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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 10, 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 - Jun 17, 2024Hindi
Money

Sir, I am a software employee currently earning 25L per annuam i have started invested in mutual funds, invested around 15L lumpsum in different funds such as 4.5L debt 10.5L in Equity (3.5L Large, 3L Midcap, 2L Smallcap, 2L Flexicap) if I have STP of 20K per month from ICICI Debt fund to ICICI Bluechip, and another STP from ICICI Bluechip to ICICI Debt fund, will I be able to overcome or avoid tax when I withdraw my money to buy a house after 15 years of 2 crores? assume if the gains are less than 1 lakh per annum will it apply to other fund manager as well as I have invested in different funds as well like ICICI, TATA, SBI?

Ans: Firstly, it’s impressive to see your well-structured investment approach. You’ve diversified your mutual funds across debt and equity, which is excellent for managing risk and optimizing returns. Investing Rs 15 lakhs with a mix of Rs 4.5 lakhs in debt and Rs 10.5 lakhs in various equity funds shows thoughtful planning. Your Systematic Transfer Plan (STP) strategy indicates a keen interest in maximizing returns while managing risks.

You asked about the tax implications and the effectiveness of your STP strategy for your goal of buying a house worth Rs 2 crores in 15 years. Let's break this down into manageable sections.

Systematic Transfer Plan (STP) Strategy
How STP Works
An STP allows you to transfer a fixed amount from one mutual fund to another at regular intervals. This is often used to move funds from a debt fund to an equity fund or vice versa. The primary benefits include:

Rupee Cost Averaging: Helps mitigate market volatility by averaging the purchase cost over time.
Regular Income Stream: Useful for systematic withdrawals in retirement.
Tax Efficiency: Potential to manage capital gains taxation more effectively.
Your Current STP Setup
You have set up an STP of Rs 20,000 per month from an ICICI Debt Fund to an ICICI Bluechip Fund and another STP from ICICI Bluechip Fund to ICICI Debt Fund. This strategy suggests a dynamic approach to managing your investments, aiming to balance risk and return.

Tax Implications
Capital Gains Tax on Mutual Funds
Equity Funds: Long-term capital gains (LTCG) on equity funds are taxed at 10% if the gains exceed Rs 1 lakh per annum. Short-term capital gains (STCG) are taxed at 15%.

Debt Funds: Long-term gains (after 3 years) are taxed at 20% with indexation benefits. Short-term gains are added to your income and taxed as per your slab rate.

Using STP for Tax Efficiency
Your strategy to transfer funds between debt and equity aims to minimize tax liabilities. Here's how:

Minimize Large Lump Sum Withdrawals: By transferring smaller amounts periodically, you can ensure that any capital gains realized in a financial year stay below the Rs 1 lakh threshold, thus avoiding LTCG tax on equity funds.
Utilize STCG/LTCG Efficiently: Regular transfers can help manage the timing of gains, potentially using annual exemptions effectively.
Applicability to Other Funds
The tax principles apply universally across all mutual fund schemes, irrespective of the fund house (ICICI, TATA, SBI, etc.). However, the effectiveness of your strategy can vary based on individual fund performance and market conditions.

Building a Rs 2 Crore Corpus
Assessing Your Current Portfolio
Equity Investments: Rs 10.5 lakhs divided into large-cap (Rs 3.5 lakhs), mid-cap (Rs 3 lakhs), small-cap (Rs 2 lakhs), and flexi-cap (Rs 2 lakhs). Equity investments typically offer higher returns over the long term but come with higher volatility.
Debt Investments: Rs 4.5 lakhs in debt funds provide stability and lower but more predictable returns.
Growth Potential
Given the long-term horizon of 15 years, your equity investments are likely to experience substantial growth, thanks to the power of compounding. However, market fluctuations can impact short-term returns, so it's important to stay invested and not react to market volatility.

