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Sanjeev

Sanjeev Govila  | Answer  |Ask -

Financial Planner - Answered on Dec 06, 2023

Colonel Sanjeev Govila (retd) is the founder of Hum Fauji Initiatives, a financial planning company dedicated to the armed forces personnel and their families.
He has over 12 years of experience in financial planning and is a SEBI certified registered investment advisor; he is also accredited with AMFI and IRDA.... more
Vipul Question by Vipul on Nov 29, 2023Hindi
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I have sip in Motilal midcap, Axis Small Cap, HDFC retirement fund, Tata Digital fund, tata business cycle, icici nasdaq 100, Nippon consumption fund, I want to build corpus for future. Each scheme having sip of 5k. I am 29yr now.

Ans: Considering your current well diversified SIP portfolio of Rs 35,000/- at the young of 29 years, I would suggest you to continue your investment in a systematic manner with increase of 5-10% per annum for accumulation of good capital at the time of retirement.

I would like to suggest you to gradually reduce your allocation in sector specific funds like TATA digital, TATA business cycle fund and Nippon consumption fund as these funds invest in particular sector of economy and there is a concentration risk in these funds. You can divert the SIPs from these funds to well diversified funds in Large Cap, Flexi Cap and other long-term equity and hybrid funds.
Consulting a financial planner to prepare a holistic investment plan with details of your existing investments and financial obligations in near future will be most advisable actions for you.
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  |6568 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 15, 2024

Asked by Anonymous - Apr 14, 2024Hindi
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Hi Sir Sangayya hear from Karnataka my age is 43 from last 3 years I started my SIP details r as below 1 ELSS - 5 sips each 1k 2. Large & mid cap fund - 3 sips 1k each 3. Thematic fund - Franklin India opp - 5k 4. Multi asset allocator - Tata 5k 5.Flexi cap fund - 2 Sips 1k each 6. Dynamic Asset - Edelweiss balanced Adv fund 1k 7. Small cap - Nippon India 1k Total monthly 22k is my investment kindly suggest I want to build my corpus 1cr in another 10 year
Ans: You've made a good start with your SIP investments across various categories. To achieve a corpus of 1 crore in 10 years, you'll need an average annual return of around 12%, considering your current investment of 22k per month.

Here are some suggestions to optimize your portfolio:

ELSS: Great for tax-saving, but remember the lock-in period. Ensure you're comfortable with the fund's performance and risk profile.

Large & Mid-cap: These funds offer a balanced approach. Monitor the performance and consider consolidating into a top-performing fund if necessary.

Thematic Fund: These are more focused and can be riskier. Ensure it aligns with your investment goals and risk tolerance.

Multi-Asset Allocator: Offers diversification across asset classes. A good choice for balanced growth. Ensure the fund's strategy aligns with your goals.

Flexi Cap & Dynamic Asset Allocation: These provide flexibility to invest across market caps and adjust to market conditions. Ensure they complement each other and don't overlap too much.

Small Cap: High growth potential but higher risk. Ensure it fits your risk profile and consider monitoring closely due to higher volatility.

General Recommendations:

Review & Rebalance: Regularly review your portfolio's performance and adjust if necessary. Consider shifting funds to top performers or reallocating based on market conditions.

Risk Assessment: Ensure your portfolio aligns with your risk tolerance and investment horizon.

Costs: Opt for direct plans to reduce costs and improve returns.

Diversification: Ensure your portfolio is well-diversified across asset classes and not overly concentrated in one sector or fund.

Professional Advice: Consider consulting a financial advisor for personalized guidance based on your financial goals and risk profile.

In summary, continue your disciplined approach with SIPs, regularly review and adjust your portfolio, and stay invested for the long term to achieve your goal of 1 crore in 10 years.

