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Ramalingam

Ramalingam Kalirajan  |6625 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 08, 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
Arpan Question by Arpan on Jul 07, 2024Hindi
Money

Hi sir, I and my wife earn around 2 lacs in hand oer month and are both 36 without kids yet. I am investing around 1 lakh monthly in diversified funds via SIP along with around 20k in recurring deposits in banks. I have around 50 lakhs in mutual funds cumulatively and around 25lakhs in fds. I also invest in nps for 50k each year and ppf for 1 lakh annually while my employer is also paying for nps and epf on a monthly basis. I plan to have a kid somewhere down the line. I have no liabilities currently but might opt for a home loan sometime soon which will heavily dent my ability to invest on my monthly investments. My question is in 2 parts: 1. Is the current investment strategy okay? What changes do you suggest in status quo? 2. What changes should I do to my investments in case I go for a home loan which costs me around 80k in emi?

Ans: It's great that you and your wife are thinking ahead and planning for your future. Let's dive into your current investment strategy and how you can tweak it if you decide to take on a home loan. Your current investments are impressive, but there's always room for improvement.

Assessing Your Current Investment Strategy
Mutual Funds and SIPs
You invest Rs 1 lakh monthly in diversified funds via SIPs. This is a solid strategy as it allows you to invest regularly and benefit from rupee cost averaging. SIPs are great for disciplined investing and mitigating market volatility.

Mutual funds are excellent for growth and diversification. With Rs 50 lakhs already in mutual funds, you have a substantial portfolio. Diversification reduces risk and enhances returns. However, it's crucial to periodically review and rebalance your portfolio to align with your goals and market conditions.

Recurring Deposits (RDs)
Investing Rs 20k monthly in RDs is a good move for stability. RDs provide guaranteed returns and are a safe investment. However, the returns are relatively low compared to other options. You might want to consider reducing your RD investments and redirecting some funds into more growth-oriented investments.

Fixed Deposits (FDs)
You have Rs 25 lakhs in FDs. FDs are safe but offer lower returns compared to mutual funds. It's wise to have some amount in FDs for emergency liquidity, but having too much can limit your growth potential. Consider maintaining a balance between safety and growth.

National Pension System (NPS) and Provident Fund (PPF)
You contribute Rs 50k annually to NPS and Rs 1 lakh to PPF. Both are excellent for long-term retirement savings. NPS offers market-linked returns and PPF provides guaranteed returns with tax benefits. Your employer’s contribution to NPS and EPF adds to your retirement corpus, which is great.

Genuine Compliments
You're doing an impressive job with your investments. Investing regularly through SIPs and maintaining a diversified portfolio is commendable. Planning for retirement with NPS and PPF shows your foresight. Keep up the good work!

Suggested Changes in Current Strategy
Portfolio Review and Rebalancing
Regularly review your mutual fund portfolio. Assess the performance and make changes if needed. Focus on a mix of large-cap, mid-cap, and small-cap funds. Reduce the number of funds if you have too many, to avoid over-diversification.

Increasing Equity Exposure
Consider increasing your equity exposure for higher growth. Redirect some of your RD and FD investments to mutual funds. This will enhance your portfolio’s growth potential over the long term.

Emergency Fund
Ensure you have an emergency fund covering 6-12 months of expenses. This provides a safety net and prevents you from dipping into your investments during emergencies.

Preparing for a Home Loan
Impact on Monthly Investments
An EMI of Rs 80k will significantly impact your monthly cash flow. Here’s how you can adjust your investments:

Reducing SIP Amounts
You may need to reduce your SIP investments. Prioritize your essential SIPs and consider reducing contributions to less critical ones. This helps in managing your cash flow without stopping investments entirely.

Prioritizing High-Growth Investments
Focus on high-growth investments to maximize returns. Consider reducing contributions to RDs and FDs, as they offer lower returns. Redirect these funds to mutual funds with better growth potential.

