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Senior Citizen Asks: Capital Gains Tax on Real Estate Sale - Indexation or LTCG?

Ramalingam

Ramalingam Kalirajan  |7903 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 04, 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 - Oct 24, 2024Hindi
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Dear Sir, I am a senior citizen and wish you to guide me on which strategy to follow on calculating Capital Gains (i.e. with or without indexation) on real estate sale and decide whether it is better to pay LTCG or avoid it by making investment into suitable govt. infra bonds etc.. I am not keen on reinvesting into Real estate as I need to keep money in relatively liquid form. I purchased residential property in 1992-93 for Rs 4 Lakhs , payment was done in installments : Sale agreement done in Sep'92 and final payment done and possession taken in Sep'93. Over the years I have spent about Rs 80000 on upkeep of flat. I sold the property in FY 2024-25 and received payment in installments: Sale agreement done in April 2024 for sale value of Rs 65 Lakhs and sale was concluded with receiving final installment by 10 Jul 2024. I need to know my LTCG liability or what could be an alternate option to invest the money elsewhere to save on tax or for better returns. Thank you in advance.

Ans: Calculating the capital gains tax on your property sale requires careful consideration of various factors, such as the use of indexation. You acquired the property in 1992-93, and it has appreciated in value, so calculating your indexed cost of acquisition will help you determine the tax liability accurately.

Key Points for Calculating LTCG Tax:

Indexed Cost of Acquisition: Use indexation to adjust the purchase price to reflect inflation. This can significantly reduce your taxable gains. With indexation, you’ll apply the Cost Inflation Index (CII) from the purchase year (1992-93) to the sale year (2024-25). This will be based on the CII values for the years in question.

Indexed Cost of Improvements: The Rs 80,000 spent on upkeep can also be indexed. Indexing both acquisition and improvement costs helps lower your LTCG.

Capital Gains Tax Rate: The LTCG on real estate is taxed at 20%. However, understanding your indexed gain will be key in calculating your exact tax liability.

Exploring Options to Save on LTCG Tax

Since you prefer liquidity and are not interested in reinvesting in real estate, there are other avenues to save tax while keeping your funds accessible.

Investment in Government-Approved Infrastructure Bonds (Section 54EC)

Tax-Saving Advantage: Section 54EC allows tax exemption by investing in bonds issued by the National Highways Authority of India (NHAI) or the Rural Electrification Corporation (REC).

Investment Limits: You can invest up to Rs 50 lakh within six months of the sale to claim the exemption.

Lock-In Period: The bonds have a lock-in period of five years. After this, they become liquid, and the principal is returned.

Returns: These bonds provide a fixed interest rate but are lower compared to other investment avenues. The focus here is on tax savings and capital preservation.

Direct Payment of Capital Gains Tax

If tax savings aren’t the priority, consider directly paying the LTCG tax. Calculating your LTCG liability after indexation will give you a clear figure, allowing you to keep the remainder liquid for future financial needs.

Final Tax Amount: After calculating the indexed gains, you’ll apply the 20% LTCG tax rate to arrive at your liability. Paying the tax and investing the remainder in high-liquidity instruments, like debt funds, could be beneficial.

Alternative Investment Options for Better Returns

For liquidity and regular returns, consider alternatives outside of real estate and infrastructure bonds:

Debt Mutual Funds

Suitable for Senior Citizens: Debt funds are suitable for those seeking steady returns without high market exposure.

Liquidity: Unlike bonds, debt funds offer better liquidity, allowing you to withdraw your funds if needed.

Tax Efficiency: Debt mutual funds held for over three years also benefit from indexation, lowering your tax liability.

Important Note: For debt mutual funds, gains are taxed according to your income tax slab rate, so consider the overall tax impact.

Senior Citizen Savings Scheme (SCSS)

Guaranteed Returns: SCSS provides fixed returns and is specifically tailored for senior citizens.

Liquidity: While there’s a five-year lock-in, premature withdrawal is allowed with some penalty.

Taxation: The interest earned is taxable, but there’s no capital gains implication. SCSS is ideal if you seek stability with limited flexibility.

Final Insights

Calculating LTCG on real estate involves understanding the impact of indexation. While bonds provide tax benefits, they may not meet your need for liquidity. Debt mutual funds and SCSS offer an alternative route, with SCSS giving stability and debt funds offering flexibility.

If you have further questions or would like help with precise calculations, consult a certified financial planner.

