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New to Investing? How to Invest Wisely with Limited Funds

Ramalingam

Ramalingam Kalirajan  |7606 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 24, 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
Asked by Anonymous - Jul 14, 2024Hindi
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I am working in a foreign bank 10 years exp with salary of 40k.have two kids.i pay monthly emi for car,rest for savings and expenses.pls suggest how to do investment.0 idea on investment.plz help

Ans: You have a stable salary of Rs 40,000 per month. Here's a quick summary:

Salary: Rs 40,000
EMI: Monthly car loan EMI
Expenses: For family and kids
Savings: Whatever is left after expenses and EMI
You are looking to invest wisely. Let's break it down into simple steps.

Setting Clear Financial Goals
Emergency Fund:

First, create an emergency fund.
This should cover 6 months of expenses.
Keep this in a savings account or liquid fund.
Children’s Education:

Start a systematic investment plan (SIP) for each child.
This will help build a corpus for their education.
Retirement Planning:

Aim to save for your retirement.
Start investing in diversified equity mutual funds.
Investment Strategy
Systematic Investment Plans (SIP):

Start SIPs in actively managed mutual funds.
Avoid index funds due to their passive nature.
Actively managed funds can offer better returns with professional management.
Diversification:

Invest in a mix of large-cap, mid-cap, and multi-cap funds.
This will spread risk and improve returns.
Debt Funds:

Allocate some money to debt funds for stability.
They are less volatile and provide steady returns.
Life Insurance:

Ensure you have adequate life insurance.
This protects your family in case of any unforeseen events.
Specific Recommendations
Start with SIPs:

Allocate Rs 5,000 each in large-cap, mid-cap, and multi-cap funds.
This ensures diversification and growth.
Emergency Fund:

Set aside Rs 5,000 monthly in a liquid fund.
This builds your emergency fund gradually.
Children’s Education Fund:

Invest Rs 5,000 each in child-specific funds.
This secures their future education needs.
Avoid Direct Funds:

Direct funds lack professional guidance.
Regular funds through an MFD with CFP credential provide better management.
Regular Review and Adjustment
Annual Review:

Review your investments annually.
Adjust based on performance and goals.
Rebalance Portfolio:

Rebalance to maintain desired asset allocation.
This helps manage risk and returns.
Additional Tips
Avoid High-Risk Investments:

Stick to mutual funds and avoid real estate or annuities.
These are more stable and manageable.
Stay Informed:

Read about personal finance and investment strategies.
This helps make informed decisions.
Final Insights
You have a solid start with your savings. By following these steps, you can secure your financial future and achieve your goals. Stay disciplined and regularly review your investments.

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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Latest Questions
Ramalingam

Ramalingam Kalirajan  |7606 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 22, 2025

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Where should I invest Rs. 50000 in Index mutual fund or in ETF?
Ans: When deciding between Index Mutual Funds, ETFs, and actively managed diversified equity funds, actively managed funds often stand out. Let’s analyse why active diversified equity funds are a better option for your Rs. 50,000 investment.

Understanding Index Funds and ETFs
Index Funds: These passively replicate an index like NIFTY 50 or SENSEX. They aim to match the market’s performance, not beat it.

ETFs (Exchange Traded Funds): Similar to index funds but trade like stocks on exchanges. They require a Demat account.

Disadvantages of Index Funds and ETFs
Limited Returns Potential
Index funds and ETFs only track the market.
They cannot outperform the benchmark, even when market conditions allow for superior performance.
No Protection in Market Downturns
Index funds replicate the index, so they fall equally during market downturns.
Active funds may reduce losses with better sector and stock allocation.
Lack of Professional Judgment
Index funds follow pre-set rules, ignoring company-specific fundamentals.
Actively managed funds use professional fund managers who adjust portfolios to maximise gains.
Hidden Costs in ETFs
ETFs may seem cost-effective but involve additional brokerage and Demat account charges.
Liquidity issues can lead to price variations between the market price and NAV.
Benefits of Active Diversified Equity Funds
Potential for Superior Returns
Experienced fund managers aim to outperform the benchmark.
They carefully select high-potential stocks across sectors and market caps.
Flexibility in Stock Selection
Active funds are not restricted to index stocks.
They pick companies with strong fundamentals, growth prospects, and attractive valuations.
Downside Protection
Fund managers can reduce exposure to risky sectors during market downturns.
This minimises losses compared to passive funds.
Tax Efficiency with Strategic Planning
Gains can be optimised with periodic review and rebalancing.
Active funds often deliver better after-tax returns over the long term.
Why Rs. 50,000 Fits Well in Active Diversified Equity Funds
A one-time investment of Rs. 50,000 deserves active management for maximised growth.
Over 5–10 years, active funds are better positioned to beat inflation and create wealth.
Suggested Allocation for Active Diversified Equity Funds
Large-Cap Equity Funds (30%-40%): Stability and consistent returns.
Flexi-Cap Equity Funds (40%-50%): Flexibility to invest across market caps.
Mid-Cap Equity Funds (20%-30%): Higher growth potential with moderate risk.
Key Considerations
Stay invested for at least 7–10 years for compounding benefits.
Review performance annually and rebalance if needed.
Avoid chasing short-term trends or reacting to market noise.
Final Insights
Index funds and ETFs are suitable for certain scenarios, but they lack active management benefits. By investing Rs. 50,000 in actively managed diversified equity funds, you can maximise returns, minimise risks, and benefit from professional expertise.

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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