Am a working professional of 40 yrs age. I have only a small amount in my PPF account. Earlier I had not planned any proper savings for future due to my irregular incomes. Now I have decided to go for some planned savings in Mutual funds through...

Am a working professional of 40 yrs age. I have only a small amount in my PPF account. Earlier I had not planned any proper savings for future due to my irregular incomes. Now I have decided to go for some planned savings in Mutual funds through SIP/one-time payment. Please suggest some mutual funds which will give high returns.

Also I want to know should I go for NPS. My main financial goal is retirement planning. Also I want a guaranteed monthly income in case of job insecurities. Please guide me.

Ans: Hi Sasmita Guru. Getting started on your retirement planning is never too late. Diversify your asset allocation by investing in NPS along with mutual funds.

If you are seeking high-risk investments, I would recommend investing in small-cap, mid-cap, and flexi-cap funds. Additionally, you can invest in categories like balanced advantage and bluechip funds for low risk.

Mutual funds never provide guaranteed income; for that you may look for annuities.

Ans: It's great that you and your wife have started saving and investing early. At your age, you have a significant advantage to accumulate wealth over the long term. Let's dive into how you can strategically allocate your resources to maximize your financial growth.

Understanding Your Current Investments
First, let's look at your existing SIPs:

Nippon India Small Cap Fund Direct Growth - Rs 4k
Aditya Birla Sun Life PSU Equity Fund Direct Growth - Rs 4k
Parag Parikh Flexi Cap Fund Direct Growth - Rs 3k
Quant Infrastructure Fund - Rs 4k
And your one-time investments:

HDFC Mid Cap - Rs 5k
Motilal Oswal Mid Cap Fund - Rs 5k
Evaluating Existing Investments
Your choice of funds shows a diverse range, which is good for spreading risk. However, investing in direct plans might not always be the best approach. Direct funds often require more hands-on management and regular monitoring. Regular funds, managed by a Certified Financial Planner (CFP), might offer better guidance and adjustments as per market conditions. This ensures your investments are actively managed to achieve better returns.

Disadvantages of Direct Funds
Direct funds come without the advice and monitoring of a professional. This can lead to:

Poor fund selection due to lack of expertise.
Missing out on market opportunities or failing to switch during adverse market conditions.
Less guidance on aligning your portfolio with your financial goals.
Benefits of Regular Funds through a CFP
Investing in regular funds through a CFP can offer:

Professional guidance and continuous monitoring.
Better fund selection based on your risk profile and goals.
Timely rebalancing of the portfolio to align with market changes.
Suggested Mutual Funds for Long-Term SIP
For a 15-20 year horizon, consider these categories of funds:

Large-Cap Funds
Large-cap funds invest in well-established companies with a good track record. They are relatively stable and offer consistent returns.

Mid-Cap Funds
Mid-cap funds invest in medium-sized companies. These funds have the potential for higher returns but come with higher risk compared to large-cap funds.

Multi-Cap Funds
Multi-cap funds invest across large, mid, and small-cap stocks. They offer a balanced approach and diversify risk across various market caps.

Equity-Linked Savings Schemes (ELSS)
ELSS funds not only offer potential high returns but also provide tax benefits under Section 80C.

Benefits of Mutual Funds
Diversification: Spreads your investment across various sectors and companies, reducing risk.
Professional Management: Managed by experts who make informed decisions.
Liquidity: You can redeem your investments anytime.
Tax Efficiency: Especially with ELSS funds, you get tax deductions.
Power of Compounding: Long-term investments benefit immensely from compounding, leading to exponential growth of your corpus.
Allocating the Rs 40 Lakhs from Property Sale
The Rs 40 lakhs from selling ancestral property is a significant amount. Here’s a detailed plan:

Emergency Fund
First, set aside 6-12 months' worth of expenses as an emergency fund. This fund should be easily accessible, like in a savings account or liquid fund.

Debt Repayment
If you have any high-interest debt, prioritize paying it off. This will save you from paying high interest and free up more money for investments.

Long-Term Investments
With the remaining amount, focus on a diversified portfolio:

Equity Mutual Funds:

Allocate 60-70% of your funds to equity mutual funds for long-term growth.
Debt Mutual Funds:

Allocate 20-30% to debt funds for stability and regular returns.
Gold:

Invest 5-10% in gold (via Gold ETFs or Sovereign Gold Bonds) as a hedge against inflation.
Alternate Investments:

Consider allocating a small portion to other investment options like international funds for geographical diversification.
Actively Managed Funds vs. Index Funds
While index funds are passively managed and aim to replicate market indices, actively managed funds aim to outperform the market through strategic selection of stocks. Here’s why actively managed funds might be more beneficial:

Disadvantages of Index Funds
Limited Growth Potential: They only match market returns.
No Downside Protection: During market downturns, they suffer equally.
Lack of Flexibility: No scope for strategic stock selection to outperform the market.
Benefits of Actively Managed Funds
Potential for Higher Returns: Skilled fund managers can select high-potential stocks.
Strategic Flexibility: Ability to adjust the portfolio based on market conditions.
Downside Protection: Better strategies to mitigate losses during market downturns.
Regular Monitoring and Rebalancing
Regardless of the funds you choose, regular monitoring and rebalancing of your portfolio are essential. This ensures your investments stay aligned with your financial goals and market conditions. A CFP can provide invaluable support in this area.

Final Insights
Starting early and being consistent with your investments is commendable. With disciplined saving and strategic investing, you can build a substantial corpus over the next 15-20 years.

Ensure you balance your portfolio across various fund categories to spread risk. Engage with a CFP for regular funds to benefit from professional management and guidance. Avoid the pitfalls of direct funds and index funds by opting for actively managed funds.

By setting aside an emergency fund, paying off high-interest debt, and investing the remaining amount wisely, you can secure a stable financial future. Remember, the power of compounding will significantly boost your wealth if you stay invested for the long term.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in