Budgeting and Expense Management
Create a detailed budget to manage your expenses. Identify areas where you can cut back to free up funds for your EMI. This helps in maintaining a balance between investing and meeting your financial obligations.

Advantages of Mutual Funds
Professional Management
Mutual funds are managed by experts who make informed decisions. They analyze markets and select the best securities for the fund.

Diversification
Mutual funds offer diversification, reducing risk by investing in a variety of securities. This helps in balancing risk and return.

Liquidity
Mutual funds are relatively liquid. You can redeem your investment whenever needed, providing flexibility.

Systematic Investment Plan (SIP)
SIPs help in disciplined investing. They allow you to invest regularly, reducing the impact of market volatility.

Power of Compounding
Investing in mutual funds benefits from the power of compounding. Reinvesting returns helps your investment grow exponentially over time.

Disadvantages of Index Funds
Limited Flexibility
Index funds strictly follow the index, offering no flexibility. They can't adapt to market changes.

Average Returns
Index funds aim to match the index returns, which are average. Actively managed funds aim to outperform the index.

Benefits of Actively Managed Funds
Potential to Outperform
Actively managed funds aim to outperform the index. Fund managers make strategic decisions to maximize returns.

Flexibility
Fund managers can adapt to market conditions. They can select or avoid securities based on market trends.

Final Insights
You have a strong investment strategy and a clear vision for your future. With a few adjustments, you can enhance your returns and achieve your goals. Consider reviewing your mutual fund portfolio, increasing equity exposure, and maintaining an emergency fund.

If you decide to take on a home loan, adjust your investments to manage the EMI without compromising your financial goals. Prioritize high-growth investments and create a detailed budget to manage your expenses.

Keep up the disciplined investing approach and regularly review your portfolio. This ensures your investments are aligned with your goals and market conditions.

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, My age is 37 years and need suggestion if my investment strategy is correct .I dont have specific plans for withdrawal,However looking to save for my kids higher education and comfortable retirement. Currently my monthly investment is distributed as below: i) 130000 SIP in Mutual Fund ( Large Cap 50% : a)DSP equal weight Index fund b)Canara Rob Bluechip C) SBI Contra Midcap 25%: a) Motilal mid b) Quant Mid Smallcap 15%: a) Quant Small b) Canara Rob small Misc. fund 10%: a) ICICI Nasdaq b) Edelweiss Gold+Silver I do step up in SIP based = salary increment I get. ii) 12700 in NPS iii) 40000 in FD instead of debt fund iv) 12000 to PPF 50000 every year in NPS for additional tax saving. Additionally I am already have mutual fund accumulation value of 60 Lakhs (XIRR 21%) and 12lakhs in direct stocks. Term life insurance of 50lakhs. Together with me ,I have one 9year old son and wife living together with my parents. I have no investment in real estate as had very bad experience in past . Staying in parental home. Everyone says one should have real estate investment which currently i dont hav. Please advice about my investment strategy for next 13 years till I reach 50 years of age.
Ans: Evaluating and Optimizing Your Investment Strategy for Long-Term Goals
Comprehensive Portfolio Review
Your diversified investment portfolio reflects a prudent approach towards achieving your financial objectives of funding your children's education and securing a comfortable retirement. Let's assess each component to ensure alignment with your goals and risk tolerance.

Mutual Fund SIPs Allocation
Your allocation to mutual fund SIPs across large-cap, mid-cap, and small-cap categories is well-diversified, aiming for growth potential while managing risk. Consider periodically reviewing fund performance and rebalancing your portfolio to maintain optimal asset allocation.

National Pension System (NPS) Contributions
Continuing NPS contributions provide tax benefits and long-term retirement savings. Evaluate the suitability of your NPS investment strategy based on your risk profile and retirement goals. Consider adjusting your asset allocation within the NPS to align with your overall portfolio.