Power of Compounding
Compounding is a powerful tool in wealth creation. Reinvesting earnings leads to exponential growth over time. The longer the investment period, the more pronounced the effects of compounding, especially in equity funds. Staying invested for 15 years allows your money to grow significantly.

Rebalancing and Monitoring
Importance of Rebalancing
Rebalancing your portfolio periodically ensures that your asset allocation remains aligned with your financial goals and risk tolerance. Over time, market movements can shift your original allocation, potentially increasing risk.

When to Rebalance
Consider rebalancing:

Annually: Review your portfolio once a year to ensure it aligns with your goals.
Market Movements: Significant market movements can alter your asset allocation.
Life Events: Changes in financial goals or life circumstances might necessitate rebalancing.
Monitoring Performance
Regularly review the performance of your mutual funds. Assess if they are meeting your expectations and adjust your strategy if necessary. It’s essential to stay informed and proactive in managing your investments.

Mutual Fund Categories and Benefits
Equity Mutual Funds
Equity funds invest in stocks and aim for high returns. They are suitable for long-term goals due to their growth potential.

Large-cap Funds: Invest in well-established companies. Lower risk compared to mid and small-cap funds.
Mid-cap Funds: Invest in medium-sized companies. Higher growth potential but also higher risk.
Small-cap Funds: Invest in smaller companies. Highest growth potential but also the highest risk.
Flexi-cap Funds: Invest across different market capitalizations. Offer diversification and flexibility.
Debt Mutual Funds
Debt funds invest in fixed-income securities like bonds and government securities. They offer stability and regular income.

Liquid Funds: Invest in short-term instruments. Suitable for emergency funds.
Short-term and Long-term Debt Funds: Based on the duration of investment, offering predictable returns.
Hybrid Mutual Funds
Hybrid funds invest in both equity and debt instruments, offering a balanced approach. They aim to provide growth potential along with stability.

Advantages of Mutual Funds
Professional Management: Managed by experienced fund managers who make investment decisions on your behalf.
Diversification: Reduces risk by investing in a wide range of securities.
Liquidity: Easy to buy and sell, providing flexibility.
Systematic Investment and Withdrawal Plans: Offers the flexibility to invest or withdraw regularly.
Risks of Mutual Funds
Market Risk: Equity funds are subject to market volatility.
Interest Rate Risk: Debt funds are affected by changes in interest rates.
Credit Risk: Risk of default in debt instruments.
Disadvantages of Index and Direct Funds
Index Funds
Passive Management: Follow a benchmark index. May not outperform the market.
Lack of Flexibility: Cannot take advantage of market opportunities.
Lower Returns: Actively managed funds can outperform index funds during volatile markets.
Direct Funds
Requires Expertise: Need significant market knowledge and constant monitoring.
Time-Consuming: Managing direct investments can be time-consuming.
Higher Risk: Without professional guidance, the risk of making poor investment choices increases.
Final Insights
Your STP strategy from debt to equity and vice versa is thoughtful. It aims to manage risk, optimize returns, and minimize tax liabilities. To achieve your goal of buying a Rs 2 crore house in 15 years, consider the following:

Stay Invested: Long-term investment in equity funds can yield substantial growth due to compounding.
Monitor and Rebalance: Regularly review and rebalance your portfolio to stay aligned with your goals.
Utilize Tax Efficiency: Use STPs effectively to manage capital gains and tax liabilities.
Seek Professional Guidance: A Certified Financial Planner can provide personalized advice and help you navigate your investment journey.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
Money

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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 29, 2024

