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Beginner's Guide to Mutual Funds: Investment Strategies for Me and My Wife

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 14, 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
Kunal Question by Kunal on Sep 13, 2024Hindi
Money

What is the best mutual fund for beginner and how to start investment in MF, what is the procedure, can I invest in MF through Bank.I want my wife invest in MF but she has not account. Kindly suggest best strategy about all of this.

Ans: If you're new to mutual funds, it’s important to start with the right strategy and understanding. Mutual funds are a great way to grow wealth over time, but it’s essential to begin with a solid plan. Let’s go step by step.

1. Best Mutual Fund for Beginners
As a beginner, you should focus on funds that offer stability and steady growth. Here’s what you should look for:

Balanced/Hybrid Funds: These funds invest in both equity (stocks) and debt (bonds). They offer a balance between risk and return, making them ideal for beginners.

Large Cap Funds: These funds invest in large, well-established companies. They tend to be less volatile compared to small and mid-cap funds and offer stable returns.

Blue-Chip Funds: These are a type of large-cap fund that invests in reputed and financially stable companies. Ideal for beginners looking for long-term growth.

By choosing these types of funds, you get exposure to the market without taking on too much risk.

2. How to Start Investing in Mutual Funds
Investing in mutual funds is easy, and you can follow these steps to get started:

Step 1: Know Your Financial Goals

Decide why you're investing. Are you saving for retirement, your child’s education, or a future purchase? Your financial goals will determine the type of mutual funds to invest in.
Step 2: Complete KYC (Know Your Customer) Process

Before investing, you’ll need to complete the KYC process. This involves submitting documents like PAN card, Aadhaar, and address proof. Your KYC can be done online or through a Certified Financial Planner (CFP)/Mutual Fund Distributor (MFD).
Step 3: Choose an Investment Mode

You can invest either through a lump sum (one-time investment) or a Systematic Investment Plan (SIP). For beginners, SIP is often the best option because it spreads out your investment and reduces risk.
Step 4: Open a Mutual Fund Account

You can open a mutual fund account through a CFP/MFD or direct. However, it’s recommended to invest through a Certified Financial Planner (CFP) or Mutual Fund Distributor (MFD) to get professional advice and guidance.

Step 5: Monitor and Review

Once you’ve invested, review your portfolio regularly to ensure your funds are aligned with your goals. Don’t panic during short-term market fluctuations; focus on long-term growth.
3. Can You Invest in Mutual Funds Through Banks?
Yes, you can invest in mutual funds through your bank. Most banks offer mutual fund services, allowing you to invest directly from your savings account. However, investing through a bank has its pros and cons.

Advantages:

Easy access if you have an existing relationship with the bank.
Convenience of managing your mutual funds and bank account in one place.
Disadvantages:

Limited fund options as banks may only promote certain mutual funds.
Banks may not provide in-depth financial advice, unlike a Certified Financial Planner or MFD.
While investing through a bank is convenient, I would suggest considering a Certified Financial Planner or Mutual Fund Distributor. They can offer more tailored advice and provide access to a wider range of funds.

4. Investing for Your Wife Without a Bank Account
If your wife doesn’t have a bank account, she can still invest in mutual funds. Here’s how:

Step 1: Open a Bank Account
She will need to open a savings account to invest in mutual funds. This is important because the redemption proceeds will be credited to her bank account. Opening a bank account is a straightforward process that can be done online or at a bank branch.

Step 2: Complete the KYC Process
Similar to your process, your wife will need to complete her KYC. This involves submitting necessary documents like PAN and Aadhaar. This can be done online through an investment platform or a CFP/MFD.

Step 3: Select Mutual Funds
Choose mutual funds based on your wife’s financial goals. If she’s new to investing, consider starting with conservative funds such as balanced/hybrid funds.

Step 4: Invest Through a CFP/MFD
I recommend getting in touch with a Certified Financial Planner (CFP) or Mutual Fund Distributor (MFD) to help open her mutual fund account. They can guide her through the entire process and recommend funds based on her risk tolerance and goals.

5. Best Strategy for Beginners and Your Wife
Start Small: Begin with a small investment via SIP to get comfortable with the process. It’s a good way to learn while limiting risk.

Diversify: Don’t put all your money into one mutual fund. Spread your investments across different funds, such as large-cap, balanced, and multi-cap funds.

Stay Long-Term: Mutual funds are best for long-term wealth creation. Don’t expect quick returns. Patience is key to reaping the benefits of compounding.

Consult a CFP/MFD: Since your wife is starting fresh, having professional guidance will help avoid mistakes. A CFP or MFD can offer personalised advice based on her goals.