Fixed Deposits vs. Debt Funds
Reassess the rationale for allocating funds to Fixed Deposits instead of debt mutual funds. Debt funds offer potentially higher returns and tax efficiency compared to FDs. Evaluate your risk appetite and liquidity needs to determine the optimal allocation between fixed income instruments.

Public Provident Fund (PPF) Contributions
PPF contributions provide tax benefits and long-term wealth accumulation. Evaluate whether the current allocation aligns with your overall asset allocation strategy and consider maximizing contributions to leverage the tax advantages and potential compounding benefits.

Additional NPS Contributions for Tax Saving
Contributing 50,000 annually to NPS for tax savings is beneficial, but ensure it aligns with your retirement goals and risk profile. Evaluate the impact of additional NPS contributions on your overall portfolio diversification and consider alternative tax-saving options if necessary.

Risk Management and Insurance
Your term life insurance coverage provides financial protection for your family. Consider reviewing your insurance needs periodically to ensure adequate coverage based on your evolving financial situation and responsibilities.

Real Estate Investment Consideration
While real estate can be a valuable asset class, your past negative experience warrants caution. Evaluate alternative investment avenues that offer diversification, liquidity, and potential returns aligned with your risk tolerance and long-term goals.

Seeking Professional Guidance
Consider consulting with a Certified Financial Planner (CFP) to conduct a comprehensive review of your investment strategy. A CFP can provide personalized recommendations, optimize your portfolio, and align your investments with your financial objectives and risk tolerance.

Conclusion
By regularly reviewing and optimizing your investment strategy, you can enhance the probability of achieving your financial goals over the next 13 years. Stay disciplined in your savings and investment approach, and seek professional guidance to navigate market dynamics and optimize portfolio performance.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

..Read more

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Ramalingam Kalirajan  |6625 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 26, 2024

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Hi I am 38 years old Central banker and my wife is 35 years old financial professional with combined salary of Rs 2.80 lakhs per month ( post deducting all monthly EMI’s).Our combined Investment per month is as under- -Mutual fund SIP- 1.75 lakhs ( includes retirement planning and educational planning for both the kids) -PPF 10k each for both of us -Sukanya Samruddhi Yojana -10k per month for girl child -VPF from wife’s ac- 12k -NPS from my salary 35k -Further, Life insurance Term plan of Rs 1.5 cr and 2.25 cr taken for me and my wife respectively. -1 lakh per year goes towards HDFC Samchay plan for period of 12 years and expected 2lakh per year for 14 th year to 26 years. $as on date portfolio of ours is as under:- -direct equity- around Rs. 57lakhs -Gold max 10lakh -Mutual fund corpus- 52 lakhs -2 residential flats and investment in 3 residential open plots. - 40 lakh corpus available for investing lumps in mutual fund for additional retirement planning. Funds made available by selling a Bunglow property. -monthly rental income is around 29 k. Kids aged 6 and 2 years old. Desire to retire at the age of 55 years and wife would like to retire at the age of 45 years. -Current monthly expenses is around 1 lakh per month and considering inflation 7%, post retirement per month requirement would be 4 lakhs. Please review and suggest improvement in investment strategy. Thank you very much
Ans: Current Financial Snapshot
Combined Salary: Rs. 2.80 lakhs per month (post deducting EMIs)
Mutual Fund SIPs: Rs. 1.75 lakhs per month
PPF Contributions: Rs. 10k each per month
Sukanya Samruddhi Yojana: Rs. 10k per month
VPF from Wife's Account: Rs. 12k per month
NPS Contribution: Rs. 35k per month
Life Insurance Term Plans: Rs. 1.5 cr for you and Rs. 2.25 cr for your wife
HDFC Samchay Plan: Rs. 1 lakh per year for 12 years, expected Rs. 2 lakhs per year from 14th to 26th year
Portfolio Overview
Direct Equity: Rs. 57 lakhs
Gold: Rs. 10 lakhs
Mutual Fund Corpus: Rs. 52 lakhs
Real Estate: 2 residential flats and investment in 3 residential open plots
Lump Sum for Retirement Planning: Rs. 40 lakhs
Monthly Rental Income: Rs. 29k
Financial Goals
Retirement: You at 55 years, wife at 45 years
Current Monthly Expenses: Rs. 1 lakh
Post-Retirement Monthly Requirement: Rs. 4 lakhs (considering 7% inflation)
Children's Education and Future Planning: Ongoing investments in PPF and Sukanya Samruddhi Yojana
Analysis and Recommendations
Investment Strategy Review
Diversification: Your portfolio is well-diversified with investments in equities, mutual funds, gold, and real estate. This diversification helps in risk management.

