Home > Money > Question
Need Expert Advice?Our Gurus Can Help

Worried 53-Year-Old Retiree Seeks Financial Planning Advice on Equity Growth, Education, and Retirement

Ramalingam

Ramalingam Kalirajan  |7279 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Dec 18, 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
Asked by Anonymous - Dec 17, 2024Hindi
Money

Question on Financial Planning: I am 53 years old and took retirement in 2023, a year ago. I have a corpus of approximately ?20 crores allocated as follows: ?6.5 crores in stocks ?5 crores in mutual funds ?5 crores in debt instruments ?2 crores in gold ?1.8 crores in a savings bank account** (to cover the next 12 years of household expenses). My monthly expenses are approximately ?1 lakh, and I receive: ?70,000 per month as house rent (?8.4 lakhs annually) ?10 lakhs annually as dividends from stocks. I have allocated ?5 crores in debt instruments to fund the higher education of my two sons (expenses will arise after 1 year and after 4 years). My goal is to grow my equity portfolio over the next 12 years since I do not depend on it for my current monthly expenses. Additionally: I have adequate health insurance. I own properties worth ?7.5 crores. I have no liabilities. My query: Is my financial planning on track, or do you see any areas for improvement or correction? I am open to suggestions for optimizing my investments, especially considering my goals of equity growth, funding my sons' education, and maintaining a comfortable retirement.

Ans: Your financial planning reflects strong foresight and effective resource allocation. With a corpus of Rs. 20 crores and no liabilities, your position is financially stable. Let us evaluate your financial setup from a 360-degree perspective and suggest areas for optimisation.

Assessment of Current Allocations
Equity Portfolio: Stocks (Rs. 6.5 Crores)
Your equity allocation reflects a growth-oriented approach.
A diversified stock portfolio is ideal for long-term growth.
Ensure the portfolio is well-balanced across sectors and market capitalisations.
Mutual Funds (Rs. 5 Crores)
Mutual funds provide diversification and professional management.
Review the fund categories to maintain a mix of large-cap, mid-cap, and flexi-cap funds.
Regular performance reviews are essential to optimise returns.
Debt Instruments (Rs. 5 Crores)
Allocating Rs. 5 crores for your sons’ education is prudent.
Ensure the debt investments are in low-risk instruments like bonds or fixed deposits.
Laddering maturity dates aligns well with your sons’ educational timelines.
Gold (Rs. 2 Crores)
Gold provides stability during market volatility.
Keep it as a hedge against inflation but avoid further allocation to this asset.
Savings Account (Rs. 1.8 Crores)
Holding Rs. 1.8 crores for 12 years of expenses is a cautious approach.
Move a part of this amount into liquid funds for better returns with liquidity.
Income and Monthly Expenses
Rental Income (Rs. 8.4 Lakhs Annually)
Rental income covers 70% of your monthly expenses.
Ensure the rental property is well-maintained to sustain consistent returns.
Dividends (Rs. 10 Lakhs Annually)
Dividend income provides an additional safety net.
Reinvest surplus dividends into mutual funds for compounded growth.
Monthly Expenses (Rs. 1 Lakh)
Your monthly expenses are comfortably managed.
Maintain a contingency fund of at least Rs. 20-25 lakhs for unexpected costs.
Recommendations for Optimising Equity Portfolio
Focus on Quality Stocks

Prioritise stocks of companies with strong fundamentals and consistent earnings.
Avoid overexposure to any single sector or company.
Systematic Equity Investments

Add to your equity portfolio gradually through Systematic Transfer Plans (STPs).
This reduces market timing risks.
Regular Portfolio Review

Review the equity portfolio annually.
Exit underperforming stocks and reallocate to high-growth opportunities.
Enhancing Mutual Fund Returns
Diversify Fund Selection

Include funds with different strategies to maximise returns.
A Certified Financial Planner can help identify high-performing funds.
Avoid Direct Mutual Funds

Regular funds offer advisory support for timely rebalancing.
This helps navigate market volatility effectively.
Utilise Tax-Efficient Withdrawals

Plan withdrawals systematically to reduce tax liability on capital gains.
Debt Instruments: Securing Educational Goals
Low-Risk Instruments for Predictable Returns

Allocate funds to secure options like government bonds, fixed deposits, or debt mutual funds.
Match the maturity timelines with educational milestones.
Avoid Premature Withdrawals

