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Ramalingam Kalirajan |10924 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jan 20, 2025

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 - Jan 04, 2025Hindi

Hi Ramalingam sir, i have started SIP of 50k each since January 2024 in Kotak emerging equity fund (growth), Nippon small cap fund (growth) and Nippon large cap fund (growth). I wish to continue this for 5 years and i would be retiring at the end of 2028. What would be likely of this investment at the end of 2028? Please let me know if it would be worth keeping the money and don't withdraw .. me expenses post retirement could be covered by PF & PPF. Is Parag Parikh Flexi cap fund good for investing for 5 years?

Ans: Your SIPs in Kotak Emerging Equity Fund (Growth), Nippon Small Cap Fund (Growth), and Nippon Large Cap Fund (Growth) reflect a balanced approach. Investing Rs 50,000 each per month demonstrates a strong commitment towards building wealth. Here is an analysis of these funds and their potential outcomes:

Kotak Emerging Equity Fund focuses on mid-cap companies. It can offer high returns but carries moderate risk.

Nippon Small Cap Fund invests in smaller companies. These funds usually deliver higher returns over a long period, but they are volatile.

Nippon Large Cap Fund is relatively safer. It invests in large, established companies and provides stability to your portfolio.

If you continue this investment for five years until 2028, the portfolio could grow significantly. Equity investments typically outperform other assets in the long run. However, market volatility is natural, and patience is key.

Growth Estimation for 2024–2028
Assuming a moderate annual return of 12–15% (historical average for equity mutual funds), your portfolio value at the end of five years could range between Rs 1.6 crore to Rs 1.8 crore.

Small Cap and Mid Cap Funds: These can drive higher growth in a bull market. However, they may be volatile during downturns.

Large Cap Funds: These add stability and provide consistent returns, even in uncertain markets.

Continuing the SIPs will help you benefit from rupee cost averaging, which smoothens market volatility. This disciplined approach ensures long-term wealth creation.

Should You Withdraw After Five Years?
Based on your plan to retire in 2028, it is worth keeping the investments and not withdrawing unless absolutely necessary. Here’s why:

Compounding Effect: Equity investments grow exponentially with time. Redeeming early interrupts compounding.

Post-Retirement Use: Your PF and PPF will cover expenses, so you won’t need to withdraw. Allow the portfolio to grow for a few more years.

Volatility Consideration: Markets may fluctuate in the short term. Holding the investment longer reduces this risk.

Is Parag Parikh Flexi Cap Fund Suitable for Five Years?
Parag Parikh Flexi Cap Fund is a popular option among investors, but let’s assess its suitability for your five-year horizon:

Positives: This fund invests across large-cap, mid-cap, and small-cap stocks, offering diversification. It has a history of stable returns and lower risk compared to pure small-cap or mid-cap funds.

Risks for 5 Years: While flexi cap funds are less volatile, five years is still considered a medium-term horizon. Equity investments, including flexi cap funds, perform better with longer horizons (7–10 years).

If your goal is strictly five years, you may consider a balanced advantage fund or a mix of equity and debt funds for lower risk.

Recommendations for Your Investments
Continue Existing SIPs: Keep investing Rs 1.5 lakh monthly in your current funds. They are aligned with your goals.

Avoid Parag Parikh Fund for 5 Years: While it is a good fund, a 5-year horizon is too short for aggressive equity investments. Stick to your current portfolio.

Avoid Direct Plans: Direct funds require expertise. Stick to regular funds and consult a Certified Financial Planner (CFP) for guidance.

Plan Withdrawal Strategically: As retirement approaches, shift some funds to debt instruments for stability. This will reduce the impact of equity market volatility.

Tax Considerations for Equity Mutual Funds
Keep in mind the new mutual fund capital gains taxation rules:

LTCG Tax: Gains above Rs 1.25 lakh are taxed at 12.5%.
STCG Tax: Gains are taxed at 20% for withdrawals before one year.
Plan your withdrawals accordingly to minimise tax liability.

Post-Retirement Planning
With PF and PPF covering your expenses, your equity portfolio can remain untouched. Focus on the following:

Emergency Fund: Maintain 12–18 months of expenses in a liquid fund or fixed deposit.

Health Insurance: Ensure sufficient coverage to handle medical emergencies.

Debt Allocation: Gradually increase debt allocation post-retirement to safeguard your capital.

Key Suggestions for a 360-Degree Approach
Diversify: Your portfolio is equity-heavy. Add some debt mutual funds or hybrid funds for balance.

Review Regularly: Monitor your portfolio performance every 6 months with a CFP.

Avoid Real Estate: Real estate may lock funds and reduce liquidity. Stick to mutual funds for flexibility.

Stay Patient: Short-term volatility is natural. Stay invested for long-term wealth creation.

Retirement Corpus: Let your equity investments grow after retirement. Use them only for big expenses.

Final Insights
You have a well-structured financial plan and a strong saving habit. Your SIPs, coupled with PF and PPF, provide a solid base for a secure retirement. Stay disciplined and avoid unnecessary withdrawals. Consult a CFP to fine-tune your strategy and make informed decisions.

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.