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Ramalingam

Ramalingam Kalirajan  |9790 Answers  |Ask -

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
vivek Question by vivek on Jun 15, 2024Hindi
Money

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
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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Hi Sir, Is it good to have bhandan small cap fund and quant small cap fund sip of 12k each per month for my two daughters education for a period of 12-13 years Any further addition required here . Or extra step up sip required. Both my girls are 5 months old now. Note: i have the notion that i wont spend too much money on any donation schemes for education foe my daughters for college[so mostly Doctor studies is ruled out] so only engineering/CA kind of studies is what i can afford . Regards Sai
Ans: It's heartening to see your dedication to securing your daughters' future. Starting SIPs for their education at such a young age reflects your foresight and commitment as a parent.

Investing in Bhandan Small Cap Fund and Quant Small Cap Fund SIPs for their education is a thoughtful choice. But let's ponder: are these investments sufficient to cover the rising costs of higher education? Considering inflation and evolving educational landscapes, would a step-up SIP or additional investments be prudent?

As you envision their academic journey, it's essential to ensure financial preparedness without compromising on your principles. By consulting a Certified Financial Planner, you can chart a path that aligns with your aspirations and financial capabilities.

Your decision not to rely on donation schemes for their education is admirable. It reflects your belief in the value of hard work and diligence, qualities you undoubtedly wish to instill in your daughters.

Embrace this journey with confidence and optimism, knowing that every rupee invested today is a step towards a brighter tomorrow for your daughters.

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

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Hi, I am 33y & my wife 31y. We have been investing 50K (25% of total take home) monthly into MF, Direct Equity and US ETF. Current MF portfolio - 7 Lakhs and doing SIP of 40K direct as below HDFC SENSEX INDEX FUND - 14K CANARA ROBECO SMALL CAP - 10K AXIS GROWTH OPPORTUNITIES - 4K PARAG PARIKH FLEXI CAP - 10K QUANT ELSS - 2K And US 500 ETF SIP - 1500 Also, Stock portfolio 4.5 Lakhs + 8500 in basket of stocks every month. My queries are: Whether I should continue with Sensex index or start Nifty 50 index fund. Will I be able to achieve corpus for my kid(4y) education and my retirement at age 55 considering current expenses of 1Lakh per month. Do I have to diversify into other funds(mid cap or multi cap) We both have individual term plans but dependent on corporate health covers. Is that fine? We don't like PPF, LIC, FD etc. However, 8700 per month of employer NPS and 50K additional we have opted recently. Is that enough at 60. Please suggest.
Ans: You have been consistently investing Rs. 50,000 monthly, which is 25% of your total take-home pay. This is commendable as it reflects discipline and a strong commitment to securing your financial future. Your mutual fund portfolio currently stands at Rs. 7 lakhs, and you are investing Rs. 40,000 through SIPs in various funds. Additionally, you have a stock portfolio worth Rs. 4.5 lakhs and invest Rs. 8,500 monthly in a basket of stocks.

Your allocation into different asset classes like mutual funds, direct equity, and US ETFs shows a diversified approach, which is generally positive. However, there are areas where optimization can further enhance your long-term financial outcomes.

Direct Equity and US ETFs

Investing directly in stocks can provide higher returns but comes with higher risk. It requires constant monitoring and a good understanding of the market. The US ETF investment adds geographical diversification, which is good, but investing directly in a US ETF involves currency risk and other geopolitical factors that can impact returns.

Potential Areas for Improvement

Index Funds vs. Actively Managed Funds: Investing in index funds like Sensex or Nifty 50 provides lower-cost exposure to the market, but it often underperforms actively managed funds in the long run. Actively managed funds, especially those managed by experienced fund managers, have the potential to outperform the market, particularly in emerging economies like India. By opting for actively managed funds through a certified financial planner, you could leverage their expertise and potentially achieve better returns.

Direct Funds vs. Regular Funds: Direct funds, while lower in expense ratios, lack the personalized advice that regular funds offer through a Mutual Fund Distributor (MFD) with Certified Financial Planner (CFP) credentials. A CFP can provide guidance tailored to your specific financial situation, ensuring your investments align with your goals. Regular funds come with the added advantage of ongoing support and strategic adjustments, which can significantly impact your portfolio's performance over time.

Corpus for Child’s Education and Retirement
Planning for Child’s Education

Your child is currently 4 years old, and you have around 14-15 years before they will need funds for higher education. The cost of education is rising rapidly, and it’s important to plan early. You are already investing in equity-oriented instruments, which are well-suited for long-term goals like education. However, considering the rising cost of education, you might want to increase your allocation to instruments specifically aimed at education planning.