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Dear Sir...Im turing 36 this Dec....I have home loan remaining around 33.5 lakh(EMI 31648/month)...Im looking forward to close this by end of 2028 and also to build corpus nearly 20 lakh new property down payment...my investments are as per below, 1.Quant/kotak/axis small cap direct growth- 10K/month(9 month old) 2.parag parikh ELSS tax saver- 2K/month(12 month old) 3.mirae asset ELSS tax saver-2K/month(12 month old) 4.quant ELSS tax saver-3K/month(16 month old) 5.Kotak ELSS tax saver-2K/month(16 month old) 6.SBI PSU direct plan-3K/month( 1 month) 6.Aditya birla sunlife PSU equity fund- 5K/month(1 month).apart from this investing stocks (invested 60K till date) need your expertise if I need to change funds...these are combined investment by me & my wife..TAX saver are required to avoid tax liability under 80C...how much I need to invest further to achive the goal.....
Ans: Optimizing Your Investment Strategy for Financial Goals
It's commendable that you have a clear vision for your financial future. Balancing a home loan, tax-saving investments, and building a corpus for property down payment requires a strategic approach. Let's evaluate your current investments and suggest improvements.

Evaluating Current Investments
You have diversified your investments across various mutual funds and ELSS schemes. This is a good start. Here’s a brief analysis of your portfolio:

Small Cap Funds: Investing Rs. 10K/month in small cap funds for 9 months shows an aggressive growth strategy. Small cap funds offer high returns but come with higher risk.

ELSS Tax Saver Funds: You have significant investments in ELSS to avail tax benefits under Section 80C. This is prudent as it serves dual purposes of tax saving and wealth creation.

PSU Equity Funds: Your recent investments in PSU equity funds suggest a strategic shift towards stability. PSUs can offer relatively stable returns and dividends.

Stock Investments: Your stock investments of Rs. 60K till date indicate a hands-on approach to wealth building. Stock picking requires research and time, which you seem committed to.

Financial Goals: Home Loan Closure and Down Payment Corpus
Closing Home Loan by 2028
To close your home loan by 2028, you need to focus on prepayment strategies. Prepaying your loan can significantly reduce the interest burden. Here’s how you can approach it:

Prepayment Plan: Allocate any annual bonuses, increments, or windfall gains towards loan prepayment. Even small prepayments can shorten the loan tenure.

Increase EMI Amount: If possible, increase your EMI by a small percentage each year. This reduces the principal faster.

Building a Corpus for Property Down Payment
You aim to accumulate Rs. 20 lakh for a property down payment. Given your investment horizon of 4-5 years, here’s a structured approach:

Systematic Investment Plan (SIP): Continue your SIPs but focus on a mix of mid-cap, multi-cap, and balanced funds. These funds balance growth and stability.

Monthly Investment: To accumulate Rs. 20 lakh, calculate the required monthly SIP amount. This should include a realistic growth rate based on past performance.

Optimizing Your Portfolio
Reviewing Fund Performance
Small Cap Funds: Continue with small cap funds but monitor their performance regularly. Small cap funds can be volatile, so stay updated with their performance and market trends.

ELSS Funds: Consolidate your ELSS investments if needed. Too many funds can lead to overlapping and diluted returns. Choose the best-performing ELSS funds and focus on them.

PSU Funds: Continue with PSU funds for stability and dividends. However, ensure they align with your risk profile and long-term goals.

Suggested Funds for Additional Investment
To invest an additional Rs. 20K per month, consider the following types of funds:

Multi-Cap Funds: These funds offer flexibility to invest across different market capitalizations, providing a balanced growth approach.

Balanced Advantage Funds: These dynamically adjust the allocation between equity and debt based on market conditions, offering stability with growth.

Mid-Cap Funds: Mid-cap funds offer a balance between the high risk of small caps and the stability of large caps.

Focused Equity Funds: These funds invest in a concentrated portfolio of high-conviction stocks, potentially offering high returns with a focused risk approach.

Hybrid Funds: These funds invest in both equity and debt instruments, providing balanced risk and return.

Creating a Diversified Portfolio
Sample Allocation
Multi-Cap Funds: Rs. 5,000/month
Balanced Advantage Funds: Rs. 5,000/month
Mid-Cap Funds: Rs. 5,000/month
Focused Equity Funds: Rs. 3,000/month
Hybrid Funds: Rs. 2,000/month
This allocation ensures diversification across various asset classes, reducing risk while aiming for optimal returns.