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.
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Mihir Tanna  |1001 Answers  |Ask -

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I booked a house from builder in March 2012 with basic price of Rs 30.89 lakh + gst of around 3%. I paid around Rs 12.37 lakh + gst by July 2012 and balance of Rs 18.52 lakh approx + gst by 31.05.2013 in equal monthly installments. In March 2016, I paid EDC of approx Rs 1 lakh, Rs 1.43 lakh as freehold charges, stamp duty of Rs 2.27 lakh and registry charges of Rs 0.20 lakh aggregating Rs 35.79 lakh + gst. Total cost including gst is approx Rs 37.00 lakh. The registry was executed in January 2017. Now, I expect to sell my property in September 2022 at a consideration of Rs 72 lakh. I have the undernoted questions: 1. Shall I get indexation benefit from the date of payments made to the builder or date of registry? 2. Do I need to open capital gains account or can I realise the sale proceeds in my regular savings account and invest the LTCG in the chosen bonds? 3. Do I need to deposit the entire sale proceeds in the notified bonds or only the LTCG after indexation and rest money utilize in whatever way I like without attracting tax?  4. Will GST be included in the cost of acquisition of my property?
Ans: Indexation benefit will be available from the date of payments made to the builder.

If you want to avail tax exemption by investing in bonds, you have to invest amount of taxable capital gain (derived after taking benefit of indexation), in bonds within 6 months of transfer of property.

Accordingly, sale proceeds can be realised in regular saving account and can be kept till the time you invest in specified bonds.

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Ramalingam

Ramalingam Kalirajan  |7903 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 07, 2025

Asked by Anonymous - Feb 07, 2025Hindi
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I am a 65+ retired govt employee. My monthly pension is rs 100000 as of today.My wife gets rs 26500 monthly rent from a flat in Banglore.She has a 300000 lac senior citizen bank account from where she receive 60000 thousand in three month. We both have ppf account for 7 years where we contribute rs 150000 each anualy .We have invested rs 100000 lac in stock in good company.We also have a fixed deposit of 200000 lac in psu bank.We have no insurance cover of any type but our names are co-included in my daughter’s insurance cover.We also don’t invest in mutual fund.Our medical expenses are reimbursed by government though it takes some time. Our childrens are highly educated,well paid in multinational company in India and aboard.My both daughters are married.Only son working in USA is likely to be married soon.We save something like 04 lac annually. We don’t have more than 50000 in saving account for anytime.We don’t have any type of loans either. Pl advice if this is all ok or we should save more. Pl advise
Ans: Your financial position is strong. You have stable income sources and no liabilities.

However, there are areas where you can improve. Let’s assess your financial stability and suggest better allocation.

Current Financial Position
Income Sources
Pension: Rs. 1,00,000 per month.

Rental Income: Rs. 26,500 per month from your wife’s Bangalore flat.

Interest from Senior Citizen Bank Account: Rs. 60,000 every three months.

Total Annual Income: Rs. 18.86 lakh (excluding stock dividends).

Savings and Investments
Public Provident Fund (PPF): Rs. 1,50,000 each per year for 7 years.

Stocks: Rs. 1 crore invested in good companies.

Fixed Deposits: Rs. 2 crore in PSU banks.

Savings Account Balance: Less than Rs. 50,000 at any time.

Annual Savings: Rs. 4 lakh.

Insurance and Medical Cover
No personal health or life insurance.

Medical expenses reimbursed by the government, though with delays.

Included in daughter’s insurance policy.

Areas That Need Attention
Emergency Fund Planning
Your savings account balance is too low.

Keep Rs. 5-10 lakh in a liquid fund or sweep-in FD.

This will help in case of sudden expenses.

Health Insurance Protection
Depending on government reimbursement is risky.

Delayed reimbursements can cause financial stress.

Buy a personal senior citizen health insurance plan.

This ensures quick cashless hospitalisation if needed.

Investment Diversification
Too much money is in FDs and stocks.

FDs provide safety but do not beat inflation.

Stocks provide growth but can be volatile.

You don’t invest in mutual funds, which can provide balanced returns.

Allocate part of the FD amount to actively managed mutual funds.

This will improve long-term returns while keeping risk moderate.

PPF Strategy
PPF is a safe option, but liquidity is an issue.

Continue investing as it helps with tax savings.

However, don’t over-allocate beyond tax benefits.

Future Financial Planning
Retirement Corpus Allocation
You have built a strong retirement corpus.

Ensure withdrawals are planned for long-term sustainability.

Use a Systematic Withdrawal Plan (SWP) from mutual funds.

This provides a steady monthly income while preserving capital.

Wealth Transfer and Estate Planning
Your children are financially stable.

Prepare a will to distribute wealth as per your wishes.

Consider a trust for smooth wealth transfer.

Keep nominee details updated for all assets.