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Ramalingam

Ramalingam Kalirajan  |6568 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 21, 2024

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Hello Sir, I am 33 year old and have started investing in SIPs since last 2 years. I have invested in Mirae Asset Tax saver, Mirae asset Mid Cap, Tata Multicap funds only as of now. Money invested is 80k. Can you please suggest me an approach to build a corpus of 50Lakhs in next 8-10 years. I am currently earning around 1.7 lakhs/month with around 80K expenses/month.
Ans: It's great to hear that you've already taken significant steps towards your financial future by investing in SIPs. Starting early and being consistent are key elements in building a substantial corpus. You’re earning Rs 1.7 lakhs a month and spending around Rs 80,000, which gives you a solid Rs 90,000 potential for savings and investments. With a goal to build a corpus of Rs 50 lakhs in the next 8-10 years, you’re on the right path. Let’s outline a strategy to help you achieve this.

Current Investment Overview
You’ve started well with investments in three mutual funds:

Mirae Asset Tax Saver: This is an Equity Linked Savings Scheme (ELSS), which is tax-efficient.
Mirae Asset Mid Cap: Focuses on medium-sized companies with growth potential.
Tata Multicap Fund: Invests across large, mid, and small-cap stocks.
You’ve invested Rs 80,000 in these funds so far. Each of these funds has its unique benefits, but there’s room to optimize your portfolio to meet your Rs 50 lakh goal.

Setting a Target for Your Goal
To build a corpus of Rs 50 lakhs in 8-10 years, you need a strategic approach. Let’s break down the steps you should consider:

Assess Your Financial Goals:

Define your goals clearly.
How soon do you need the money?
What is your risk tolerance?
Current Savings and Investments:

You’ve started with Rs 80,000.
Let’s build on this base.
Maximize your monthly savings for investment.
Building a Strong Investment Plan
Given your income and expenses, you have a good monthly surplus. Here’s how you can allocate and optimize it:

Increase Your SIP Contributions
Monthly Investment Capacity:

You can invest more since your monthly surplus is Rs 90,000.
Let’s consider gradually increasing your SIP contributions.
Balanced Portfolio:

Diversify into different types of funds (e.g., large-cap, mid-cap, and multi-cap).
This diversification can help manage risks better and optimize returns.
Increase SIPs in High-Performing Funds:

Continue with your current funds but increase the monthly SIP amounts.
Consider adding Rs 10,000 to each of your existing funds and reviewing their performance annually.
Add New Funds:

Introduce a small-cap fund to capture growth in emerging companies.
Allocate Rs 10,000 per month to a new small-cap fund.
Exploring Other Investment Options
While mutual funds are a strong component of your portfolio, consider these additional investments for further growth:

Direct Equity Investments:

Allocate a small portion, say Rs 10,000 per month, to invest directly in the stock market.
Choose stocks from stable sectors with good growth potential.
Debt Funds:

Invest Rs 5,000 per month in debt funds for stability and to balance equity risk.
This provides a safety net and ensures liquidity.
NPS for Retirement Planning:

Contribute Rs 5,000 monthly to the National Pension System (NPS).
This can provide additional tax benefits and long-term growth for retirement.
Optimizing Your Portfolio Performance
Regularly monitoring and adjusting your investments is crucial to stay on track for your goal:

Annual Review:

Review your fund performance annually.
Make adjustments if any fund is consistently underperforming.
Rebalancing:

Rebalance your portfolio to maintain the desired asset allocation.
This involves selling some assets and buying others to keep your portfolio aligned with your risk tolerance and goals.
Staying Informed:

Keep up with market trends and financial news.
This helps in making informed decisions and timely adjustments to your investments.
Managing Risk and Diversification
To achieve your Rs 50 lakh goal with minimized risk, consider these strategies:

Risk Tolerance:

Understand your risk appetite.
Since you have 8-10 years, you can afford to take moderate risks for higher returns.
Diversification:

Diversify across asset classes, sectors, and geographies.
This reduces risk and maximizes returns by not putting all eggs in one basket.
Systematic Investment:

Continue with SIPs to benefit from rupee cost averaging.
This helps in buying more units when prices are low and fewer when prices are high.
Emergency Fund and Insurance Coverage
Before focusing solely on investments, ensure you have these foundational elements in place:

Emergency Fund:

Maintain a fund that covers 6-12 months of your living expenses.
This should be in a savings account or a liquid mutual fund for easy access.
Health and Life Insurance:

Have adequate health insurance for you and your family.
Ensure you have a term insurance policy that provides sufficient coverage.
Tax Planning and Efficiency
Optimizing your investments for tax efficiency is crucial:

Tax-Saving Investments:

Continue with your ELSS investments for tax benefits under Section 80C.
Explore other tax-saving options like NPS and PPF.
Efficient Fund Selection:

Choose funds that provide good post-tax returns.
Equity funds held for more than a year are subject to lower capital gains tax.
Adjusting to Life Changes
Life circumstances can change, and your investment plan should be flexible enough to adapt:

Career Growth:

With potential salary increases, consider increasing your investment contributions.
Aim to save and invest a higher percentage of your income over time.
Family Expenses:

Plan for future family expenses like children’s education and other big-ticket items.
Adjust your savings and investment goals accordingly.
Market Fluctuations:

Stay calm during market volatility.
Stick to your investment plan and avoid making hasty decisions based on market noise.
Long-Term Planning Beyond Rs 50 Lakhs
While your immediate goal is Rs 50 lakhs, consider these aspects for long-term financial health:

Retirement Planning:

Beyond your immediate goal, start planning for retirement.
Consider how much you’ll need to maintain your lifestyle post-retirement.
Wealth Accumulation:

Continue investing beyond reaching your Rs 50 lakh goal.
Building wealth is a continuous process, and longer-term investments can yield substantial growth.
Legacy Planning:

Think about wealth transfer and legacy planning.
Ensure you have a will and estate plan in place to manage and transfer your wealth smoothly.
Final Insights
Your disciplined approach to saving and investing is commendable. By increasing your SIP contributions, diversifying your portfolio, and regularly monitoring your investments, you are well-positioned to achieve your Rs 50 lakh corpus in the next 8-10 years. Stay focused on your goals, adapt to life changes, and continue educating yourself about investments. Your financial journey is a marathon, not a sprint, and your dedication will surely lead to financial success.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Milind

Milind Vadjikar  |379 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Oct 11, 2024

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HelloMr. Arora, I'm going to be 54 in May and have no retirement plan yet. As we have 2 budget stores 1 is going ok and other one we just started. I want to get around 4cr after 10 years. While our investments are my LIC is 84000 yearly for 20 years which will be matured in 2033 and 2034 SIP's are Axis ELSS Tax Saver Fund (G) 1000 p/m from 2020 Bank of India ELSS Tax Saver Fund Reg (G) 1500 p/m from 2022 Kotak Equity Opportunities Fund (G) 2500 p/m from 2022 Quant Small Cap Fund (G) 1500 p/m from 2022 my wife's SIP are Bank of India ELSS Tax Saver Fund Reg (G) 5000 p/m from 2024 Canara Robeco ELSS Tax Saver Fund Reg (G) 2500 p/m from 2021 Quant ELSS Tax Saver Fund (G) lumsum amount 2L in 2021 Union ELSS Tax Saver Fund (G) 2500 p/m from 2021 Value of above is today 11Lacs I also have shares and invested in it 3L, now a days its cost is 4Lacs besides that I have made 2 more small SIP's in nippon as well from this year. My wife is also working while I look after the stores. We have our own two houses (1Cr and 90Lacs) (both lone free.) One we bough last year with 33k EMI for next 20 years. I'll get 3L next year in july, one of my tax saving policy will be matured. I have big ancestral land in hills (agricultural but barren), will be cost 1Cr and one more an ancestral house. Can you please guide me about the investment, so we can diversify and make 4cr in another 10 years. We also have one small kid for him we have already taken 2 child eductional plans and for that we pay 1,25,000/- yearly seperately. Which he will get when he will be 18. Please guide me. regards Amy
Ans: Hello;

Your current monthly SIP of 16.5 K may grow into a sum of 40.7 L after 10 years.

The 11 L worth holding in mutual funds as on today may grow into a sum of 37.34 L after 10 years.

The 4 L worth share holding as on today may grow into a sum of 13.58 L after 10 years.

The LIC endowment policy may yield you a sum of 22.45 L in 2033.(Maturity)

Adding all these amounts we get a sum of 1.14 Cr after 10 years.

Supposing you sell your land property currently valued at 1 Cr and invest it lumpsum in a pure equity mutual fund then after 10 years you may expect a sum of 3.39 Cr. (Returns from mutual funds and equity considered at 13% and endowment insurance policy return assumed at 6%)

So your total corpus will become 3.39+1.14=
4.53 Cr.