6. Final Insights
Starting your mutual fund journey is an excellent way to build long-term wealth. Make sure you:

Choose funds that align with your goals.
Use SIP for gradual investments.
Invest through a Certified Financial Planner (CFP) or Mutual Fund Distributor (MFD) for the best results.
Once your wife has a bank account and completes her KYC, she can easily start investing with professional guidance.

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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Hello Sir, my age is 29 I want to start investment in mutual fund 5000 per month, I do not have any idea about MF, can you please guide me in which mf I should start investing
Ans: Mutual funds are a great way to grow your wealth over time. Let’s break down how you can start investing Rs. 5000 per month.

Understanding Mutual Funds
Mutual funds pool money from many investors to invest in stocks, bonds, or other securities. They are managed by professional fund managers. These managers make investment decisions on behalf of the investors.

Benefits of Mutual Funds
Diversification: Mutual funds invest in various securities. This reduces the risk of loss from one poor-performing security.

Professional Management: Fund managers have the expertise to make informed investment decisions.

Liquidity: You can easily buy or sell mutual fund units.

Systematic Investment: With SIP (Systematic Investment Plan), you can invest a fixed amount regularly.

Types of Mutual Funds
There are different types of mutual funds based on asset class, structure, and investment objectives.

Equity Mutual Funds
Growth Potential: Equity funds invest in stocks. They offer high growth potential over the long term.

Variety: They come in various forms like large-cap, mid-cap, and small-cap funds.

Debt Mutual Funds
Stability: Debt funds invest in bonds and other fixed-income securities. They offer stable returns.

Lower Risk: They are less volatile compared to equity funds.

Hybrid Mutual Funds
Balanced Approach: Hybrid funds invest in both equity and debt. They balance risk and return.

Flexibility: They adjust their asset allocation based on market conditions.

Selecting the Right Mutual Fund
Choosing the right mutual fund is crucial. Here are some factors to consider:

Investment Goals
Define Your Goals: Are you investing for retirement, buying a house, or children's education? Your goals will determine the type of mutual fund you choose.
Risk Tolerance
Assess Your Risk Appetite: How much risk are you willing to take? Equity funds are riskier but offer higher returns. Debt funds are safer but offer lower returns.
Investment Horizon
Time Frame: How long can you stay invested? Equity funds are suitable for long-term goals. Debt funds are better for short-term goals.
Performance Track Record
Evaluate Past Performance: Look at the fund's performance over 3, 5, and 10 years. Consistent performance is key.
Steps to Start Investing
Step 1: KYC Compliance
Complete KYC: Ensure you are KYC compliant. This is mandatory for mutual fund investments.
Step 2: Choose a Fund Category
Select Fund Type: Based on your goals and risk tolerance, choose between equity, debt, or hybrid funds.
Step 3: Start a SIP
Regular Investment: Start a SIP to invest Rs. 5000 per month. This ensures disciplined investing.
Step 4: Monitor and Review
Regular Review: Periodically review your investments. Ensure they align with your goals.
Avoiding Common Pitfalls
Don't Chase High Returns
Sustainable Growth: High returns come with high risk. Choose funds with a balanced approach.
Avoid Over-diversification
Focus on Quality: Too many funds can dilute returns. Select a few quality funds.
Be Patient
Long-term Vision: Mutual funds work best over the long term. Stay invested through market fluctuations.
Final Insights
Investing in mutual funds is a smart way to build wealth. Start with a clear goal, assess your risk, and choose the right fund. Regular monitoring will help you stay on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Ravi

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A bit long story I'm 21 student preparing for medical competative entrance exam for past 3 years (21-24).2 year ago this phase I was in a long distance relationship for 4 months with a girl I met in my class .But it didn't last long due to the problems created due to distance as she couldn't understand myself and I couldn't understand herself.so there was a misunderstanding and I couldn't hold on as I was in heavy pressure by exams and financial problems.so I couldn't handle and I felt like too early and broke up with her by losing my mind.she was completely disappointed as I didn't speak to her for more than an year due to one more year preparation.i missed her very much but I didnt tell her.I missed govt seat in border mark and the same year she got into a relationship with another guy in her class.i don't blame her. But I feel like my entire life is shattered and I couldn't move on from that girl till now.I couldn't concentrate on my career too.im kind of person who is always confident in all aspects but I have totally lost my mind .I can see that in an danger situation as age is running and family pressure, everyone of my classmates are far ahead of me I couldn't withstand this situation and couldn't make proper decision in any aspect. Mam please help me out.
Ans: Dear Anonymous,
I understand your concerns. The first step is to focus on moving on; she has, and you should too. Prioritize your career, your family, and your future. Next, what has happened to your career progress has already happened. It's unfortunate, but there's no way to change that. But give yourself a second chance; work harder and achieve greater things than you even imagined before. Trust me, you are not the only person who is standing in a situation like this. Many have, and many more will. But the ones who have passed this time will give you the same advice that I did.