Finally
Your financial foundation is strong.

Increase emergency savings for liquidity.

Get a senior citizen health insurance policy for faster claims.

Diversify investments beyond FDs and stocks.

Invest in mutual funds for balanced risk and inflation protection.

Plan estate distribution for hassle-free wealth transfer.

With these changes, your financial stability will improve further.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |7903 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 07, 2025

Asked by Anonymous - Feb 01, 2025Hindi
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I am a 53 year old male working abroad. I am well covered in terms of medical insurance and life insurance. Pls guide me on further investments to make as regards to these goals 1) My plan to retire at 60 with 1.5 lakhs per month withdrawal from SWP 2) Son will complete engineering in 3 years, planning for his higher education abroad. 3) Daughters marriage in 5 years. Also any other avenues to invest (do you recommend AIF?) or should i continue to invest in what i have done so far? I have below investments so far: PPF 51 lakhs EPF 32 lakhs MF (total cumulative) 5.5 crores Employee superannuity+gratuity 14.5 lakhs NPS 15 lakhs Monthly MF SIP ongoing 2 lakhs Company FD 10 lakhs Gold 16 lakhs
Ans: Your financial discipline and structured investments are remarkable. You have built a strong portfolio, and your goals are well-defined. Now, let’s optimise your investments to ensure smooth execution of your plans.

Retirement Plan – Rs 1.5 Lakhs Monthly Withdrawal from SWP
Your Corpus Requirement: You need a corpus that generates Rs 1.5 lakh per month.
Existing Portfolio Strength: Your mutual funds and NPS provide strong long-term growth.
Strategy for Stability:
Allocate part of your corpus to hybrid and debt mutual funds for stability.
Keep 2-3 years of expenses in liquid or ultra-short-term funds.
Use a mix of equity and debt mutual funds for SWP to manage volatility.
Gradually move some equity investments to balanced funds before retirement.
Continue investing in mutual funds to ensure corpus longevity.
Son’s Higher Education – 3 Years Away
Estimated Costs: Higher education abroad is expensive and varies by country.
Liquidity Requirement: Funds should be easily accessible within 3 years.
Investment Strategy:
Move part of your mutual funds to short-duration or dynamic bond funds.
Keep a portion in fixed deposits to safeguard against market fluctuations.
Avoid equity investments for this goal, as the time horizon is short.
Daughter’s Marriage – 5 Years Away
Time Horizon: Five years allows for a balanced investment approach.
Investment Strategy:
Keep 50% in conservative hybrid funds for stability.
Allocate 30% in large-cap mutual funds for moderate growth.
Keep 20% in fixed-income instruments to protect against volatility.
Redeem investments in phases to avoid market fluctuations.
Review of Existing Investments
PPF & EPF:

These provide stable returns but lack liquidity.
Continue them for long-term safety but avoid fresh investments.
Mutual Funds (Rs 5.5 Crores Total):

Your SIP of Rs 2 lakh per month is well-structured.
Maintain equity allocation for long-term growth.
Ensure diversification across large-cap, mid-cap, and hybrid funds.
Monitor fund performance annually and rebalance if needed.
NPS (Rs 15 Lakhs):

Good for retirement but lacks full liquidity.
Continue contributions for additional tax benefits.
Employee Superannuation & Gratuity (Rs 14.5 Lakhs):

Treat this as a retirement safety net.
Avoid using this fund for short-term needs.
Company FD (Rs 10 Lakhs):

Provides stability but offers lower returns.
Avoid increasing FD exposure as it is taxable and may not beat inflation.
Gold (Rs 16 Lakhs):

A reasonable allocation for diversification.
Do not invest further unless required for family traditions.
Should You Invest in AIF?
Alternative Investment Funds (AIFs) Are High Risk

They are illiquid and require large-ticket investments.
Returns are uncertain compared to mutual funds.
They lack transparency and regulatory oversight like traditional investments.
Stick to What Works

Your mutual fund portfolio is already diversified and growing well.
Instead of AIFs, you can consider actively managed mutual funds for better liquidity and control.
Additional Investment Avenues
International Mutual Funds

To diversify across global markets.
Useful since your son’s education goal is abroad.
Debt Mutual Funds for Short-Term Goals

Better taxation benefits than FDs.
Suitable for education and marriage planning.
Hybrid Funds for Retirement Stability

Offers a balance between equity and debt.
Reduces volatility while ensuring steady returns.
Finally
Your portfolio is well-structured and diversified.
Stick to mutual funds and avoid AIFs for now.
Optimise asset allocation to ensure stability and liquidity.
Continue SIPs for wealth accumulation and long-term financial security.
Keep reviewing your portfolio and rebalance as required.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |7903 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 07, 2025