Seek help from a mutual fund distributor or investment advisor to select appropriate funds for your requirement.

Happy Investing!!

You may follow us on X at @mars_invest for updates.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

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Milind

Milind Vadjikar  |379 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Oct 11, 2024

Ramalingam

Ramalingam Kalirajan  |6568 Answers  |Ask -

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

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Sir i have parag parikh flexicap, hdfc flexicap, franklin india flexicap, canara robeco flexicap, sbi long term equity fund and icici prudential equity & debt fund. I have allocated 2000 rupees sip in each of these funds. Do i need to remove or add any fund. I am 41 years old. My time horizon is 20 years for wealth creation. Is my portfolio good or do i need any changes? Do i need to have any value fund or is this portfolio a right mix of value, momentum, growth?
Ans: You are currently investing in five flexi-cap funds and one balanced fund, with Rs. 2,000 allocated as SIP in each. This setup gives you exposure to a diversified mix of equity with a minor portion of debt through the equity-debt fund. Let us evaluate your portfolio based on your time horizon of 20 years for wealth creation and see if any changes are necessary.

Here is a detailed assessment from a Certified Financial Planner perspective:

Flexi-Cap Fund Concentration
Diversified Approach: You have selected four different flexi-cap funds. Flexi-cap funds are versatile as they invest across all market capitalizations, providing exposure to large, mid, and small-cap stocks. This ensures that you are well-diversified across sectors and market sizes.

Duplication Risk: However, having multiple flexi-cap funds may cause portfolio overlap, as these funds can end up holding similar stocks. Since your investment is spread across multiple flexi-cap funds, it might reduce the potential for diversification, especially if the same top-performing stocks are held in different funds.

Suggested Action: You might want to consider reducing the number of flexi-cap funds to avoid redundancy. Keeping two flexi-cap funds instead of four can simplify your portfolio and still provide enough diversification. Choose the two funds that have consistently performed well and are aligned with your long-term goals.

Balanced Allocation with Equity and Debt
Balanced Strategy: Your choice of one equity and debt fund adds stability to your portfolio. This fund balances the risk and provides you with some debt exposure, reducing volatility, especially in uncertain market conditions.

Time Horizon and Risk Tolerance: Given that your time horizon is 20 years, you may not need a heavy debt allocation in the early stages. At your current age of 41, it is beneficial to have equity dominance, but as you approach retirement, you may want to increase your debt allocation gradually. For now, having one equity-debt fund is sufficient for risk management.

Growth, Value, and Momentum Mix
Growth Funds: Flexi-cap funds typically focus on growth stocks. They aim to invest in companies that have the potential for higher earnings, thus delivering capital appreciation. This is beneficial for your wealth creation goal over 20 years.

Value Investing Exposure: Your current portfolio does not seem to have a dedicated value fund. Value funds invest in stocks that are undervalued but have strong fundamentals. Adding one value fund may provide a cushion during market downturns and ensure that your portfolio has a broader range of investment styles.

Momentum Funds: Some of the funds in your portfolio may adopt a momentum strategy, but it is worth checking their strategy to see if they are adequately capturing this style. Momentum funds aim to invest in stocks that have had high returns in the past, potentially providing high returns during bullish markets.

Suggested Action: To ensure a well-rounded mix of investment styles, you could consider adding a value fund to complement your growth-oriented flexi-cap funds. This would provide a blend of both growth and value investing, making your portfolio more resilient during market volatility.

Long-Term Tax Implications
Equity Mutual Funds Taxation: Under the current tax rules, long-term capital gains (LTCG) above Rs. 1.25 lakh from equity mutual funds are taxed at 12.5%. If you sell any fund units before three years, the short-term capital gains (STCG) will be taxed at 20%. As you are investing for 20 years, most of your gains will fall under LTCG, allowing you to benefit from the lower tax rate on long-term gains.

Equity-Debt Fund Taxation: The equity-debt fund will have different tax implications. For the equity portion, LTCG is taxed as mentioned earlier. However, the debt portion's LTCG will be taxed as per your income slab if held for more than three years. If you sell before three years, the gains will be taxed as per your current income slab.