Goal-Oriented Investment: Consider creating a separate investment portfolio dedicated to your child’s education. This could include a mix of diversified equity funds, child education plans, and balanced funds that provide growth potential along with some level of safety as you approach the time of need.

Regular Reviews: Periodically review this portfolio to ensure it is on track to meet the expected cost of education, adjusting the investment amount or choice of funds as necessary.

Planning for Retirement at Age 55

Retiring at 55 is an ambitious goal, especially with current expenses of Rs. 1 lakh per month. To maintain your lifestyle post-retirement, considering inflation, you will need a substantial corpus.

Assessing the Required Corpus: Without diving into complex calculations, it's crucial to understand that the corpus required at age 55 will be significantly higher due to inflation. Your current investments and savings need to be aligned to accumulate a sufficient corpus to last through your retirement years.

NPS and Additional Contributions: The Rs. 8,700 per month from employer contributions to NPS and an additional Rs. 50,000 are good steps towards building a retirement corpus. However, given your early retirement goal, these may not be sufficient. Consider increasing your contributions or supplementing your NPS with other long-term investments like balanced advantage funds or multi-asset funds that can provide both growth and stability.

Diversification for Stability and Growth: While you have a significant equity exposure, which is beneficial for growth, consider diversifying into funds that provide stability as you near retirement. This can include balanced funds, hybrid funds, or even debt funds that provide a cushion against market volatility.

Diversification into Other Funds
Need for Mid Cap and Multi Cap Funds

Your current SIPs include a mix of large-cap, small-cap, and flexi-cap funds. While this provides a degree of diversification, adding mid-cap and multi-cap funds could enhance your portfolio's potential for higher returns.

Mid Cap Funds: Mid-cap funds invest in companies that have the potential for higher growth than large caps but are less risky than small caps. They can offer a good balance between risk and reward, making them an essential part of a well-diversified portfolio.

Multi Cap Funds: Multi-cap funds invest across large-cap, mid-cap, and small-cap stocks, providing a diversified exposure to the market. This flexibility allows fund managers to adjust the portfolio according to market conditions, potentially offering better returns over the long term.

Regular Portfolio Review: It’s crucial to regularly review your portfolio with a Certified Financial Planner to ensure it remains aligned with your financial goals. As you approach retirement, your risk tolerance will decrease, and a CFP can help adjust your portfolio accordingly.

Health and Term Insurance Evaluation
Reliance on Corporate Health Covers

You mentioned that both of you are dependent on corporate health covers, which is a common practice. However, relying solely on employer-provided health insurance can be risky, especially if you switch jobs or if your employer reduces the coverage.

Importance of Personal Health Insurance: Consider purchasing a separate health insurance policy for yourself and your family. This will provide continued coverage regardless of employment status and ensure that your family is protected in case of medical emergencies.

Term Insurance Adequacy: You both have individual term plans, which is a good move. Term insurance provides financial security to your family in case of an untimely demise. Ensure that the coverage is adequate to cover your family’s needs, including living expenses, education costs, and liabilities.

Critical Illness Coverage: Consider adding a critical illness rider to your term insurance policy. This will provide a lump sum amount in case of diagnosis of severe illnesses, which can help cover medical expenses and loss of income during treatment.

Conclusion
Final Insights

Your current investment strategy is well-thought-out, and you are on the right track to achieving your financial goals. However, a few adjustments and diversifications can optimize your portfolio further.

Shift from Index to Actively Managed Funds: Consider moving from index funds to actively managed funds through a CFP. This can help achieve better returns over the long term.

Increase NPS Contributions: While your current NPS contributions are a good start, increasing them could better secure your retirement, especially given your early retirement goal.

Diversify Further: Introduce mid-cap and multi-cap funds to your portfolio for better diversification and growth potential.

Review Insurance: Invest in personal health insurance and ensure your term insurance coverage is adequate.

Regular reviews with a Certified Financial Planner will help you stay on track and make informed decisions as your financial situation evolves.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Hi, my son has secured an admission in a 2+2 BITS CSE program 2025 at Hyderabad (first 2 years) and Iowa state univ (for next 2 years). Under DASA he can potentially get AI at NITK or ECE at NIT Trichy or CSE in NITW (his CRL rank is 25200). Can you please advise and provide recommendations on what we can choose and reasons? We know 2+2 ISU program is more expensive compared to NIT DASA fees but is it worth the money vis-a-vis doing a B.Tech at NIT and doing a masters in US later? For this rank, what can he get at the said NITs under DASA?
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Recommendation: Opt for BITS 2+2 CSE if you prioritise world-class international exposure, dual degrees and, top-tier placement networks despite higher fees. Choose a DASA seat at NIT (AI at NITK or CSE at NITW) for cost-effective core engineering training with solid placement and later pursue a US master’s via merit scholarships. All the BEST for a Prosperous Future!

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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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