Best Wishes.

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Milind

Milind Vadjikar  |682 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Nov 22, 2024

Asked by Anonymous - Nov 13, 2024Hindi
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Sir, I am 40yrs old. Having monthly takehome salary of 1.1 lakh and rental income of 36000. My investment are 2 flats worth of 1cr. 4 plots in Bhubaneswar worth of 2crs. EPF balance 50 lakh, LIC policies worth of 16 lakhs, NPS worth of 10 lakhs. My monthly saving commitments are - EPF (employee+employer) 28000 NPS 15000 MF 7500 Gold scheme 5000 Financial burden - HL emi of 24000 Monthly expanses 50000 I would like to retire at 50. Please advise for retirement plan with life expectancy of 80yrs.
Ans: Hello;

The value of your investments after 10 years;

A. EPF Corpus+Contribution: 1.6 Cr
B. NPS Corpus+Contribution: 53 L
C. MF(sip) + Gold(sip): 25 L
D. Real estate (land): 3.26 Cr

So sum of A, C & D gives us a corpus of 5.11 Cr

Since you will withdraw NPS before 60 age 80% of corpus will go into annuity while 20% will be available to you.

So you may expect monthly income of around 21 K from annuity(42.4 L).

Balance 10.6 L get added to 5.11L taking your total corpus to ~ 5.2 Cr.

If you invest 5 Cr in a conservative hybrid debt fund and do a SWP at the rate of 3%, you may expect a monthly income of around 1.1 L(post-tax).

Add your monthly rental income of 36 K(No growth factored) and annuity income of 21 K to this and you have total monthly income of 1.67 L after 10 years.

Your current monthly expenses of 50 K after 10 years would be around 90 K and 1.6 L after 20 years.

Considering return of around 7-7.5% from the conservative hybrid debt fund you will still generate inflation adjusted return at 3% SWP after 80 years of age.

Assumptions:
Inflation rate-6%
Return from EPF-8%
Return from NPS-9%
Return from MF-10%
Return from gold-7%
Return from Land-5%
Annuity rate-6%

The spare flat is not considered in this because it will continue to yield you rental income in retirement.

Since real estate(land) returns may fluctuate over 10 years suggest to increase MF sip(6X) as a back-up, also in this case you may decide to retain & invest in NPS upto 60 age.

Of course MF returns are also not assured but you are improving the odds by backing two appreciable assets(RE & equity) over long-term.

Happy Investing;
X: @mars_invest

...Read more

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 22, 2024

Money
My age 62, male, getting rental income Rs. 90k nett. Already subscribing 12.5k in PPF for the past 2 1/2 years. No other investments. My target is 5 crores in 10 years. I already have Mediclaim Rs.50 lakhs for me & wife . Please advice me what to do.
Ans: Your current financial foundation is strong and shows promise:

A rental income of Rs. 90,000 per month provides consistent and predictable cash flow. This stability can serve as the backbone for your investment strategy.

PPF contributions of Rs. 12,500 per month for 2.5 years reflect disciplined saving. However, its returns may be insufficient to achieve a high-growth target like Rs. 5 crores in 10 years.

A robust Mediclaim policy of Rs. 50 lakhs for you and your wife ensures adequate health coverage. This safeguard allows you to focus on wealth-building without worrying about medical emergencies.

Despite these positive factors, achieving Rs. 5 crores in 10 years requires a carefully crafted and growth-oriented strategy.

Defining and Prioritising Your Financial Goals
Achieving Rs. 5 crores is ambitious yet achievable with a focused approach:

Define this target as your primary financial goal over the next decade.

Break it into manageable milestones: for example, Rs. 50 lakhs every 1-2 years in cumulative investments and growth.

Prioritise high-return investments that align with your risk tolerance and financial capacity.

Optimising Existing PPF Contributions
While PPF is a secure investment, its growth potential is limited:

Returns: PPF currently offers an interest rate of approximately 7-7.5%, which barely outpaces inflation.

Contribution Review: Consider capping your PPF contributions at Rs. 1.5 lakh annually (to utilise the Section 80C benefit). This ensures that excess funds are redirected to higher-return investments.

PPF can serve as a low-risk component of your portfolio but should not dominate your investment strategy.