Breaking long-term debt investments can reduce returns.
Use other funds for emergencies to protect this allocation.
Optimising Gold Allocation
Retain as a Hedge

Gold should form no more than 10% of your portfolio.
Avoid further investments unless there are specific requirements.
Leverage Gold for Liquidity

Gold-backed loans can provide temporary liquidity if needed.
Savings Account Allocation
Move Funds to Liquid Investments

Savings account returns are suboptimal for such a large balance.
Move funds into liquid funds for higher returns and liquidity.
Emergency Fund Segregation

Retain Rs. 50 lakhs for immediate emergencies.
Invest the rest in short-term debt instruments or liquid funds.
Maintaining a Comfortable Retirement
Healthcare Planning

Ensure health insurance policies are adequate for critical illnesses.
Maintain a separate corpus for medical emergencies.
Contingency Fund Maintenance

Keep Rs. 20-25 lakhs readily accessible for unforeseen expenses.
Review this fund periodically to adjust for inflation.
Estate Planning

Draft a will to avoid disputes and ensure smooth wealth transfer.
Assign nominees for all investments and properties.
Taxation Considerations
Equity Taxation

Long-term capital gains (LTCG) above Rs. 1.25 lakhs are taxed at 12.5%.
Short-term capital gains (STCG) are taxed at 20%.
Debt Taxation

Debt instruments are taxed as per your income tax slab.
Choose tax-efficient options like tax-free bonds if needed.
Dividend Income

Dividends are taxed at your marginal income tax rate.
Reinvest dividends for tax-efficient growth.
Final Insights
Your financial plan is well-structured and aligns with your goals. However, optimising your equity and mutual fund allocations can enhance growth potential. Move idle funds from your savings account into liquid investments for better returns. Review and rebalance your portfolio periodically with the help of a Certified Financial Planner. Your current strategy provides a secure foundation for funding education, retirement, and wealth growth.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

You may like to see similar questions and answers below

Ramalingam

Ramalingam Kalirajan  |7279 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 17, 2024

Asked by Anonymous - May 07, 2024Hindi
Listen
Money
Hi, My age is 37 years and need suggestion if my investment strategy is correct .I dont have specific plans for withdrawal,However looking to save for my kids higher education and comfortable retirement. Currently my monthly investment is distributed as below: i) 130000 SIP in Mutual Fund ( Large Cap 50% : a)DSP equal weight Index fund b)Canara Rob Bluechip C) SBI Contra Midcap 25%: a) Motilal mid b) Quant Mid Smallcap 15%: a) Quant Small b) Canara Rob small Misc. fund 10%: a) ICICI Nasdaq b) Edelweiss Gold+Silver I do step up in SIP based = salary increment I get. ii) 12700 in NPS iii) 40000 in FD instead of debt fund iv) 12000 to PPF 50000 every year in NPS for additional tax saving. Additionally I am already have mutual fund accumulation value of 60 Lakhs (XIRR 21%) and 12lakhs in direct stocks. Term life insurance of 50lakhs. Together with me ,I have one 9year old son and wife living together with my parents. I have no investment in real estate as had very bad experience in past . Staying in parental home. Everyone says one should have real estate investment which currently i dont hav. Please advice about my investment strategy for next 13 years till I reach 50 years of age.
Ans: Evaluating and Optimizing Your Investment Strategy for Long-Term Goals
Comprehensive Portfolio Review
Your diversified investment portfolio reflects a prudent approach towards achieving your financial objectives of funding your children's education and securing a comfortable retirement. Let's assess each component to ensure alignment with your goals and risk tolerance.

Mutual Fund SIPs Allocation
Your allocation to mutual fund SIPs across large-cap, mid-cap, and small-cap categories is well-diversified, aiming for growth potential while managing risk. Consider periodically reviewing fund performance and rebalancing your portfolio to maintain optimal asset allocation.

National Pension System (NPS) Contributions
Continuing NPS contributions provide tax benefits and long-term retirement savings. Evaluate the suitability of your NPS investment strategy based on your risk profile and retirement goals. Consider adjusting your asset allocation within the NPS to align with your overall portfolio.

Fixed Deposits vs. Debt Funds
Reassess the rationale for allocating funds to Fixed Deposits instead of debt mutual funds. Debt funds offer potentially higher returns and tax efficiency compared to FDs. Evaluate your risk appetite and liquidity needs to determine the optimal allocation between fixed income instruments.