Regular Monitoring and Rebalancing
Regularly monitor your investments and rebalance your portfolio annually. This ensures your portfolio remains aligned with your financial goals and risk tolerance.

Conclusion
Your current investment strategy is well thought out. By optimizing your portfolio and focusing on a mix of funds, you can achieve your financial goals of closing your home loan and building a property down payment corpus.

Continue your disciplined approach, stay informed, and adjust your investments as needed. Seek guidance from a Certified Financial Planner for personalized advice and to stay on track with your financial journey.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

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

Money
Hi Sir, I have started investing in below mutual funds from the past 3 years Tata Small Cap Fund - Direct Plan - Growth 10k SIP Tata Nifty Midcap 150 Momentum 50 Index Fund - Direct Plan - Growth 10k SIP Aditya Birla Sun Life Frontline Equity Fund -Growth-Direct Plan 10k SIP HSBC Midcap Fund - Direct Growth 10k SIP ICICI Prudential All Seasons Bond Fund - Direct Plan - Growth 10k SIP ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund Direct Plan Growth 10k SIP ICICI Prudential India Equity FOF Direct Plan Growth 10k SIP Kotak Flexicap Fund - Direct Growth 10k SIP can you analyze my portfolio and let me know for my 5cr corpus for next 10 years one more question what if I STP of 10k from Tata small cap to Tata nifty, and Tata nifty to Tata small cap will the capital gains taxes can be avoided ?
Ans: Your commitment to investing Rs. 80,000 per month in mutual funds is commendable. Let's analyze your portfolio and see how you can achieve your goal of a Rs. 5 crore corpus in the next 10 years.

Your Current Portfolio
Tata Small Cap Fund - Direct Plan - Growth

Small cap funds offer high growth potential but come with high risk. These funds invest in smaller companies that can deliver high returns but can also be volatile.

Tata Nifty Midcap 150 Momentum 50 Index Fund - Direct Plan - Growth

Index funds track the performance of a specific index. While they offer diversification, they are passively managed and may not outperform actively managed funds.

Aditya Birla Sun Life Frontline Equity Fund - Growth - Direct Plan

This is a large cap fund, investing in well-established companies. Large cap funds provide stability and consistent returns with lower risk compared to small and mid cap funds.

HSBC Midcap Fund - Direct Growth

Mid cap funds invest in medium-sized companies. They offer a balance between risk and return, with potential for good growth.

ICICI Prudential All Seasons Bond Fund - Direct Plan - Growth

Bond funds invest in debt securities and provide stable returns with lower risk. They are suitable for conservative investors looking for regular income.

ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund Direct Plan Growth

Sectoral funds invest in specific sectors. They offer high growth potential but come with high risk due to lack of diversification.

ICICI Prudential India Equity FOF Direct Plan Growth

Fund of funds (FOF) invest in other mutual funds. They offer diversification but come with higher expense ratios due to multiple layers of management fees.

Kotak Flexicap Fund - Direct Growth

Flexicap funds invest across market capitalizations. They provide flexibility to invest in large, mid, and small cap stocks based on market conditions.

Portfolio Assessment
Your portfolio is diversified across various types of funds. However, it has a high concentration in direct plans and index funds. Let's discuss the disadvantages of direct plans and index funds.

Disadvantages of Direct Plans
Direct plans require active management and knowledge of the market. They may save on commission costs but can be less beneficial if not actively monitored. Investing through a certified financial planner can provide professional advice and better fund selection.

Advantages of Investing Through Mutual Fund Distributors (MFD)
Professional Advice
MFDs provide expert advice and help in selecting the right funds based on your financial goals and risk appetite. They have in-depth market knowledge and experience.

