk and potentially increase your returns.

Categories of Mutual Funds
Equity Funds
Equity funds invest in stocks and have the potential for high returns. They are ideal for long-term goals due to their ability to outperform other asset classes over time. Here are some types of equity funds:

Large Cap Funds: These funds invest in large, well-established companies. They are relatively stable and less volatile.

Mid Cap Funds: These funds invest in medium-sized companies. They have higher growth potential but are more volatile than large-cap funds.

Small Cap Funds: These funds invest in smaller companies. They can offer high returns but come with significant risk and volatility.

Flexi Cap Funds: These funds invest across companies of different sizes and sectors, offering diversification and flexibility.

Sector Funds: These funds focus on specific sectors like technology, healthcare, or finance. They carry higher risk due to lack of diversification across sectors.

Debt Funds
Debt funds invest in fixed income instruments like bonds and treasury bills. They provide regular income with lower risk compared to equity funds. Suitable for short to medium-term goals, they are less volatile and offer steady returns.

Hybrid Funds
Hybrid funds invest in a mix of equity and debt instruments, balancing risk and reward. They are suitable for investors looking for moderate risk and balanced returns.

Balanced Advantage Funds: These funds dynamically manage their allocation between equity and debt based on market conditions.

Equity Savings Funds: These funds invest in equity, debt, and arbitrage opportunities, offering a mix of growth and stability.

Active vs. Index Funds
While index funds replicate market indices and are passively managed, actively managed funds seek to outperform the market through research and strategy. Active funds have the potential for higher returns due to the expertise of fund managers.

Direct vs. Regular Funds
Direct funds have lower expense ratios as they don't involve intermediaries. However, regular funds, recommended through a Certified Financial Planner (CFP), offer valuable guidance and advice. The expertise of a CFP can help you make informed decisions and achieve your financial goals effectively.

SIP Strategy for Your Goals
Starting a SIP of Rs. 1 lakh monthly is a wise decision. Here's a diversified approach across various fund categories:

For Long-Term Growth
Allocate a significant portion to equity funds for long-term wealth creation. Consider large-cap, mid-cap, and flexi-cap funds. They offer growth potential and can help you build a substantial corpus over time.

For Stability and Regular Income
Invest a portion in debt funds for stability and regular income. They can act as a cushion against market volatility and provide liquidity for short-term needs.

For Balanced Approach
Hybrid funds can offer a balanced mix of equity and debt. They are suitable for moderate risk tolerance and aim for steady growth.

Suggested Allocation
Equity Funds: 60% allocation can be divided into large cap, mid cap, and flexi cap funds. This will ensure growth potential while managing risk.

Debt Funds: 30% allocation to debt funds can provide stability and regular income. They are less volatile and offer steady returns.

Hybrid Funds: 10% allocation to hybrid funds can balance your portfolio, offering growth with controlled risk.

Monitoring and Rebalancing
Regularly monitor your investments to ensure they align with your goals. Rebalance your portfolio periodically to maintain the desired asset allocation. A CFP can help you with this process, ensuring your investments stay on track.

Benefits of SIP
Systematic Investment Plans (SIPs) offer several advantages:

Rupee Cost Averaging: SIPs spread your investment over time, buying more units when prices are low and fewer when prices are high. This averages out the cost and reduces the impact of market volatility.

Discipline and Convenience: SIPs promote disciplined investing by committing a fixed amount regularly. They are convenient and automated, making it easier to stick to your investment plan.

Compounding Effect: Regular investments benefit from compounding, where returns generate further returns. The longer you stay invested, the more significant the compounding effect.

Empathy and Understanding
I understand the importance of securing your daughters' future and ensuring a comfortable retirement. Your decision to diversify and invest in mutual funds reflects your foresight and commitment to financial planning. It’s a significant step towards achieving your financial goals.