Mutual Fund Investments: Continue with SIPs for long-term growth. Focus on actively managed funds rather than index funds for better potential returns.

Direct Equity: Rs. 57 lakhs in direct equity is significant. Ensure it's diversified across sectors to minimize risk.

Gold: Rs. 10 lakhs in gold adds stability to your portfolio. Consider holding it as a long-term investment.

Lump Sum Investment
Additional Retirement Planning: Invest the Rs. 40 lakhs lump sum in a mix of debt and equity mutual funds. This helps in balancing risk and ensuring steady growth.
Debt Management
Home and Car Loans: Ensure EMIs are manageable within your current income. Focus on pre-paying high-interest loans if possible.
Children's Future Planning
Education Planning: Continue investments in Sukanya Samruddhi Yojana and PPF. These provide stable returns and tax benefits.
Retirement Planning
NPS and VPF: Your contributions to NPS and VPF are excellent for retirement planning. They offer tax benefits and steady returns.

Projected Expenses: With a post-retirement monthly requirement of Rs. 4 lakhs, ensure your corpus is sufficient to generate this income.

Life Insurance
Term Plans: Your term plans are adequate. Ensure they are reviewed periodically to match your needs.
Emergency Fund
Liquidity: Maintain an emergency fund of at least 6-12 months of expenses in liquid assets like savings accounts or liquid mutual funds.
Review and Rebalance
Periodic Review: Review your portfolio every 6-12 months. Rebalance if needed to align with your financial goals and risk tolerance.
Final Insights
Your current investment strategy is robust and well-diversified. By continuing your disciplined approach and making periodic adjustments, you can achieve your financial goals, including early retirement and securing your children's future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Ramalingam Kalirajan  |6625 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 13, 2024

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Hi, I'm Pooja (unmarried). My monthly income is ?1.20 lakh. I am 27 years old. My investments are as follows: ?2.5 lakh/year for a private life insurance company for 10 years. ?26k/year in LIC India. ?50k/year in PPF (Public Provident Fund). Currently, I have ?3 lakh+ in PPF. I have a home loan with a monthly EMI of ?25k (6 months running, tenure is 20 years). I invest ?25k/month in ULIPs (Unit Linked Insurance Plans). I plan to withdraw the ULIP amount after 5 years to close the home loan. I pay ?80k/year for medical insurance for myself and my family. I have invested ?3 lakh in mutual funds, but currently, there is no SIP . My goal for the next 5 years is to close at least 80% of the home loan and then buy a car. I live in Bangalore, so the cost of living is high. Short-term plan: I need money for my sister's and my wedding. Is my investment strategy correct?
Ans: Assessing Your Current Investment Strategy
Pooja, you're on a great path by starting early with a diversified portfolio. Your investments in life insurance, PPF, and mutual funds show a solid foundation. However, there are areas where your strategy can be refined for better long-term growth and achieving your goals.

Evaluating Your Insurance Investments
Private Life Insurance & LIC: You are paying Rs 2.5 lakhs/year and Rs 26k/year for insurance. Insurance is essential, but investment-cum-insurance products may not provide optimal returns compared to other investments. It's wise to consider whether these policies are truly meeting your insurance needs or if you're over-allocating funds here.

