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Ramalingam Kalirajan |3951 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 16, 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 16, 2024Hindi

Sir, My take home salary is 39.5 K, living on rent, Will have a matured savings of 9.5 L by two months, I am having PF deduction every month which is now cumulated to about more than 1.5 L Having two daughters elder one is going to be 19 by Sep 2024 and younger one would be 14 by Oct 2024. With the purpose to easily meet my upcoming liabilities and getting home easily in 10 years, suggest some investment, Whether I have to invest in gold or sip or anything else Please suggest with amount advice also.

Ans: Evaluating Your Financial Situation
You are earning a take-home salary of Rs. 39,500 and living on rent. You have a matured savings amount of Rs. 9.5 lakhs and a PF balance of over Rs. 1.5 lakhs. Your two daughters are 18 and 13 years old, with the elder one turning 19 by September 2024 and the younger one turning 14 by October 2024. You aim to meet upcoming liabilities and purchase a home in 10 years. Let's delve into a comprehensive investment strategy to help you achieve these goals.

Immediate Financial Priorities
Emergency Fund:
Ensure you have an emergency fund equal to 6-12 months of your living expenses. This fund should be easily accessible and kept in a savings account or liquid fund.

Debt Repayment:
If you have any high-interest debt (e.g., credit card debt), prioritize paying it off. High-interest debt can erode your savings faster than you can build them.

Health and Life Insurance:
Ensure you have adequate health insurance for your family. Additionally, having term life insurance is crucial to secure your family's future in case of an unfortunate event.

Education Fund for Daughters
Higher Education:
Your elder daughter will soon enter higher education. Create a separate fund to cover her education expenses. Consider investing in a balanced mix of debt and equity funds to match the timeline.

Younger Daughter’s Education:
Start a long-term investment plan for your younger daughter's higher education. You have around 4-5 years before she enters college, so a mix of equity and debt funds is appropriate.

Investment Strategy for Home Purchase in 10 Years
Systematic Investment Plans (SIPs):
SIPs in mutual funds are an excellent way to build a corpus over time. They offer the benefit of rupee cost averaging and compounding. Since your goal is 10 years away, consider investing in equity mutual funds through SIPs for higher returns.

Balanced or Hybrid Funds:
To reduce risk while still aiming for growth, you can invest in balanced or hybrid funds. These funds invest in both equity and debt, providing a balanced approach.

Recurring Deposits (RDs) and Fixed Deposits (FDs):
While not as high-yielding as mutual funds, RDs and FDs offer guaranteed returns and are suitable for those seeking low-risk investments.

Gold as an Investment
Advantages:
Gold acts as a hedge against inflation and currency fluctuations. It is a safe investment, especially during economic uncertainty.

Disadvantages:
Gold does not generate regular income like dividends or interest. Its value can be volatile in the short term.

Recommendation:
Limit gold investments to 5-10% of your portfolio. Consider gold ETFs or sovereign gold bonds for better liquidity and returns.

Detailed Investment Plan
Monthly Investment Allocation
Given your take-home salary and financial commitments, a disciplined approach is crucial.

Emergency Fund:
Maintain Rs. 2-3 lakhs in a liquid fund or savings account for emergencies.

SIPs for Education:

Elder Daughter: Start an SIP of Rs. 5,000 per month in a balanced fund.
Younger Daughter: Start an SIP of Rs. 3,000 per month in an equity fund.
SIPs for Home Purchase:
Allocate Rs. 10,000 per month in diversified equity mutual funds through SIPs. This will help build a substantial corpus over 10 years.

Gold Investment:
Invest Rs. 2,000 per month in gold ETFs or sovereign gold bonds.

Retirement Fund:
Continue your PF contributions and consider an additional SIP of Rs. 3,000 per month in a retirement-focused fund.

Utilization of Lump Sum Savings
Education Fund:
Allocate Rs. 3 lakhs from your matured savings to a balanced fund for your elder daughter's immediate education expenses.

Home Purchase Fund:
Invest Rs. 4 lakhs in a combination of equity and hybrid funds to kickstart your home purchase fund.

Retirement Fund:
Invest Rs. 2.5 lakhs in a diversified equity fund or a retirement-focused mutual fund.

Monitoring and Rebalancing
Regular Review:
Review your investment portfolio every 6 months. Assess the performance of your funds and make adjustments if necessary.

Rebalancing:
Rebalance your portfolio annually to maintain your desired asset allocation. This helps in managing risk and optimizing returns.

Long-term Investment Principles
Discipline and Consistency:
Regular and disciplined investing is crucial. Stick to your SIPs and avoid the temptation to withdraw funds prematurely.

Risk Management:
Diversify your investments across asset classes to manage risk. Avoid putting all your money in a single type of investment.

Professional Guidance:
Consult with a Certified Financial Planner (CFP) periodically to ensure your investment strategy remains aligned with your goals.

Benefits of Actively Managed Funds
Potential for Higher Returns:
Actively managed funds aim to outperform the market through strategic stock selection and timing.

Professional Management:
Experienced fund managers continuously monitor and adjust the portfolio to capitalize on market opportunities.

Flexibility:
Actively managed funds can quickly adapt to changing market conditions, which is beneficial in volatile markets.

Drawbacks of Index Funds
Market Performance:
Index funds only match market performance and cannot outperform it. In bearish markets, they perform poorly.

Lack of Flexibility:
Index funds are passively managed and cannot adapt to market changes or opportunities.

Disadvantages of Direct Funds
Higher Responsibility:
Investing in direct funds requires thorough research and continuous monitoring, which might not be feasible for all investors.

Lack of Guidance:
Without professional advice, you might miss out on strategic investment opportunities and risk management.

Time-Consuming:
Managing direct funds can be time-consuming and requires a deep understanding of market dynamics.

Final Insights
Your current financial situation requires a balanced approach towards meeting immediate needs and future goals. Establishing a robust emergency fund, focusing on your daughters’ education, and systematically building a home purchase fund are essential steps. Diversifying your investments across equity, debt, and gold will help manage risk and enhance returns. Regular monitoring, disciplined investing, and professional guidance from a Certified Financial Planner will ensure you stay on track towards achieving your financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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