THANKS FOR UR IMMEADIATE RESPONSE. RS.1 LAKH SIP I HAVE MENTIONED IS 100PERCENT IN EQUITY MF . FURTHER I NEED TO INFORM U THAT I HAVE RS.7 LAKH IN SB.ACCT.FOR EMERGENCY PURPOSE WHICH CAN BE USED IN N. CASE OF URGENT CASH NEED. I RECEIVE AROUND RS.45000.00 PER MONTH FROM INTEREST EARNED ON FD INVESTMENTS. YOUR COMMENTS IF ANY. Regards, RAMANATHAN

Ans:

Ans: Thanks for sharing more details. You have a solid foundation with health and term insurance. Your SIP contributions for different goals are excellent. However, investment cum insurance policies like ICICI Pru Life, HDFC Pension Fund, and HDFC Life might not offer the best returns. Consider surrendering these and reinvesting in mutual funds for better growth and flexibility.

Given your goals, equity mutual funds can offer higher returns for your kids' education, weddings, and retirement planning. Also, maintaining an emergency fund in liquid funds or high-interest savings accounts is wise.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: It’s commendable that you are considering ways to optimize your investments. Taking a personal loan to invest in mutual funds is a strategy that requires careful thought. Let’s break down the key aspects to consider:

Understanding the Costs and Benefits
Personal Loan Costs

Interest Rates: A personal loan with an 11.25% annual interest rate will result in significant interest payments over five years. For a loan of Rs. 5 lakhs, you would end up paying around Rs. 3 lakhs in interest, totaling Rs. 8 lakhs.

Repayment: The total repayment amount is considerably higher than the principal. This can put additional strain on your finances.

Investment Returns

Potential Returns: Investing in your current mutual fund, which has given 17% annual returns, could seem attractive. However, returns are never guaranteed and can fluctuate.

Compounding: The compounding effect on your existing Rs. 2 lakhs can be beneficial. Yet, this doesn't always offset the cost of borrowing.

Assessing Risk and Liquidity
Investment Risks

Volatility: Mutual funds, especially mid-cap ones, can be volatile. High returns come with high risks. A downturn in the market could affect your investment significantly.

Loan Repayment: With a personal loan, you must make regular EMI payments regardless of your investment performance. This could be challenging if your returns do not meet expectations.

Liquidity Needs

Emergency Funds: You mentioned needing Rs. 5 lakhs for potential emergencies. It’s crucial to have liquid assets readily available rather than tying them up in investments.

Alternative Options: Instead of investing borrowed funds, consider building an emergency fund through savings or more liquid investments.

Exploring Alternatives
Building an Emergency Fund

Savings Account: Keep a portion of your money in a high-yield savings account. This ensures liquidity and safety while earning some interest.

Short-Term Investments: Consider short-term, low-risk investments that can be easily liquidated when needed.

Reducing Dependency on Loans

Incremental Savings: Increase your monthly savings to build the required Rs. 5 lakhs over time. This avoids the interest burden of a personal loan.

Asset Liquidation: Review other assets you may have. Selling or liquidating investments could be a more straightforward approach.

Financial Planning Approach
Review Your Financial Goals

Investment Strategy: Align your investment strategy with your long-term goals and risk tolerance. Ensure that any move to invest borrowed money does not jeopardize your financial stability.

Financial Cushion: Maintain a balance between investment and savings to safeguard against unforeseen expenses.

Final Insights
Taking a personal loan to invest in mutual funds involves a high degree of risk and potential financial strain. The interest payments on the loan could outweigh the benefits of the returns from the investment.

It’s crucial to ensure you have an adequate emergency fund before considering such investments. Explore alternative ways to build liquidity without incurring high-interest debt. Regularly review your financial situation and investment strategy to align with your goals and risk tolerance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Invest in following funds in the percentage given:

ICICI Pru or Mirae Asset Large & Midcap fund: 30%
PPFAS flexicap fund: 30%
Nippon India Small cap fund: 10%
HDFC BAF: 20%
ICICI Pru Multi asset allocation fund:10%

You may do lumpsum investments in this proportion for your matured FD value of 50 L.

Be disciplined(for SIP) and review your portfolio every year. Don't believe on SM chatter and rumours. Let your investments decisions be fact based and objective without letting in any fear, favor or bias.

Happy Investing!!