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Ramalingam Kalirajan |8285 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 13, 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

Question by Praveen on Jun 12, 2024Hindi

Dear Sir, I am a working professional aged 52 years. Wife is homemaker, I have 2 daughters aged 21 years and 14 years. Elder daughter in into her 3rd year of graduation and wants to go to US for her MS. Younger daughter is still in school. I have following savings, shares worth 9 cr, MF worth 1.7 cr, FD worth 50 lacs. My PF corpus is approx 1.5cr. I have a home loan for 2.5 cr with monthly EMI at 3.5 lacs. I am looking to quit my active job and opt for consultancy projects and teaching assignments. As you know these may not be high paying assignments, how ever with my savings can I think of doing so and secondly is my savings portfolio ok or it needs realignment ?

Ans: Your decision to transition from a high-paying job to consultancy and teaching is significant. Given your substantial savings and investments, it's understandable that you're considering whether your portfolio can sustain this change. Let’s delve into the details of your financial position and provide a comprehensive plan to ensure your financial security and growth.

Assessing Your Financial Position
First, let’s take stock of your current financial assets:

Shares: Rs 9 crore
Mutual Funds: Rs 1.7 crore
Fixed Deposits: Rs 50 lakh
Provident Fund: Rs 1.5 crore
Home Loan: Rs 2.5 crore with a monthly EMI of Rs 3.5 lakh
Your total assets amount to Rs 12.7 crore, excluding the home loan liability. This is a strong financial base, but the EMI is substantial, especially if your future income is uncertain.

Evaluating Your Current and Future Financial Needs
Children’s Education
Your elder daughter’s aspiration to study in the US for her MS will require significant funds. An MS in the US can cost anywhere between Rs 50 lakh to Rs 1 crore, including tuition, living expenses, and other costs. Planning for this expense is crucial.

Your younger daughter is still in school, and future education costs should also be considered. These expenses could range significantly depending on her career path.

Living Expenses and Lifestyle
Post-retirement, you will need to sustain your current lifestyle. Estimate your monthly living expenses, including all household costs, healthcare, and other personal expenses.

Home Loan Repayment
Your home loan EMI is Rs 3.5 lakh per month, amounting to Rs 42 lakh annually. This is a considerable burden, and managing this effectively will be critical, especially if your consultancy and teaching income is lower than your current salary.

Transition to Consultancy and Teaching
Shifting to consultancy and teaching can be fulfilling but may offer lower and irregular income. It’s important to assess if your passive income and savings can cover your expenses.

Realignment of Your Portfolio
Given your substantial savings, your portfolio should be optimized for growth, income, and risk management.

Diversification and Risk Management
Shares (Rs 9 crore): Equity investments are crucial for growth but come with higher risk. Ensure your portfolio is well-diversified across sectors to mitigate risk. Regularly review and rebalance your equity portfolio to align with your risk tolerance and market conditions.

Mutual Funds (Rs 1.7 crore): Actively managed mutual funds can offer diversification and professional management. Evaluate the performance of your current funds and consider reallocating to funds with a strong track record and potential for growth. Avoid index funds due to their average market returns.

Fixed Deposits (Rs 50 lakh): Fixed deposits provide safety and fixed returns but are not very tax-efficient. You might consider reducing your allocation to FDs and reallocating some of this amount to debt mutual funds, which can offer better post-tax returns.

Provident Fund (Rs 1.5 crore): Your PF provides a secure, long-term retirement corpus. Continue to leverage this for stable, tax-efficient growth.

Generating Passive Income
Dividend Stocks and Mutual Funds: Invest in dividend-yielding stocks and mutual funds to generate a regular income stream. This can help cover your living expenses and EMIs.

Debt Funds and Bonds: Allocate a portion of your portfolio to debt funds and high-quality corporate bonds. These can provide steady, reliable income with lower risk.

Systematic Withdrawal Plans (SWPs): Set up SWPs from your mutual funds to ensure a regular cash flow. This can be an effective way to manage your monthly expenses without liquidating large portions of your investments.

Education Fund for Daughters
Dedicated Education Savings: Set aside a dedicated education fund for your elder daughter’s MS. This could be in the form of a mix of equity and debt mutual funds, providing a balance of growth and safety.

Recurring Deposits: Consider recurring deposits or SIPs in mutual funds for your younger daughter’s education. This will systematically build a corpus over the years.

Managing Home Loan
Prepayment: If possible, consider prepaying a portion of your home loan using your fixed deposits or mutual fund investments. This will reduce your EMI burden and interest outgo over time.

Balance Transfer: Explore the possibility of transferring your home loan to a lender offering lower interest rates. This can significantly reduce your EMI.

Emergency Fund
Maintain an emergency fund equivalent to at least 6-12 months of your living expenses. This should be easily accessible and can be kept in a savings account or liquid mutual funds.

Tax Planning
Effective tax planning can maximize your post-tax returns. Utilize tax-saving investment options like ELSS mutual funds and ensure efficient tax management on your returns from equity and debt investments.

Regular Review and Adjustments
Regularly review your financial plan and investment portfolio. Market conditions and personal circumstances change, necessitating periodic adjustments. Consulting with a Certified Financial Planner (CFP) will provide professional insights for these adjustments.

Final Insights
Your current financial standing is robust, and with careful planning, you can comfortably transition to a consultancy and teaching career. Ensure that your portfolio is well-diversified, aligned with your risk tolerance, and optimized for both growth and income. Managing your home loan effectively and planning for your daughters' education will be critical. Regular reviews and professional guidance will ensure that your financial goals are met, and your family’s future is secure.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

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