Final Insights
Investing in mutual funds through SIPs is a smart way to diversify and grow your wealth. By choosing a mix of equity, debt, and hybrid funds, you can balance risk and reward. Regular monitoring and rebalancing will keep your investments aligned with your goals. Working with a Certified Financial Planner can provide the expertise and guidance needed to navigate your financial journey.

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

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Mutual Funds, Financial Planning Expert - Answered on May 11, 2024

Asked by Anonymous - Apr 22, 2024Hindi
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Hello Sir, I'm Saumya getting 37k in hand per month & I'm 26 years old. I want to start SIP with an amount of RS.5000, for this purpose on which mutual fund I should invest and how can I diversify my portfolio.
Ans: Hello Saumya, it's great to hear about your interest in starting a SIP to build your wealth at such a young age. With your monthly income of 37k, investing 5000 Rs in SIP is a prudent step towards your financial goals. Let's explore your options for mutual funds and portfolio diversification.

For your SIP investment, considering your age and risk appetite, you may opt for a diversified equity mutual fund. These funds invest in a mix of large-cap, mid-cap, and small-cap stocks, providing growth potential over the long term. Since you're starting with a moderate investment amount, you can consider starting with a single diversified equity fund initially.

Now, regarding diversification, it's essential to spread your investments across different asset classes to reduce risk. Alongside your equity SIP, you may also consider allocating a portion of your savings to debt mutual funds or fixed deposits. Debt funds offer stability and regular income, balancing the volatility of equity investments.

Moreover, considering your long-term financial goals, it's wise to diversify geographically as well. Investing in international funds or global ETFs can provide exposure to foreign markets, further diversifying your portfolio and reducing dependency on the domestic market.

As you progress and your income increases, you can gradually increase your SIP amount and diversify into more mutual funds across various categories. Regularly reviewing your portfolio's performance and rebalancing it based on your financial goals and market conditions is crucial for long-term success.

Remember, investing is a journey, and it's essential to stay committed and patient. Consulting with a Certified Financial Planner can provide personalized advice tailored to your financial situation and goals, helping you make informed investment decisions.

Starting early and being consistent with your investments will play a significant role in achieving your financial aspirations. Best of luck on your investment journey!

Best Regards,

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Chief Financial Planner,

www.holisticinvestment.in

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Asked by Anonymous - Nov 22, 2024Hindi
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A bit long story I'm 21 student preparing for medical competative entrance exam for past 3 years (21-24).2 year ago this phase I was in a long distance relationship for 4 months with a girl I met in my class .But it didn't last long due to the problems created due to distance as she couldn't understand myself and I couldn't understand herself.so there was a misunderstanding and I couldn't hold on as I was in heavy pressure by exams and financial problems.so I couldn't handle and I felt like too early and broke up with her by losing my mind.she was completely disappointed as I didn't speak to her for more than an year due to one more year preparation.i missed her very much but I didnt tell her.I missed govt seat in border mark and the same year she got into a relationship with another guy in her class.i don't blame her. But I feel like my entire life is shattered and I couldn't move on from that girl till now.I couldn't concentrate on my career too.im kind of person who is always confident in all aspects but I have totally lost my mind .I can see that in an danger situation as age is running and family pressure, everyone of my classmates are far ahead of me I couldn't withstand this situation and couldn't make proper decision in any aspect. Mam please help me out.
Ans: Dear Anonymous,
I understand your concerns. The first step is to focus on moving on; she has, and you should too. Prioritize your career, your family, and your future. Next, what has happened to your career progress has already happened. It's unfortunate, but there's no way to change that. But give yourself a second chance; work harder and achieve greater things than you even imagined before. Trust me, you are not the only person who is standing in a situation like this. Many have, and many more will. But the ones who have passed this time will give you the same advice that I did.

Best Wishes.

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Milind

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Insurance, Stocks, MF, PF Expert - Answered on Nov 22, 2024

Asked by Anonymous - Nov 13, 2024Hindi
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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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