Direct vs Regular Funds
Direct vs Regular Fund Debate: While direct funds offer lower expense ratios, they require active monitoring and financial knowledge. Regular funds, invested through a certified financial planner (CFP), offer advisory support and better portfolio management without requiring you to follow markets constantly. As your time horizon is long, it’s advisable to continue investing through regular funds under the guidance of a CFP, as they can optimize your portfolio strategy over time.

Professional Guidance: Continuing with regular funds ensures that you benefit from active fund management, professional advice, and regular portfolio reviews. A Certified Financial Planner can guide you through changes in market conditions and help adjust your portfolio accordingly.

Disadvantages of Index Funds
Why Actively Managed Funds Are Better: While index funds track the market, they do not offer the flexibility to respond to changes in market conditions. Actively managed funds, like the ones in your portfolio, allow fund managers to adjust their strategy based on market trends. This flexibility often leads to better returns over long periods, especially when market volatility is high.
Importance of SIPs and Consistency
Systematic Investment Plan (SIP) Benefits: By investing Rs. 2,000 in each fund monthly through SIPs, you are using a disciplined approach. SIPs offer rupee cost averaging, which helps in reducing the impact of market volatility. As markets rise and fall, SIPs help accumulate more units when prices are low, thus improving the long-term performance of your investments.

Consistent Investing for Wealth Creation: With a 20-year horizon, the key is consistency. By sticking to your SIPs and making adjustments when necessary, you will allow your wealth to grow exponentially. The power of compounding will work in your favor over such a long duration, significantly boosting your wealth.

Portfolio Simplification
Potential Fund Overlap: As mentioned earlier, reducing the number of flexi-cap funds can simplify your portfolio without compromising on diversification. Overlap in your current flexi-cap funds might lead to higher exposure to the same stocks, which could reduce your overall portfolio's effectiveness.

Streamlining for Focus: A more streamlined portfolio can make it easier to track performance and make informed decisions. It will also reduce the management effort required from your Certified Financial Planner, ensuring that you receive more focused advice and monitoring.

Final Insights
Your portfolio is well-diversified across flexi-cap funds, offering growth potential across different market capitalizations. However, having multiple flexi-cap funds may lead to redundancy and could be simplified.

A value fund can be added to create a balance between growth and value strategies, providing better risk management during market corrections.

Your allocation to an equity-debt fund is good for stability, but equity should remain dominant for wealth creation over the next 20 years.

Stick to regular funds for long-term growth, and avoid index funds due to their limitations in capturing market opportunities.

Continue with SIPs, ensuring consistency, which will maximize the benefits of compounding over your 20-year horizon.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

Ramalingam

Ramalingam Kalirajan  |6568 Answers  |Ask -

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

Asked by Anonymous - Oct 11, 2024Hindi
Money
Hello Sir, I'm 45 years and starting my MF investment journey, I've selected the below MFs to invest in from a view for my Retirement Planning, If I intend to build a corpus of 5 Cr by 60 yrs of age, are these the right MFs to go with, or do you suggest swapping these for any better ones, kindly suggest. Also can you pls suggest how much amount should I invest lumpsum and via SIPs in these? Thank You !! HDFC Retirement Savings Fund - Equity Plan - G 15yrs(lockin 5 years) Edelwiess Mid Cap Fund - G 12 yrs DSP Health Care Fund - G 10 yrs Bandhan Nifty Alpha 50 Index Fund - G 8 yrs ICICI Pru. Equity & Debt Fund - G - 6 yrs Kotak Low Duration 2 yrs
Ans: It's great to see that you're starting your investment journey at the age of 45. You have a well-thought-out goal of building a Rs. 5 crore corpus by the time you turn 60, and I appreciate the long-term perspective you've adopted.

Let’s dive into a detailed evaluation of the mutual funds you've selected and how they align with your retirement objective. I will also provide insights on how to balance your investments between lump sum and SIPs.

Portfolio Evaluation for Retirement Planning
HDFC Retirement Savings Fund - Equity Plan (15 Years, 5-Year Lock-In)

This fund provides a balanced approach to long-term equity growth with the added advantage of tax saving. However, since it has a five-year lock-in, it restricts flexibility.