Building a Diversified Investment Portfolio
A diversified portfolio will provide a balance of risk and reward. Include the following components:

1. Equity Mutual Funds for Growth
Equity mutual funds are essential for achieving high returns over the long term:

Large-Cap Funds: These invest in established companies and offer stability with moderate growth. They are ideal for a portion of your portfolio to reduce risk.

Multi-Cap or Flexi-Cap Funds: These provide exposure to companies of all sizes, offering growth and diversification.

Sectoral and Thematic Funds: Avoid these unless you have a high risk tolerance and understand market dynamics.

ELSS Funds: These not only provide tax savings under Section 80C but also deliver market-linked returns.

Why Avoid Index Funds?

Index funds may offer simplicity and lower expense ratios, but they lack flexibility. They cannot adapt to market conditions or capitalise on outperforming sectors. Actively managed funds, on the other hand, have the potential to outperform the market, especially in a developing economy like India.

Start with a Systematic Investment Plan (SIP) in selected funds to build wealth steadily.

2. Debt Mutual Funds for Stability
Debt funds add stability to your portfolio and reduce overall risk:

Choose funds with low credit risk and moderate duration to ensure safety and predictable returns.

Debt funds are suitable for short- to medium-term goals or as a fallback during market corrections.

Taxation Note: Both LTCG and STCG on debt funds are taxed as per your income tax slab. This should be factored into your planning.

3. Balanced Advantage Funds
Balanced advantage funds (BAFs) dynamically allocate assets between equity and debt. They:

Provide exposure to equity while minimising downside risk.

Offer a suitable option for someone nearing retirement but seeking growth.

4. Gold Investments for Diversification
Allocate a small portion (5-10%) of your portfolio to gold:

Gold serves as a hedge against inflation and currency depreciation.

Choose gold ETFs or sovereign gold bonds for ease of liquidity and better returns.

Emergency Fund Creation
Having an emergency fund is non-negotiable:

Maintain at least 6-12 months of expenses in liquid investments like liquid mutual funds or high-interest savings accounts.

This ensures liquidity for unforeseen events without disturbing your long-term investments.

Focus on Retirement Planning
At 62, balancing growth and safety becomes critical:

Estimate your monthly retirement expenses, considering inflation over the next 10-15 years.

Your target of Rs. 5 crores should primarily serve as your retirement corpus.

Allocate assets thoughtfully:

60-70% in equity funds for growth.
30-40% in debt funds for stability.
Periodically rebalance your portfolio to maintain this allocation.

Strategic Tax Planning
Tax efficiency can significantly impact your returns:

Continue using Section 80C to its full potential, including ELSS funds and PPF.

Consider the National Pension System (NPS) for an additional Rs. 50,000 deduction under Section 80CCD(1B).

Be mindful of the new taxation rules for mutual funds:

Equity Mutual Funds: LTCG above Rs. 1.25 lakh is taxed at 12.5%; STCG at 20%.
Debt Funds: LTCG and STCG are taxed as per your income slab.
Consult a Certified Financial Planner to optimise your tax strategy.

Regular Portfolio Monitoring and Rebalancing
Investing is not a one-time activity:

Review your portfolio every six months or annually to track performance.

Rebalance your asset allocation periodically to align with your financial goals and risk appetite.

Stay committed to SIPs even during market downturns, as this ensures cost-averaging.

Additional Suggestions
Avoid Over-Reliance on PPF
While PPF is safe, it is not sufficient for wealth creation. Shift excess contributions to equity-based investments for better returns.

Avoid Direct Stocks
Direct equity investing requires time, expertise, and constant monitoring. It carries higher risk and may lead to losses without proper research. Instead, rely on equity mutual funds managed by professionals.

Avoid Mixing Insurance and Investments
Do not invest in ULIPs or endowment plans, as they offer suboptimal returns. Stick to pure insurance products for protection and mutual funds for growth.

The Role of a Certified Financial Planner
To achieve Rs. 5 crores, a well-crafted financial plan is essential. A Certified Financial Planner (CFP) can:

Analyse your current investments and recommend improvements.

Design a customised strategy tailored to your income, expenses, and goals.

Provide periodic reviews to ensure you stay on track.

Finally
Achieving Rs. 5 crores in 10 years is a realistic goal if you adopt a disciplined and diversified approach.

Optimise your PPF contributions and channel excess funds into higher-growth investments.

Build a diversified portfolio with equity and debt mutual funds.

Include a small allocation to gold and maintain an emergency fund.

Stay consistent with your SIPs and review your investments regularly.

Work with a Certified Financial Planner to create a personalised roadmap.

By following these steps, you can secure your financial future and meet your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

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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