ULIPs: Investing Rs 25k/month in ULIPs might not be the most effective strategy. ULIPs combine insurance with investment, but the returns can be lower due to high charges. Considering actively managed mutual funds could offer better growth potential.

Medical Insurance: Your medical insurance of Rs 80k/year is crucial. Ensure it provides adequate coverage for yourself and your family. Given the rising healthcare costs, this is a good step.

Assessing Your Home Loan Strategy
Home Loan: Your monthly EMI of Rs 25k is manageable within your income. However, the plan to use ULIP withdrawals to close the loan might not be the most efficient. Depending on the ULIP returns, you might want to consider whether this approach aligns with your financial goals.

Prepayment: Prepaying your home loan is a good strategy if your home loan interest rate is higher than what you could earn from other investments. Prepayment reduces your interest burden and helps achieve your goal of closing 80% of the loan within 5 years.

PPF and Mutual Fund Investments
PPF: Investing Rs 50k/year in PPF is a safe and tax-efficient option. With Rs 3 lakhs already accumulated, continuing this investment ensures stable, long-term growth. However, PPF has a lock-in period, so it may not be ideal for short-term needs.

Mutual Funds: Your Rs 3 lakhs investment in mutual funds is a strong start, but since you are not currently doing SIPs, you're missing out on the benefits of regular investing. SIPs can provide rupee cost averaging and reduce the impact of market volatility.

Short-Term Financial Needs
Weddings: You mentioned needing funds for your sister's and your wedding. It's essential to start earmarking these funds now. Setting aside a dedicated savings plan or investing in short-term debt funds could be helpful.
Recommendations for Improvement
Reevaluate Insurance: Consider replacing your current insurance policies with a pure term insurance plan. This can provide higher coverage at a lower premium, freeing up funds for more growth-oriented investments.

Shift from ULIPs to Mutual Funds: Redirect your ULIP investments to actively managed mutual funds. This change could help you achieve better returns and meet your home loan prepayment target faster.

Increase SIP Contributions: Start or increase SIP contributions in diversified equity mutual funds. This will help you build a corpus over time and prepare for your short-term needs.

Emergency Fund: Ensure you have an emergency fund covering at least 6 months of expenses. This fund should be kept in a liquid or short-term debt fund for easy access.

Final Insights
Your current investment strategy has a solid base, but with a few adjustments, you can achieve more substantial growth and meet your goals more effectively. Focus on maximizing returns by shifting from low-yield insurance investments to higher-yield mutual funds. Prioritize your home loan prepayment if the interest rates are high, but balance this with other investment opportunities.

Remember, the key is to ensure your investments align with your goals, risk appetite, and time horizon.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Dear Sir, My Age is 59 and investment is as follows: Stock market 1.2 Cr MFI 2.0 Cr Expectied pension from 2026 1,4L per month House : own house Loan liability is zero Responsibility: Marriage of two sons who finished PG My question is " above fund sufficient to take over for me and my wife for next 30 year (assuming life expectancy is 90 Years) Regards Srinivasan
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You may invest 20 L in Arbitrage type of mutual fund(low risk) earmarked for marriage of your sons.

Also you may invest 3 Cr into equity savings type mutual fund (moderate risk).

After 3 years it may grow into a sum of 3.89 Cr considering modest return of 9%.

I suggest that you redeem this corpus by paying LTCG(~11 L) and buy an immediate annuity for balance corpus of 3.78 Cr from a life insurance company.

I am not recommending you to do an SWP because for your required monthly income SWP rate will have to be 4.5%+ annually and I ran this on an swp calculator which shows depleted corpus of less then 1 Cr after 30 years.

Considering annuity rate of 6% you may expect to receive monthly payment of 1.89 L(pre-tax).

Seek joint annuity for yourself and your spouse with return of purchase price to your nominees.

Some life insurers offer increasing annuity at fixed intervals to account for inflation.

Also if you shop around and negotiate you may get a better annuity rate.

Happy Investing!!

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

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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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