Retirement-focused funds often come with higher charges, which may impact returns over the long term. You may want to explore alternatives that offer greater flexibility and lower costs.

It's important to understand that funds specifically marked for retirement often have restrictions on withdrawals, and while that helps you stay disciplined, other diversified equity funds can offer similar returns without the lock-in.

Edelweiss Mid Cap Fund (12 Years)

Mid-cap funds can offer strong growth potential. However, they come with higher volatility. Over a 12-year horizon, the performance can be impressive, but be prepared for periods of market swings.

You could include a diversified large- and mid-cap or flexi-cap fund to balance out the higher volatility associated with mid-caps. While mid-cap exposure is good for growth, diversification will add stability to your portfolio.

DSP Health Care Fund (10 Years)

Sectoral funds, such as healthcare, are typically more volatile and focused on specific sectors. Healthcare can be a long-term growth story, but it is subject to regulatory risks and industry-specific headwinds.

For retirement planning, a more diversified approach may yield better risk-adjusted returns. Instead of concentrating on a single sector, you may want to consider sector rotation or thematic funds that give exposure to broader growth themes.

Bandhan Nifty Alpha 50 Index Fund (8 Years)

Index funds, while low-cost, tend to deliver market-average returns. In this case, the Nifty Alpha 50 Index is based on stocks with strong alpha generation potential. However, index funds lack the active management that can help capture market opportunities and mitigate risks during downturns.

Actively managed funds, handled by experienced fund managers, can outperform during volatile markets and provide you with an opportunity for higher growth. While index funds are low-cost, you may not get the most out of your investment compared to an actively managed fund.

ICICI Prudential Equity & Debt Fund (6 Years)

Hybrid funds like this one balance the risk between equity and debt. They provide a cushion during market corrections due to their debt component while also participating in equity market growth.

For a retirement portfolio, hybrid funds offer a safer route but may not deliver the aggressive growth needed for a Rs. 5 crore corpus in 15 years. These can complement your portfolio, but you may need more equity-focused funds to meet your target.

Kotak Low Duration Fund (2 Years)

Low-duration funds are primarily suited for short-term goals or as a safe parking space for funds. These funds are not ideal for long-term wealth creation due to their limited growth potential.

For retirement planning, equity exposure is essential for generating inflation-beating returns. This fund could be part of your debt allocation, but for a 15-year horizon, you should prioritize equity-heavy investments.

Recommendations for Building a Rs. 5 Crore Corpus
Based on your age and time horizon, achieving Rs. 5 crore in 15 years is a reasonable and attainable goal with the right mix of investments.

Diversification: While you’ve picked a few good funds, the portfolio can benefit from broader diversification. Rather than sector-specific or index funds, consider a mix of large-cap, mid-cap, and multi-cap funds for more balanced growth.

Actively Managed Funds: Actively managed funds often provide higher returns than index funds, particularly in the long term. Fund managers can capitalize on market fluctuations and opportunities that passive index funds cannot.

Flexibility in Retirement Funds: A retirement-focused fund with a lock-in period may limit your options. Consider funds that offer flexibility in withdrawals and fund switches for greater control over your retirement assets.

Balanced Portfolio: A good retirement portfolio should have both equity and debt components, but you should tilt more towards equity for growth in the initial years and gradually increase debt allocation as you approach retirement.

Lump Sum vs. SIP Investments
For retirement planning, the most effective way to invest is a combination of lump sum and SIPs. Here’s how I would recommend you allocate:

SIP Investments: Allocate a larger portion (around 75-80%) of your monthly savings towards systematic investment plans (SIPs). SIPs are great for rupee-cost averaging and help reduce the impact of market volatility over time. For example, if you can invest Rs. 40,000 per month, start SIPs in a diversified portfolio of equity and hybrid funds.

Lump Sum Investments: If you have any surplus funds, invest them in lump sum during market corrections or dips. Lump sum investments can be deployed in balanced hybrid funds to reduce the risk of market timing.

Taxation Considerations
Equity Mutual Funds: Long-term capital gains (LTCG) above Rs. 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%.

Debt Mutual Funds: LTCG and STCG are taxed according to your income tax slab.