Public Provident Fund (PPF) Contributions
PPF contributions provide tax benefits and long-term wealth accumulation. Evaluate whether the current allocation aligns with your overall asset allocation strategy and consider maximizing contributions to leverage the tax advantages and potential compounding benefits.

Additional NPS Contributions for Tax Saving
Contributing 50,000 annually to NPS for tax savings is beneficial, but ensure it aligns with your retirement goals and risk profile. Evaluate the impact of additional NPS contributions on your overall portfolio diversification and consider alternative tax-saving options if necessary.

Risk Management and Insurance
Your term life insurance coverage provides financial protection for your family. Consider reviewing your insurance needs periodically to ensure adequate coverage based on your evolving financial situation and responsibilities.

Real Estate Investment Consideration
While real estate can be a valuable asset class, your past negative experience warrants caution. Evaluate alternative investment avenues that offer diversification, liquidity, and potential returns aligned with your risk tolerance and long-term goals.

Seeking Professional Guidance
Consider consulting with a Certified Financial Planner (CFP) to conduct a comprehensive review of your investment strategy. A CFP can provide personalized recommendations, optimize your portfolio, and align your investments with your financial objectives and risk tolerance.

Conclusion
By regularly reviewing and optimizing your investment strategy, you can enhance the probability of achieving your financial goals over the next 13 years. Stay disciplined in your savings and investment approach, and seek professional guidance to navigate market dynamics and optimize portfolio performance.

Best Regards,

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

..Read more

Ramalingam

Ramalingam Kalirajan  |7279 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 14, 2024

Asked by Anonymous - Jun 14, 2024Hindi
Money
Sir, I am 32 years old. I have retired to stay with my parents with a corpus of 4cr, Out of the income generated from my corpus which i have distributed among my elderly parents mainly in FDs I am able to do a SIP of 80K monthly apart from depositing 1.5 L in PPF and 50k in Nps. I also have about 15 L exposure in shares and 60 L in Mutual Funds and 20 L in savings account for emergency apart from having Mediclaim for the family. My present family expenditure is 75 k per month I plan to remain single and have no loans. Want to know whether my financial planing will be able to see me through my life.
Ans: Understanding Your Current Financial Situation
Firstly, congratulations on your disciplined approach to financial planning. With a corpus of Rs 4 crore and strategic investments, you’ve established a strong foundation. Let’s take a closer look at your financial plan and its sustainability over your lifetime.

Corpus Allocation and Safety Net
Your corpus of Rs 4 crore is a significant amount. It's wisely distributed, offering both security and growth potential. Fixed Deposits (FDs) provide safety, though they often yield lower returns compared to other investment options. Your distribution of funds, especially the Rs 20 lakh kept as an emergency fund, shows foresight. Having Rs 20 lakh in a savings account ensures liquidity and readiness for any unforeseen expenses.

Monthly SIP and Investments in PPF and NPS
You are contributing Rs 80,000 monthly to Systematic Investment Plans (SIPs), Rs 1.5 lakh annually to Public Provident Fund (PPF), and Rs 50,000 annually to the National Pension System (NPS). These are commendable strategies. SIPs, especially in equity mutual funds, can provide substantial long-term growth due to compounding and rupee cost averaging. PPF and NPS offer tax benefits and a secure retirement corpus.

Equity and Mutual Fund Exposure
Your Rs 15 lakh exposure in shares and Rs 60 lakh in mutual funds indicate a balanced approach to risk and return. While direct equity investment can be rewarding, it’s also risky and requires diligent monitoring. Your mutual fund investments, managed by professional fund managers, offer diversified exposure and reduce individual stock risk.

Family Expenditure and Lifestyle Choices
With a monthly family expenditure of Rs 75,000, your expenses seem well-managed within your means. Planning to remain single without any loans further reduces financial strain and obligations. Your mediclaim policy is a crucial safety net, covering potential health-related expenses and ensuring your corpus remains intact.

Assessing Long-term Sustainability
Now, let’s evaluate whether your current financial planning can sustain you through your lifetime. We will consider various factors such as inflation, investment returns, and life expectancy.

