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Ramalingam Kalirajan |10908 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 04, 2025

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 suba on Jul 10, 2025Hindi

Though I took a loan of rs 2200000 for purchase of a plot, on the advise of financial advisor, I am.not purchasing the plot and repaying the entire loan. I will build an emergency fund in next two months. Thereafter, how to invest rs.40000/- per month. Investing in GPF is good option or not

Ans: You made a wise decision by cancelling the plot purchase. Avoiding such commitments keeps liquidity intact. Also, your plan to build an emergency fund first is excellent. It shows maturity in financial thinking. After creating that cushion, your next goal—investing Rs 40,000 monthly—needs smart planning.

Let us assess the options, step by step, in a simplified and strategic manner.

» Importance of Emergency Fund First

– Emergency fund must cover 6–9 months of expenses.

– You can build it using liquid or ultra-short-term debt funds.

– Avoid parking it in regular savings or FDs with long lock-ins.

– Keep this fund accessible but separate from daily-use account.

– It will give peace and avoid forced loans in emergencies.

– Once this is done, move to your Rs 40,000/month investment plan.

» Understanding GPF: Stability But Limited Growth

– GPF gives fixed, government-set interest rate.

– It is safe and suitable only for long-term savings.

– You must be a government employee to invest in GPF.

– If you already contribute to GPF compulsorily, avoid over-investing.

– Returns are predictable but often lower than inflation-adjusted growth assets.

– Interest is tax-free, but withdrawal is subject to service tenure rules.

– GPF cannot replace long-term equity-based wealth-building strategies.

– Ideal only as part of your debt portfolio, not full investment.

– Do not rely on GPF alone to achieve long-term goals like retirement or child education.

» Risk Capacity and Time Horizon Assessment

– Your current age and job stability affect your risk profile.

– If you are under 40 and have job security, take higher equity exposure.

– Longer investment horizon gives power to ride market cycles.

– If goal is 7+ years away, equity mutual funds are ideal.

– For 3–7 year goals, use hybrid mutual funds.

– For under 3 years, use low-risk debt funds only.

– GPF suits only those seeking stability without growth expectations.

» Suggested Investment Allocation for Rs 40,000 per Month

Rs 5,000: Continue investing in your GPF (if part of your job).

Rs 20,000: Start SIPs in equity mutual funds. Choose flexi-cap and large & mid-cap.

Rs 10,000: Invest in hybrid mutual funds. It offers moderate risk with equity participation.

Rs 5,000: Invest in short-term debt mutual funds for near-term flexibility.

– This mix gives balance—growth, stability, and some liquidity.

– All SIPs should be in regular mutual funds.

– Invest through a CFP-qualified MFD for advice and review.

– Avoid direct funds. They may look cheaper but come with hidden risks.

» Why Not Direct Mutual Funds

– Direct plans give no personalised review or rebalancing.

– You miss goal alignment and emotional handholding in volatile markets.

– Investors in direct funds often choose wrong schemes or exit early.

– Small savings in expense ratio won’t matter if return suffers.

– A qualified MFD with CFP credential manages your asset allocation better.

– That ensures peace of mind and disciplined long-term investing.

» Why Not Index Funds or ETFs

– Index funds just mirror a market index. No flexibility or stock selection.

– They can’t avoid bad-performing sectors or companies.

– In bear markets, they fall as much as the index.

– Actively managed funds adapt better and have expert fund managers.

– In India, markets are not fully efficient. Active funds have more potential.

– ELSS, flexi-cap, or multi-cap funds with active strategy suit long-term investors better.

– Hence, index funds and ETFs don’t offer real value for serious investors.

» How to Choose the Right Mutual Funds

– Don’t select based on past return only.

– Understand the fund category and your goal timeline.

– Review risk level and investment strategy of the fund.

– Use diversified equity funds for goals 7–15 years away.

– For mid-term goals, hybrid or balanced advantage funds are better.

– For short goals, consider ultra-short or short-duration debt funds.

– Always go with regular plans through a CFP-backed MFD.

– They guide portfolio strategy and help switch when needed.

» Tax Impact on Mutual Fund Investments

– Equity mutual funds held more than one year attract LTCG tax.

– LTCG above Rs 1.25 lakh is taxed at 12.5%.

– If sold before one year, 20% STCG applies.

– For debt funds, tax depends on your income slab.

– No indexation benefit now. So plan withdrawal carefully.

– GPF is tax-exempt, but has less liquidity and flexibility.

– Mutual funds offer better control over taxation timing and optimisation.

» Other Aspects You Should Consider

– Keep life insurance separate from investments.

– Avoid ULIPs or traditional plans for investing purpose.

– If you already hold such products, consider surrendering and shifting to mutual funds.

– Avoid multiple small investments. Keep portfolio focused and manageable.

– Do not over-invest in GPF or FDs beyond your asset allocation need.

– Avoid gold or property as main investment tools. Liquidity is poor, and returns are uncertain.

– Do a review every year. Shift allocation based on life changes and goal proximity.

» How to Monitor Your Investments

– Use a goal-based approach, not return-based chasing.

– Keep a tracker for each goal—retirement, education, marriage, etc.

– Link each SIP to a goal and assign a timeline.

– Stay invested despite market ups and downs. Don’t panic-sell.

– Work with your CFP-qualified MFD to review quarterly or half-yearly.

– Avoid DIY changes unless you are trained in financial planning.

» Role of Emotional Discipline in Investing

– Markets can test your patience. Long-term success needs mental strength.

– GPF may feel safe, but it leads to poor wealth growth.

– Mutual funds may feel risky, but long-term they create solid wealth.

– Use SIP mode to avoid timing mistakes.

– Avoid checking NAVs or markets daily.

– Trust your plan and your MFD’s guidance.

– Discipline beats luck or market tips always.

» Avoid Real Estate and Insurance-based Investments

– You already avoided a plot purchase. That was smart.

– Real estate locks capital and gives poor liquidity.

– It also brings legal and maintenance risks.

– Insurance-cum-investment products give poor return.

– Always keep investments and insurance separate.

– For protection, take term life cover only.

– For investments, use mutual funds based on goal fit.

» Finally

– You are in a strong position after cancelling the land deal.

– Focus on building an emergency fund first.

– Then, invest Rs 40,000 monthly with a smart asset mix.

– Avoid overloading GPF. Use it only as one part of your debt portion.

– Majority of your Rs 40,000 should go to mutual funds via SIP.

– Use regular plans through CFP-qualified MFDs.

– Stay away from direct plans, index funds, and real estate.

– With the right strategy, your Rs 40,000/month can build solid future wealth.

– You are already on the right track. Just add consistent execution and regular reviews.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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.