You should also regularly review your investments to ensure you stay on track with your tax-saving strategies.

Suggested Action Plan
Start with SIPs: Begin monthly SIPs in a mix of diversified equity and hybrid funds, focusing on long-term growth.

Use Lump Sum Wisely: Invest any windfall gains or bonus amounts as lump sum during market corrections. Consider parking the lump sum in liquid funds temporarily and then moving it to equity funds.

Monitor and Review: Keep track of your portfolio’s performance and make adjustments based on market conditions, your changing financial needs, and tax implications.

Finally
Your goal of building a Rs. 5 crore corpus is achievable with disciplined and regular investments. By focusing on the right funds, balancing between equity and debt, and leveraging the power of SIPs, you will be able to create a strong retirement corpus.

I encourage you to stay invested for the long term, be consistent, and review your portfolio periodically. A well-diversified portfolio with a greater focus on equity will help you reach your financial goals with ease.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

...Read more

Ramalingam

Ramalingam Kalirajan  |6568 Answers  |Ask -

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

Money
Sir i am 41 years old. i have parag parikh flexicap, hdfc flexicap, canara robeco flexicap, franklin india flexicap, sbi long term equity fund and icici prudential equity & debt fund. Do i need to add or remove any fund. Does my portfolio has the right mix of value, growth, momentum style of investing or do i need to add any value fund?
Ans: You have a good selection of mutual funds in your portfolio, Sir. Your current portfolio includes funds from different styles, such as flexicap and hybrid funds. This provides a decent mix of growth, value, and diversified investment strategies. However, there are a few aspects you should consider to improve the overall alignment with your long-term goals.

Let’s go through your current funds and evaluate their strengths and areas where changes might be beneficial.

Flexicap Funds in Your Portfolio
You have multiple flexicap funds in your portfolio:

Parag Parikh Flexicap
HDFC Flexicap
Canara Robeco Flexicap
Franklin India Flexicap
Flexicap funds are versatile as they invest across large, mid, and small-cap companies. This gives you flexibility to capture opportunities across the market, making them an attractive choice. However, having too many flexicap funds can lead to overlap, meaning you might be investing in the same stocks repeatedly, reducing overall diversification.

Points to Consider:
Portfolio Overlap: Since all these flexicap funds invest across market caps, there’s a risk of them holding many common stocks. This dilutes the benefits of diversification.
Fund Styles: Each fund house follows a different style—some focus more on large caps while others tilt towards mid or small caps. But, having too many funds in the same category could lead to inefficiency.
SBI Long Term Equity Fund (ELSS)
This fund falls under the Equity Linked Savings Scheme (ELSS) category, which offers tax benefits. It's a solid choice if you're looking to save tax under Section 80C, but keep in mind that ELSS funds have a three-year lock-in period.

Points to Consider:
Lock-in Period: Your SBI Long Term Equity Fund comes with a lock-in of three years, but that can be a good thing as it forces you to stay invested.
Growth Focus: The primary focus of this fund is growth, with a tendency to invest in companies with higher growth potential.
ICICI Prudential Equity & Debt Fund
The hybrid nature of this fund provides a balanced approach by investing in both equities and debt instruments. This fund is less volatile than pure equity funds and offers a cushion during market downturns. It also provides you with some stability, which is essential as you grow closer to retirement.

Points to Consider:
Balanced Approach: This hybrid fund adds stability to your portfolio with its debt exposure, which is crucial, especially in volatile markets.
LTCG Taxation: Be mindful that when you sell this fund, the taxation will follow the LTCG rules for debt funds, which is different from pure equity mutual funds.
Assessing the Mix of Investment Styles
Now, let's analyse the mix of investment styles in your portfolio—growth, value, and momentum. Here's how your current funds line up:

Growth: Parag Parikh Flexicap and Franklin India Flexicap have a strong growth focus. Growth funds invest in companies expected to grow at an above-average rate compared to other companies. This brings higher returns but can be riskier.

Value: HDFC Flexicap and Canara Robeco Flexicap have a more balanced approach with some value-oriented strategies. Value funds focus on undervalued stocks, aiming to capitalise when the market recognises their true potential. This approach is less volatile.