Asked by Anonymous - Feb 07, 2025Hindi
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My wife and I are both 55. We would like to retire in the next five years. We live in Mumbai, where the cost of living is high. Our monthly expenses are around ₹1.2 lakhs, excluding any medical emergencies. We have two children settled abroad, and while we’ve saved ₹1 crore in mutual funds, ₹50 lakhs in FDs, and ₹20 lakhs in PPF, we’re concerned about the long-term sustainability of our funds given the rising living costs here. We’re considering relocating to a smaller city like Pune or Nashik, where property prices and daily expenses are more manageable. However, we’re worried about healthcare access, social connections, and whether this move will truly offer financial benefits. What financial and lifestyle factors should we evaluate before making such a big decision?
Ans: You have planned well for your retirement. A Rs 1.7 crore corpus is a good foundation. However, with rising living costs, careful planning is needed to ensure financial security. Relocating to a smaller city can reduce expenses, but it has other factors to consider.

Key Financial Considerations
1. Analysing Your Retirement Corpus
Your current investments of Rs 1.7 crore need to support you for at least 30 years.
Inflation will increase living costs over time.
A sustainable withdrawal strategy is required to avoid depleting funds early.
2. Expected Monthly Expenses Post-Retirement
Current expenses are Rs 1.2 lakh per month.
Relocating may reduce costs, but essential expenses remain.
Medical costs tend to rise with age, so a buffer is needed.
3. Income from Investments
FDs provide stable returns but are taxable.
PPF matures soon, but withdrawals must be planned.
Mutual funds offer growth, but market fluctuations must be considered.
A mix of these assets can help maintain cash flow.
4. Tax Implications on Withdrawals
Mutual fund redemptions have capital gains tax.
FD interest is taxable as per income slab.
Efficient tax planning can help reduce liabilities.
Factors to Consider Before Relocation
1. Cost of Living in a Smaller City
Pune and Nashik have lower rental and grocery expenses than Mumbai.
Utility bills, transportation, and leisure costs are also lower.
A detailed comparison of current vs expected expenses is needed.
2. Healthcare Facilities
Mumbai has world-class hospitals with specialists.
Smaller cities have good hospitals but may lack super-speciality care.
Access to emergency healthcare and quality medical services is crucial.
3. Social Life and Lifestyle Changes
Mumbai offers an active social life and conveniences.
Smaller cities may have fewer social events and entertainment options.
Adjusting to a new environment after decades in Mumbai can be difficult.
4. Proximity to Children and Travel Costs
Your children are settled abroad.
International travel costs will be a recurring expense.
Mumbai has better flight connectivity than smaller cities.
5. Rental vs Buying a Property in a New City
Buying property in retirement reduces financial flexibility.
Renting offers mobility and liquidity.
A trial period in the new city before finalising relocation is advisable.
Investment Strategy for a Secure Retirement
1. Maintaining Liquidity for Regular Expenses
Keep at least 2 years of expenses in liquid assets.
FDs and liquid mutual funds provide stability and accessibility.
Avoid locking funds in long-term investments.
2. Growing Wealth for the Long Term
Equity mutual funds can help combat inflation.
Debt funds provide stable returns with lower risk.
A balanced portfolio ensures both growth and stability.
3. Medical and Contingency Planning
Increase health insurance coverage for future needs.
Keep an emergency fund for unexpected medical expenses.
Regular health check-ups can help in early diagnosis.
4. Safe Withdrawal Strategy
Limit annual withdrawals to avoid depleting savings early.
Adjust withdrawals based on market performance.
Diversifying income sources can ensure financial security.
Finally
Relocating can reduce expenses but must be evaluated for healthcare access and lifestyle impact. A well-structured investment strategy can make retirement stress-free.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

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

...Read more

Ramalingam

Ramalingam Kalirajan  |7903 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 07, 2025

Asked by Anonymous - Feb 07, 2025Hindi
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I’m 53 now. My spouse and I have saved diligently for retirement. Together we’ve built a corpus of ₹1.5 crore through mutual fund SIPs, PPF, and NPS contributions. Our two children, both in their late 20s, are financially independent but still early in their careers. We’re considering downsizing from our current house, worth ₹1.8 crore, to free up equity and move closer to one of our children. We’re debating whether to discuss our retirement plans with them, especially regarding potential financial assistance if we face health issues in the future. We also want to clarify any inheritance expectations and ensure they’re not financially burdened later. Please advice how to have a stress-free retirement plan.
Ans: You have planned your retirement well. Now, you need a stress-free approach to enjoy it.

