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Ramalingam

Ramalingam Kalirajan  |7012 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 14, 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
Ankit Question by Ankit on May 13, 2024Hindi
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Money

Dear sir , I have started my investment journey in 2017 and my goal is my kid education and retirement corpus. I am investing 5000 in SBI Blue chip, 3500 in ABSL frontline equity, 2000 in mira asset ELSS, 1500 in PPFAS flexi cap , 1500 in Quant active fund , 3000 in Motilal Oswal mid cap , 1000 in HSBC midcap , 2500 in HSBC small cap, 2000 in Axis small cap, 2000 in kotak small cap. Apart from this I am doing 1 lakh per year in PPF and 6500 in NPS. Is my investment are ok or it requires some balancing and next year I want to increase my investment should I increase in MF or NPS please guide. Regards.

Ans: Your investment journey showcases a diversified portfolio aimed at achieving your goals of funding your child's education and building a retirement corpus. Let's evaluate your current investments and provide guidance on potential adjustments and future contributions.

Current Investment Evaluation
Portfolio Diversification:
Your portfolio consists of investments across various mutual funds, covering large-cap, mid-cap, small-cap, and ELSS categories. This diversification helps spread risk across different market segments.

PPF & NPS Contributions:
Your annual contributions to PPF and NPS demonstrate a commitment to long-term savings and retirement planning. These tax-efficient investment avenues can significantly contribute to your retirement corpus.

Fund Selection:
While you've chosen well-known funds with a track record of performance, it's essential to periodically review each fund's performance and adjust your holdings if necessary.

Recommendations
Portfolio Rebalancing:
Evaluate the performance of each fund and rebalance your portfolio if required. Consider trimming or consolidating holdings in funds with overlapping objectives or underperforming assets.

Asset Allocation:
Ensure your asset allocation aligns with your risk tolerance and investment horizon. Consider increasing exposure to funds that complement your goals while reducing exposure to high-risk or redundant funds.

Increase in Investments:
With the goal of increasing your investments next year, consider allocating additional funds to well-performing mutual funds that align with your investment objectives. You may also explore increasing contributions to NPS to benefit from additional tax savings and retirement benefits.

Review Tax Implications:
Factor in the tax implications of your investments, especially in ELSS, PPF, and NPS. Ensure you're maximizing tax efficiency while optimizing returns.

Conclusion
By periodically reviewing and rebalancing your portfolio, aligning your investments with your financial goals, and considering tax-efficient options like PPF and NPS, you can continue to progress towards funding your child's education and building a robust retirement corpus.

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.
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Ramalingam

Ramalingam Kalirajan  |7012 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 08, 2024

Asked by Anonymous - Jul 07, 2024Hindi
Money
Hello sir, I am 43 years old and a Govt. employee. I need to plan for my children's future and my retired life too as I am not under OPS but under NPS. Cash-in-hand salary after all deductions is 40k. Following are my investments: 1) PPF 37 lacs, 1.50lacs yearly contribution. 2) SSA 14 lacs, 1.50lacs yearly contribution. 3) PF 27 lacs, 32K monthly contribution managed by my employer. 4) NPS 26 lacs, 25K monthly contribution both managed by my employer. 5) A house through Home loan which I will repay by 60. 6) MF Portfolio: 26 lacs against investment of 10lacs in following funds: Nippon India Tax Saver, Nippon India Small Cap, HSBC Infrastructure Fund, HDFC Midcap Opportunities, DSP NRNE, HSBC Midcap, ABSL Focused, Mirae Asset Large Cap, SBI Bluechip, SBI Balanced Advantage, Tata Smallcap, Baroda BNP Paribas Smallcap, Quant Active, Axis Smallcap, SBI Contra, SBI Automotive Opportunities I am investing in above 16 funds through 1000 monthly SIP and plan it to continue till 60. Thereafter I am planning to start SWP with the available corpus at that time. Kindly advise especially about my MF portfolio allocation and my planning for retirement whether I am proceeding in the right direction or do I need to make some changes. Your advice would be beneficial to me. Thanks in advance.
Ans: Planning for your children's future and your retirement is wise. With your current investments, you're on the right path but let’s refine your strategy for better results. Here’s a detailed analysis and suggestions.

Current Investments Analysis
Public Provident Fund (PPF)
Your PPF is robust with Rs 37 lacs and an annual contribution of Rs 1.5 lacs. This is a safe and tax-efficient investment, but it’s important to balance safety with growth.

PPF gives guaranteed returns, but they are moderate. It’s a great tool for safety and long-term growth.

Sukanya Samriddhi Account (SSA)
SSA is an excellent choice for your daughter’s future. With Rs 14 lacs and an annual contribution of Rs 1.5 lacs, it’s a solid investment for her education and marriage expenses. Like PPF, it offers safety and decent returns.

Provident Fund (PF)
Your PF balance is Rs 27 lacs with a monthly contribution of Rs 32k. This is a great safety net for retirement. PF offers guaranteed returns and tax benefits.