Personalized Portfolio Management
MFDs offer personalized portfolio management. They continuously monitor your portfolio and make adjustments as needed to align with your goals.

Regular Updates and Reviews
MFDs provide regular updates on your investments and conduct periodic reviews. They ensure your investments are on track to meet your financial goals.

Simplified Investment Process
MFDs simplify the investment process. They handle all the paperwork, follow-up, and compliance requirements, saving you time and effort.

Disadvantages of Investing Directly
Lack of Professional Guidance
Investing directly means you miss out on professional guidance. Making informed decisions requires market knowledge, which can be challenging for individual investors.

Higher Risk of Mistakes
Without professional advice, the risk of making investment mistakes increases. Wrong fund selection or timing can lead to suboptimal returns.

Time-Consuming
Managing investments directly is time-consuming. It requires continuous monitoring and adjusting based on market conditions, which can be challenging for busy professionals.

Emotional Biases
Investing directly can lead to emotional biases. Fear and greed can drive decisions, leading to poor investment choices.

Disadvantages of Index Funds
Index funds are passively managed and may not outperform actively managed funds. They strictly follow the index, which means they can miss out on opportunities to outperform the market. Actively managed funds, on the other hand, have professional fund managers aiming to beat the market.

Investment Strategy for Rs. 5 Crore Corpus
Achieving a Rs. 5 crore corpus in 10 years requires disciplined investing and a well-planned strategy.

Maintain a Balanced Portfolio
Balance your portfolio with a mix of equity and debt funds. Equity funds provide high returns, while debt funds offer stability.

Equity Funds

Allocate a significant portion to equity funds for high growth potential. Include a mix of large cap, mid cap, and small cap funds. Flexicap funds can provide flexibility to adjust based on market conditions.

Debt Funds

Include debt funds for stability and regular income. They reduce overall portfolio risk and provide cushion during market volatility.

Systematic Investment Plan (SIP)
Continue your SIPs to ensure disciplined investing. SIPs help in averaging out the cost of investment and reduce the impact of market volatility.

Diversify Across Fund Houses
Diversifying across different fund houses reduces risk. Different fund houses have different management styles and performance records.

Regular Review and Rebalancing
Review your portfolio regularly and rebalance if needed. Market conditions change, and rebalancing ensures your portfolio stays aligned with your goals.

Avoid Frequent Switching
Frequent switching between funds can lead to capital gains taxes and exit loads. Stick to your investment plan and make changes only if necessary.

Understanding Systematic Transfer Plan (STP) and Tax Implications
STP allows transferring a fixed amount from one mutual fund to another regularly. It helps in averaging out the investment cost.

STP from Tata Small Cap to Tata Nifty

If you use STP to transfer funds, it is considered a redemption from one fund and an investment in another. This triggers capital gains taxes.

Capital Gains Taxes

Short-term capital gains (STCG) for equity funds are taxed at 15%. Long-term capital gains (LTCG) above Rs. 1 lakh per year are taxed at 10%. For hybrid debt funds, STCG is taxed as per your income tax slab, and LTCG is taxed at 20% with indexation benefits.

Avoid frequent STPs to minimize tax liabilities. Stick to your long-term investment plan.

Power of Compounding
Compounding is your best friend in long-term investing. The returns on your investments generate additional returns, leading to exponential growth.

Example of Compounding
If you invest Rs. 10,000 per month in an equity fund with an average annual return of 12%, in 10 years, your investment grows significantly due to compounding. The longer you stay invested, the more powerful the compounding effect.

