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Ramalingam Kalirajan |8327 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 15, 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

Question by vivek on Jun 15, 2024Hindi

Thank you for answering my query and appreciate for your perfect analysis. My another question in continuation, is my allocation of 4000 in Small cap; 3000 in Midcap & 2000 in large cap is the right combination for my daugter who is just 19 years old and earning 15K stipend with any financial burden or obligations? Please note: In case of any point of time, if she unble to meet her SIP for sometime 6-8 months due to her studies ( I can fill the gaps ).

Ans: Thank you for your appreciation and kind words. It's wonderful to see your dedication to your daughter's financial future. Let's delve deeper into your question about the allocation strategy for her investments and address the concerns regarding potential gaps in SIP contributions due to her studies.

Assessing the Allocation Strategy
Small Cap Funds: Rs 4,000/Month
Growth Potential: Small cap funds have the potential for significant growth due to their exposure to emerging companies. These companies often have higher growth rates compared to larger, more established firms.

Risks: However, small cap funds are also highly volatile. Their performance can fluctuate significantly in the short term. Given her young age, she can afford to take on this risk for the potential of higher returns.

Mid Cap Funds: Rs 3,000/Month
Balanced Growth: Mid cap funds offer a balance between growth and stability. These funds invest in companies that are past the initial growth phase but still have significant growth potential.

Moderate Risk: Mid cap funds are less volatile than small cap funds but more volatile than large cap funds. This makes them a good middle ground for balancing the portfolio's risk and return.

Large Cap Funds: Rs 2,000/Month
Stability: Large cap funds provide stability to the portfolio. They invest in well-established companies that are typically less volatile.

Steady Returns: While the returns from large cap funds might not be as high as those from small or mid cap funds, they offer more predictable and steady growth over the long term.

Balanced Portfolio
Diversification: Your proposed allocation of Rs 4,000 in small cap, Rs 3,000 in mid cap, and Rs 2,000 in large cap funds is well-balanced. It diversifies the portfolio across different market capitalizations, which can help mitigate risks and optimize returns.

Young Age Advantage: At 19, your daughter has a long investment horizon. This allows her to ride out market volatility and benefit from the compounding growth of her investments.

Managing Potential Gaps in SIP Contributions
Understanding SIPs
Systematic Investment Plans (SIPs): SIPs are a disciplined way to invest regularly in mutual funds. They help in averaging out the cost of investment and instill a habit of regular saving.

Flexibility: One of the significant advantages of SIPs is their flexibility. Investors can pause and resume their SIPs based on their financial situation.

Addressing Potential Gaps
Temporary Pause: If your daughter needs to pause her SIPs for 6-8 months due to her studies, it won't negatively impact her overall investment strategy. Most mutual fund companies allow investors to pause and resume SIPs without penalties.

Parental Support: Since you mentioned that you can fill the gaps if needed, this adds an extra layer of security. Your support can ensure that her investment journey continues uninterrupted, even if she faces temporary financial constraints.

Long-Term Perspective: The key to successful investing is a long-term perspective. Temporary pauses in SIPs won't significantly affect the long-term growth of her portfolio, especially with your backing.

Importance of Regular Reviews and Adjustments
Periodic Portfolio Review
Regular Check-ins: It's essential to review the portfolio periodically. This helps in assessing the performance of the funds and making necessary adjustments.

Rebalancing: Depending on the market conditions and the performance of different fund categories, rebalancing the portfolio might be required. This ensures that the allocation remains aligned with the investment goals.

Professional Guidance
Certified Financial Planner (CFP): Working with a CFP can provide valuable insights and strategies. A CFP can help in monitoring the portfolio and making informed decisions based on market trends and individual financial goals.

Final Insights
Your approach to starting your daughter's investment journey with a diversified mutual fund portfolio is commendable. The proposed allocation of Rs 4,000 in small cap, Rs 3,000 in mid cap, and Rs 2,000 in large cap funds is well-thought-out. It balances growth potential with stability, making it suitable for her age and financial situation.

Understanding that she might need to pause her SIPs due to her studies is realistic. The flexibility of SIPs and your willingness to support her during these times will ensure her investment journey remains on track. Regular portfolio reviews and professional guidance will further enhance her financial growth and stability.

Your foresight in planning her financial future is impressive. By taking these steps, you are setting her on a path to long-term financial success.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

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