National Pension System (NPS)
NPS is a good retirement savings tool, providing market-linked returns. Your NPS balance is Rs 26 lacs with a monthly contribution of Rs 25k. It’s flexible and offers better returns over time.

Home Loan
Having a house is a good asset, and repaying your home loan by 60 is a prudent goal. Owning a home gives financial stability in retirement.

Mutual Fund Portfolio
Your mutual fund (MF) portfolio is Rs 26 lacs against an investment of Rs 10 lacs. Investing in 16 different funds through monthly SIPs of Rs 1,000 each is commendable but needs refinement for better performance.

Refining Your Mutual Fund Portfolio
Reduce the Number of Funds
Investing in too many funds dilutes potential gains. Consider consolidating your portfolio. Focus on a balanced mix of large-cap, mid-cap, and small-cap funds.

Active vs. Passive Management
Actively managed funds, like the ones you have, are good as fund managers can adapt to market changes. They aim to outperform the benchmark.

Suggested Fund Categories
Large-Cap Funds
These invest in well-established companies with stable returns. They provide steady growth and lower risk.

Mid-Cap Funds
These invest in medium-sized companies with growth potential. They offer higher returns but with higher risk.

Small-Cap Funds
These target small companies with high growth potential. They are risky but can offer significant returns.

Balanced Advantage Funds
These dynamically manage asset allocation between equity and debt. They provide stability and growth.

Advantages of Mutual Funds
Professional Management
Mutual funds are managed by experts who make informed decisions on your behalf.

Diversification
Investing in mutual funds allows diversification, reducing risk and enhancing potential returns.

Liquidity
Mutual funds are relatively liquid. You can redeem your investment anytime.

Systematic Investment Plan (SIP)
SIPs help in disciplined investing, averaging out costs and reducing market timing risk.

Compounding
Mutual funds benefit from the power of compounding, significantly growing your investment over time.

Disadvantages of Index Funds
Limited Flexibility
Index funds strictly follow the index, offering no flexibility in changing market conditions.

Average Returns
Index funds aim to match the index returns, which are average and not always the best.

Benefits of Actively Managed Funds
Potential to Outperform
Actively managed funds aim to outperform the index, providing higher returns.

Flexibility
Fund managers can make strategic decisions based on market conditions.

Evaluating Your Current Strategy
Monthly Contributions
You’re investing Rs 1000 per month in 16 funds, totaling Rs 16,000 monthly. This is a good strategy but can be optimized by focusing on fewer, high-performing funds.

Systematic Withdrawal Plan (SWP)
Starting an SWP after 60 is a smart move. It provides regular income and keeps your investment growing.

Optimizing Your Investments
Focus on Quality Funds
Choose funds with a consistent track record. Look for those with good ratings and past performance.

Monitor and Review
Regularly review your portfolio. Make changes if necessary to ensure it aligns with your goals.

Risk Management
Ensure your portfolio matches your risk appetite. Diversify to balance risk and returns.

Long-Term Goals
Children's Education and Marriage
Your SSA is a great start. Consider additional investments in mutual funds for higher returns to cover inflation-adjusted expenses.

Retirement Planning
Your PF, NPS, and PPF are solid foundations. Enhance your retirement corpus with balanced mutual funds for growth.

Additional Suggestions
Emergency Fund
Maintain an emergency fund covering 6-12 months of expenses. It ensures financial stability in unforeseen circumstances.

Health Insurance
Ensure adequate health insurance for your family. It prevents dipping into savings during medical emergencies.

Tax Planning
Maximize tax-saving investments under Section 80C and other applicable sections. It optimizes your post-tax returns.

Final Insights
Your current investments show a well-planned approach towards securing your future and your children’s. With a few refinements in your mutual fund portfolio and regular monitoring, you can enhance your returns and achieve your goals more efficiently.

Stay focused on your long-term objectives. Continue your disciplined investment approach, and you will see substantial growth in your wealth over time.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7012 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 20, 2024

Money
Dear sir, currently I am investing 5000 in SBI Blue chip, 3500 in ABSL frontline equity, 2000 in mira asset ELSS, 5000 in PPFAS flexi cap , 2500 in Quant active fund 5000 in Motilal Oswal mid cap , 1000 in HSBC midcap , 2500 in HSBC small cap, 3000 in Nippon small cap and 2000 in quant small cap. Apart from this I am doing 1 lakh per year in PPF and 10000 per month in NPS. I have started my investment since 2017 and gathered around 16 lakhs , my target is 1 cr in 2031 , Questions , is my investments are inline to achieve my aim , further I want to start sip exclusively for my kid , he is 8 yrs old I can contribute 5 k , pls suggest a aggressive Equity fund for around 20 yrs horizon. Shall I continue to invest in PPF / NPS OR divert money to MFs pls suggest, waiting for your reply. Thanks and regards.
Ans: Your current investment portfolio includes:

SBI Blue Chip Fund: Rs. 5,000
Aditya Birla Sun Life Frontline Equity Fund: Rs. 3,500
Mirae Asset ELSS: Rs. 2,000
PPFAS Flexi Cap Fund: Rs. 5,000
Quant Active Fund: Rs. 2,500
Motilal Oswal Midcap Fund: Rs. 5,000
HSBC Midcap Fund: Rs. 1,000
HSBC Small Cap Fund: Rs. 2,500
Nippon Small Cap Fund: Rs. 3,000
Quant Small Cap Fund: Rs. 2,000
Public Provident Fund (PPF): Rs. 1 lakh per year
National Pension System (NPS): Rs. 10,000 per month
You've accumulated around Rs. 16 lakhs since 2017. Your goal is to achieve Rs. 1 crore by 2031. Additionally, you're looking to start an aggressive equity SIP for your 8-year-old child, with a 20-year horizon.

Assessing Your Current Portfolio
Diversification and Fund Allocation:

Your portfolio is diversified across large-cap, mid-cap, small-cap, and flexi-cap funds. This diversification is positive as it balances risk and return potential.
Your exposure to mid-cap and small-cap funds indicates a moderate to high-risk appetite. This is aligned with your long-term goal but requires consistent monitoring due to the inherent volatility in these segments.
The allocation to ELSS (Mirae Asset) provides tax benefits but also contributes to your equity exposure.
PPF and NPS Contributions:

PPF: While PPF is a safe investment with tax benefits, its returns (typically around 7-8%) may not be sufficient to meet your aggressive goal of Rs. 1 crore by 2031. The lock-in period is also a limitation if you require liquidity.
NPS: NPS offers a mix of equity and debt, with some tax benefits. However, its returns are generally lower than pure equity funds, and it comes with restrictions on withdrawal until retirement.
Progress Towards Your Rs. 1 Crore Goal
Current Portfolio Value:

You've accumulated Rs. 16 lakhs since 2017, which is a commendable start. However, to reach Rs. 1 crore by 2031, you'll need to assess whether your current SIPs are adequate.
Expected Growth:

Assuming an average return of 12-14% per annum from your equity mutual funds, your current investments should grow significantly by 2031. However, to reach Rs. 1 crore, you'll need to ensure that your investments are aggressive enough and consistently reviewed.
SIP Analysis:

Your current SIPs total Rs. 30,500 per month. If this continues, and assuming a 12% annual return, you could potentially reach around Rs. 80-90 lakhs by 2031. To bridge the gap to Rs. 1 crore, you may need to increase your SIPs slightly or optimize your portfolio.
Recommendations for Optimizing Your Portfolio
Continue Investing in Equity Mutual Funds:

Considering your goal and risk appetite, it's advisable to continue focusing on equity mutual funds. They have the potential to deliver higher returns over the long term compared to PPF and NPS.
Reallocation from PPF/NPS to Mutual Funds:

You may consider reducing your contributions to PPF and NPS and reallocating those funds into your equity mutual funds. This strategy could enhance your portfolio's growth potential.

For instance, you could reduce your PPF contribution to the minimum required to maintain the account and redirect the surplus to a well-performing equity fund.

Additional SIP for Your Child:

For your child’s education or future needs, with a 20-year horizon, you can opt for an aggressive equity fund. An equity fund with a focus on growth sectors like technology, healthcare, or emerging markets can be suitable.

Since you’re comfortable with risk, you might consider a mid-cap or small-cap fund with a strong track record. Over 20 years, these funds can deliver substantial returns, though they come with higher volatility.

Fund Performance Monitoring:

Regularly review the performance of your mutual funds. If a fund consistently underperforms its benchmark or peers, consider switching to a better-performing option.

While diversification is important, avoid over-diversification, which can dilute returns. A well-chosen set of 5-7 funds can be more effective than spreading your investments too thinly.

Suggested Changes and Future Actions
Consolidate Your Portfolio:

Consider consolidating your investments into fewer, high-performing funds. For instance, you might reduce the number of small-cap funds to focus on those with the best track records.

Simplifying your portfolio makes it easier to manage and track performance.

Increase SIPs Gradually:

To bridge the gap to Rs. 1 crore, consider increasing your SIPs by a small amount each year. Even a Rs. 2,000-3,000 increase annually can make a significant difference over time.
Maintain Emergency Funds:

Ensure you have an adequate emergency fund separate from your investments. This will prevent you from liquidating investments during market downturns or emergencies.
Final Insights
Your current investment strategy is on the right track, but slight adjustments and a focus on equity funds can help you achieve your Rs. 1 crore target by 2031. For your child’s future, an aggressive equity fund with a 20-year horizon is a wise choice. Reducing your exposure to lower-yielding options like PPF and reallocating to mutual funds can further enhance your portfolio's growth potential.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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