Mutual Funds: Categories, Advantages, and Risks
Large Cap Funds

Invest in well-established companies
Offer stability and consistent returns
Lower risk compared to small and mid cap funds
Mid Cap Funds

Invest in medium-sized companies
Balance between risk and return
Potential for good growth
Small Cap Funds

Invest in smaller companies
High growth potential but high risk
Suitable for aggressive investors
Debt Funds

Invest in fixed-income securities
Provide stable returns with lower risk
Suitable for conservative investors
Hybrid Funds

Mix of equity and debt funds
Balance between risk and return
Flexibility to adjust based on market conditions
Sectoral Funds

Invest in specific sectors
High growth potential but high risk
Lack of diversification
Fund of Funds (FOF)

Invest in other mutual funds
Offer diversification
Higher expense ratios due to multiple layers of fees
Final Insights
Your disciplined investment in mutual funds is impressive. To achieve a Rs. 5 crore corpus, maintain a balanced portfolio, continue your SIPs, and avoid frequent switching to minimize tax liabilities. Regularly review and rebalance your portfolio to stay aligned with your goals.

Avoid direct and index funds for better professional management and potential outperformance. Utilize the power of compounding by staying invested for the long term.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Whatever you are saying is just shocking. The track record of TCS is not like that, as you described in your question. It would be better to contact TCS again and ask them when they will give on boarding letter. It is not clear from your query whether your son had done some correspondence with TCS or not related to the job offered. It is also not clear which two exams he appeared in. If not selected in a campus interview, searching for a job might be tedious but not so difficult. Ask your son to post a strong resume on the LinkedIn portal and remain in touch with his seniors. Please visit the websites of renowned companies daily to search for vacancies. There are many job-offering portals where he can register his name. Please ask the college placement division for any placement opportunities.
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T S Khurana   |197 Answers  |Ask -

Tax Expert - Answered on Nov 23, 2024

Asked by Anonymous - May 11, 2024Hindi
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Can you please suggest on capital gains as per Indian taxation laws arising in the below two queries : 1) property purchased with joint ownership, me and my wife’s name in 2015 at a cost of 64,80,000, housing improvements done for the cost of 1000000 and brokerages of 200000 paid and sold the same property at 10000000 in Dec 2023? 2) 87% of the proceeds got from the deal i.e 8700000, have been reinvested to pay 25% amount in purchasing another joint ownership property in Dec 2023, 3) I have invested in another under construction property in Nov 2023 by taking housing loan, which is on me and my wife’s name worth 1.4 cr, here the primary applicant is me only while wife is just made a Co applicant in the builder buyer agreement and also on the housing loan . So what are the LTCG tax liabilities arising from the above 3 scenarios for FY 2023-2024 and FY 2024-2025. I intend to sale off the property acquired in (2) by Dec 2024 and use that proceeds to close the housing loan for the property acquired in (3), will this sale of property be inviting any tax liabilities if the complete proceeds received from the sale of the property in (2) would be utilised to close the housing loan taken in Nov 2023 for the property in (3) ? Since in FY 23-24, I would be claiming the LTCG from the sale proceeds of 1) invested in the purchase of property in 2), and I intend to sale off this property in Dec 2024, will the LTCG claim be forfeited on the property sale in (1), should I hold this property at least for further 1 year so that sale of this property in 2) will not invite STCG?
Ans: (A). Let's first talk about F/Y 2023-24 :
You jointly sold a Property during the year for Rs.76.80 lakhs (64.80+10.00+2.00), & sold the same for Rs.100.00 lakhs.
You have jointly also purchased Property No.3 (I suppose it is Residential only), for Rs.140.00 lakhs.
You should avail exemption u/s-54 & file your ITR accordingly. Please disclose all details about sale & purchase in your ITR.
02. Now coming to the F/Y 2024-25 :
You intend to Sell Property No.2, which was acquired in 2023-24. Any Gain on Sale of it would be Short Term capital Gains & taxed accordingly.
Alternatively, you may hold this sale of property no.2 (for 2 years from its purchase) & avoid STCG
You are free to utilize the sale proceeds in a way you like, including paying off your housing Loan.
Please note to avail exemption u/s 54 only from investment in property no.3 & not 2.
Most welcome for any further clarifications. Thanks.

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