Let’s create a structured plan for financial security and family discussions.

Assessing Your Current Financial Position
Retirement Corpus: Rs. 1.5 crore in mutual funds, PPF, and NPS.
House Value: Rs. 1.8 crore.
Children’s Status: Financially independent but early in their careers.
Potential Downsizing: Considering selling the house for liquidity.
Future Concerns: Health costs, financial support, inheritance, and stress-free living.
Your savings provide a solid base. But planning ahead is crucial.

Should You Downsize Your House?
Selling will free up capital for better investments.

A smaller house will reduce maintenance and property tax costs.

Moving closer to children will offer emotional and logistical support.

Consider renting instead of buying again for more flexibility.

Structuring Your Investments for Retirement
Ensure a Steady Monthly Income
Keep part of your corpus in mutual funds with Systematic Withdrawal Plans (SWP).

Invest in a mix of flexi-cap, mid-cap, and debt funds for stability and growth.

Avoid index funds, as actively managed funds perform better in the long run.

Emergency and Health Fund
Keep Rs. 10-15 lakh in liquid funds for medical and emergency needs.

Ensure you have adequate health insurance to cover medical costs.

If needed, set aside funds for assisted living or home healthcare later.

Should You Talk to Your Children About Finances?
Clarifying Expectations
Your children are financially independent but may not be prepared for your needs.

Have an open conversation about healthcare, inheritance, and financial support.

Make sure they understand your plans to avoid future stress.

Discussing Financial Assistance
If needed, discuss potential financial support in case of emergencies.

Avoid becoming financially dependent on them unless absolutely necessary.

Keep them informed about your health insurance and long-term care plans.

Managing Inheritance and Estate Planning
Prepare a clear will to avoid legal complications.

Nominate beneficiaries for all investments, insurance, and bank accounts.

Inform your children about your financial plans without creating unnecessary expectations.

Finally
Your retirement is well-planned. But small adjustments will enhance security.

Sell your house if it aligns with your lifestyle goals.

Ensure a steady income from mutual funds while keeping an emergency fund.

Talk to your children about expectations but maintain financial independence.

A stress-free retirement is possible with proper planning and clarity.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |7903 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 07, 2025

Asked by Anonymous - Feb 03, 2025Hindi
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Hello Sir, I’m planning to construct a house within the next 12 to 15 months. I have already received a pre-approved home loan, but I need to accumulate an additional ₹60 lakh. I plan to save between ₹30,000 to ₹50,000 each month. Could you suggest the best investment options for this amount, such as Fixed Deposits, RDs, Mutual Fund SIPs, etc.? While I’m open to SIPs, I’m unsure about the market conditions when I’ll need to withdraw the funds.
Ans: You have a clear financial goal and a disciplined savings plan. Since your time horizon is short, choosing the right investment options is crucial. Safety, liquidity, and stable returns should be the focus.

Key Considerations for Investment Choices
You need Rs 60 lakh in 12-15 months.
Market-linked instruments carry short-term volatility.
Stability and liquidity are more important than high returns.
Capital preservation is a priority.
Investment Options Based on Risk and Returns
1. Fixed Deposits for Stability
FDs provide assured returns without market risk.
Choose short-term FDs with flexible withdrawal options.
Laddering deposits can help manage liquidity better.
Premature withdrawal may have a penalty but ensures emergency access.
2. Recurring Deposits for Systematic Savings
RDs offer stable returns with disciplined monthly investments.
Suitable for parking Rs 30,000 to Rs 50,000 per month.
Works best when combined with other safer instruments.
3. Debt Mutual Funds for Moderate Growth
Suitable for earning slightly better returns than FDs.
Opt for low-risk funds to avoid market volatility.
Ensure easy liquidity for fund withdrawal within 12-15 months.
Gains are taxed as per income slab, so tax impact must be considered.
4. Liquid Funds for Parking Lumpsum Amounts
Best for parking funds with better liquidity than FDs.
Withdrawal is processed within 24 hours on working days.
Offers stable returns without market fluctuations.
A good option for money required in the last few months.
5. Ultra Short-Term Funds for Balanced Approach
Suitable for a 12-15 month horizon with stable returns.
Carries slightly higher risk than liquid funds but offers better returns.
Low volatility compared to equity-based investments.
Investment Plan Based on Monthly Savings
Allocate 50% in FDs and RDs for safety.
Park 30% in ultra short-term and liquid funds for flexibility.
Invest 20% in debt mutual funds for slightly better returns.
Finally
Avoid equity investments due to short tenure. Prioritise safety over returns to ensure smooth fund availability for house construction.

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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