Inflation and Its Impact
Inflation erodes purchasing power over time. Historically, inflation in India averages around 6-7% per year. While your current expenses are Rs 75,000 per month, they will likely increase over the years. It’s essential to ensure that your investments grow at a rate higher than inflation to maintain your lifestyle.

Investment Returns and Growth
Your investment strategy includes a mix of FDs, equity shares, mutual funds, PPF, and NPS. Historically, equity mutual funds in India have delivered returns between 12-15% annually, significantly outpacing inflation. PPF provides around 7-8% returns, which is close to the inflation rate, and NPS, depending on the asset allocation, can yield around 9-11%. Your FD returns, though secure, may not beat inflation, but they provide stability.

Future Income Generation
To sustain your lifestyle and grow your corpus, it's crucial to focus on investments that offer inflation-beating returns. Your SIPs in equity mutual funds will likely be the primary growth driver. Given your Rs 80,000 monthly SIP, you are investing Rs 9.6 lakh annually in mutual funds. Over the long term, this could significantly grow your corpus, assuming average returns of 12-15% from equity mutual funds.

Reassessment and Diversification
It’s important to periodically reassess your financial plan. Given your current exposure, it might be beneficial to review the performance of your shares and mutual funds annually. Diversifying your mutual fund portfolio across large-cap, mid-cap, and small-cap funds can balance risk and returns. Avoiding over-reliance on FDs and ensuring a greater portion is in high-growth potential instruments will help.

Importance of Active Management
Actively managed funds often outperform index funds in emerging markets like India due to market inefficiencies. Fund managers can make strategic decisions to capitalize on market opportunities. While index funds mirror market performance, actively managed funds strive to beat it, which can be advantageous in a dynamic market environment.

Potential Drawbacks of Direct Funds
Direct funds may seem attractive due to lower expense ratios, but they require a deeper understanding and continuous monitoring. Investing through a Certified Financial Planner (CFP) can provide professional guidance, ensuring your investments align with your goals and risk tolerance. Regular funds, despite higher fees, offer the benefit of professional management and advice, which can be invaluable.

Emergency Fund and Liquidity
Your Rs 20 lakh emergency fund is substantial and provides a solid safety net. Ensure it remains easily accessible and consider keeping it in a high-interest savings account or a liquid fund for better returns. It's crucial to maintain this fund to cover at least 6-12 months of expenses.

Health Insurance and Contingency Planning
Your mediclaim policy is essential. Regularly review it to ensure adequate coverage, especially as medical costs rise. Consider critical illness insurance if you don't already have it. It's also wise to have a will in place to ensure smooth succession of your assets.

Evaluating Future Goals and Adjustments
As you age, your risk tolerance might change. It's essential to adjust your investment strategy accordingly. Consider shifting to more conservative investments as you approach retirement age. Reviewing and rebalancing your portfolio annually can help maintain the desired risk-reward ratio.

Financial Planning Tools and Resources
Utilizing financial planning tools can provide insights into your future financial position. These tools can simulate different scenarios, helping you make informed decisions. A CFP can offer tailored advice based on your unique situation and goals.

Legacy Planning and Philanthropy
If you have philanthropic goals or wish to leave a legacy, plan accordingly. Setting up trusts or charitable foundations can ensure your wealth benefits future generations or causes you care about.

Monitoring and Adjusting Your Plan
Financial planning is not a one-time activity. Regular monitoring and adjustments are crucial. Life events, market changes, and personal goals evolve, necessitating periodic reviews. Staying proactive ensures your financial health and long-term sustainability.

Final Insights
Your current financial planning shows prudence and foresight. Maintaining a balance between growth-oriented investments and secure options like FDs provides stability and potential for wealth growth. Regularly reassessing and adjusting your plan ensures it remains aligned with your goals and market conditions. With disciplined investing, continuous learning, and professional guidance, you can confidently navigate your financial journey and secure a comfortable future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
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.

Close  

You haven't logged in yet. To ask a question, Please Log in below
Login

A verification OTP will be sent to this
Mobile Number / Email

Enter OTP
A 6 digit code has been sent to

Resend OTP in120seconds

Dear User, You have not registered yet. Please register by filling the fields below to get expert answers from our Gurus
Sign up

By signing up, you agree to our
Terms & Conditions and Privacy Policy

Already have an account?

Enter OTP
A 6 digit code has been sent to Mobile

Resend OTP in120seconds

x