Momentum: Currently, your portfolio lacks a specific momentum-oriented fund. Momentum funds focus on stocks that have performed well recently and are likely to continue doing so in the short term.

Points to Consider:
Balanced Style: You already have a good mix of growth and value funds. Adding a momentum fund could diversify your investment styles further, making your portfolio more dynamic.

Avoid Overlap: While flexicap funds are flexible, too many similar funds could lead to over-diversification. This may reduce your portfolio’s efficiency in terms of returns.

The Importance of Adding a Value Fund
If you want to enhance your portfolio’s exposure to different styles, you could consider adding a fund focused entirely on value investing. Value funds are often overlooked, but they play an essential role during market corrections or periods of economic downturn. They seek to invest in companies that are undervalued, offering long-term potential once the market realises their true worth.

Points to Consider:
Balancing Risk: Value funds are less volatile and provide stability during downturns. They can serve as a cushion for your portfolio, balancing out the riskier growth-oriented investments.

Long-Term Growth: A value fund’s slow but steady performance can help you achieve stable growth in your portfolio over the years.

Diversification of Market Capitalisation
You currently have exposure to large, mid, and small-cap companies through your flexicap funds. However, it might be helpful to examine how much of your portfolio is concentrated in large-cap stocks versus mid and small caps. Large caps provide stability, while mid and small caps offer higher growth potential but with increased risk.

Points to Consider:
Large Cap Stability: Ensure that a reasonable portion of your portfolio is in large-cap stocks. This will provide your portfolio with stability and reduce overall risk.

Mid and Small Cap Growth: Mid and small caps offer higher growth but can be volatile. Make sure you’re comfortable with the risk that comes with these investments.

Disadvantages of Index Funds in Your Portfolio
You’ve wisely avoided index funds, which tend to underperform compared to actively managed funds, especially in the Indian market. Index funds simply track the market, offering no opportunity for active stock selection. In contrast, actively managed funds allow fund managers to pick stocks that have the potential to outperform, especially in volatile markets.

Points to Consider:
No Active Management: Index funds offer no opportunity for active management, which can limit your returns in the long run.

Outperformance Potential: Actively managed funds have the potential to outperform the market, especially during downturns. The fund manager’s expertise becomes a crucial advantage.

Disadvantages of Direct Funds
Direct mutual funds may seem appealing due to their lower expense ratios, but investing through a regular plan with a Certified Financial Planner (CFP) has significant benefits.

A CFP will help you manage your portfolio more effectively by offering timely advice, rebalancing your investments, and ensuring you’re aligned with your goals. Direct funds lack this guidance, leaving you on your own to make important financial decisions.

Points to Consider:
No Professional Guidance: Direct funds offer no advisory support. You may miss out on crucial market insights that a CFP can provide.

Portfolio Mismanagement: Without professional advice, you could overexpose yourself to risk or miss opportunities to rebalance your portfolio.

Taxation Aspects of Your Portfolio
The new mutual fund taxation rules can impact your returns:

LTCG on Equity Funds: Long-term capital gains above Rs 1.25 lakh are taxed at 12.5%.

STCG on Equity Funds: Short-term capital gains are taxed at 20%.

Debt Funds: Both long-term and short-term capital gains are taxed as per your income tax slab. This is important to keep in mind when selling any debt portion of your hybrid fund.

Points to Consider:
Tax Efficiency: Hybrid and debt funds can impact your tax liability, so plan accordingly when making withdrawals.

Equity Taxation: Your equity mutual funds will give you tax-free gains up to Rs 1.25 lakh, making them more tax-efficient in the long run.

Finally
Your portfolio has a strong foundation, but it could benefit from further optimisation. By reducing overlap in flexicap funds and adding a value-focused fund, you can diversify your investment styles more effectively. Consider adding a momentum fund to enhance your portfolio’s dynamism.

It’s also wise to keep an eye on the allocation between large, mid, and small caps. While your hybrid fund provides stability, ensure that your overall exposure to equities aligns with your risk appetite as you approach retirement.

Lastly, avoid the temptation of index and direct funds. They may seem cost-efficient, but they lack the advantages of active management and professional guidance, which can make a big difference in long-term wealth creation.

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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