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Ramalingam Kalirajan |2770 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on May 10, 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 Prajwal on May 06, 2024Hindi

I would need your little help with the Goal-based investments. I am doing goal-based investments and suppose I have 3 different goals - Child's education, Buying a house, and Generate Post-retirement monthly income. So, should we consider these as individual goals and allocate mutual funds to each of these separately? If yes, while allocating funds to these different goals, can we keep the same MF in two different goals? For example, can I invest in the "ICICI Prudential Bluechip Fund - Direct Plan" fund into two different goals that I have? How much % of Equity should I plan for each term duration: Long-term (20 years), Medium-term (8-10 years), and Small-term (5 years).

Ans: When it comes to goal-based investments, it's essential to treat each goal separately to ensure clarity and focus. Each goal has its unique timeline, risk tolerance, and financial requirements.

Allocating mutual funds to each goal individually helps tailor your investments to meet the specific needs of that goal. However, you can use the same mutual fund for different goals if it aligns with the respective timelines and risk profiles.

For instance, if a mutual fund fits the risk profile and time horizon of both your child's education and post-retirement income goals, it's feasible to invest in it for both goals.

There are some advantages to consider direct funds, and the cost savings can be significant in the long run. However, there are some potential benefits to using a regular MFD:
Advantages of Investing Through a Mutual Fund Distributor (MFD):
• Personalized Advice: MFDs can be helpful for beginners or those who lack investment knowledge. They can assess your risk tolerance, financial goals, and investment horizon to recommend suitable mutual funds. This personalized guidance can be valuable, especially if you're new to investing.
• Convenience: MFDs handle all the paperwork and transactions on your behalf, saving you time and effort. They can help with account setup, SIP registrations, and managing your portfolio across different funds.
• Investor Support: MFDs can be a point of contact for any questions or concerns you may have about your investments. They can provide ongoing support and guidance throughout your investment journey.

Regarding asset allocation, the percentage of equity you should plan for each term duration depends on various factors such as your risk tolerance, time horizon, and financial goals.

For long-term goals like retirement planning or your child's education (20 years or more), a higher allocation to equity may be suitable, given the potential for higher returns over the long run.

For medium-term goals (8-10 years), a balanced approach with a mix of equity and debt investments can help manage risk while aiming for reasonable growth.

For short-term goals (5 years or less), a more conservative approach with a higher allocation to debt investments may be prudent to safeguard capital and ensure liquidity when needed.

Remember, asset allocation is a dynamic process that may require periodic review and adjustments based on changes in your financial situation and market conditions.

As a Certified Financial Planner, I encourage you to consult with a professional to develop a personalized investment plan tailored to your specific goals, risk tolerance, and financial circumstances.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Asked on - May 20, 2024 | Answered on May 20, 2024

Thanks very much for the details explanation. This helped me sorting out my funds and allocating the funds wisely. I have one more question regarding goal-based investment only. Suppose, I have brought home worth 90L out of which 65L loan was only sanctioned. I have paid off 25L but I want to close the loan as early as possible. So, how can I use a goal-based investment strategy for clearing the home loan as a goal?

Ans: It's commendable that you are committed to clearing your home loan as early as possible. This goal-oriented approach will enhance your financial freedom and security.

Understanding Your Current Situation
Loan Details:

Home Value: ?90 Lakhs
Loan Sanctioned: ?65 Lakhs
Amount Paid: ?25 Lakhs
Outstanding Loan: ?40 Lakhs
Current Financial Status:

Income and expenses: Assess your monthly income and expenses to determine how much you can allocate towards loan repayment and investments.
Savings: Identify any existing savings that could be redirected towards loan repayment.
Setting Your Goal
Goal:
Clear the outstanding home loan of ?40 Lakhs as soon as possible.
Establish a target time frame for achieving this goal (e.g., 5 years).
Developing a Goal-Based Investment Strategy
Assess Your Risk Tolerance:

Given your goal, a moderate risk tolerance is advisable. Balancing between aggressive growth and safety will ensure you can meet your target without undue risk.
Determine Monthly Allocation:

Calculate the extra amount you can contribute monthly towards clearing the loan. Consider redirecting part of your disposable income and any bonuses or windfalls.
Investment Vehicles:

Equity Mutual Funds:
Invest in equity mutual funds for higher returns. Use a Systematic Investment Plan (SIP) to invest a fixed amount monthly. This approach leverages rupee cost averaging.
Debt Mutual Funds:
Allocate a portion to debt mutual funds for stability and lower risk. These funds offer consistent returns and add a safety net to your investment portfolio.
Fixed Deposits or Recurring Deposits:
Invest in fixed deposits (FDs) or recurring deposits (RDs) for guaranteed returns. This option provides safety and liquidity, ideal for meeting near-term financial goals.
Implementing the Strategy
Systematic Investment Plan (SIP):

Set up SIPs in a mix of equity and debt mutual funds. Allocate a higher proportion to equity funds for growth, and a smaller portion to debt funds for stability.
Example: If you can invest ?50,000 monthly, allocate ?35,000 to equity mutual funds and ?15,000 to debt mutual funds.
Lump-Sum Investments:

Direct any windfalls or bonuses directly towards the loan principal. This reduces the principal amount, lowering your interest burden.
Example: Annual bonuses or unexpected income can be fully or partially directed towards extra loan payments.
Monitor and Adjust:

Regularly review your investment performance and loan repayment progress. Adjust your investments if necessary to stay on track with your goal.
If your income increases, consider increasing your SIP amounts to expedite the loan repayment.
Financial Discipline and Additional Tips
Maintain an Emergency Fund:

Ensure you have an emergency fund equivalent to 6-12 months of expenses. This fund provides a safety net without derailing your loan repayment goal.
Avoid New Debt:

Avoid taking on additional debt until your home loan is fully repaid. This prevents diversion of funds and keeps you focused on your primary goal.
Regular Principal Payments:

Make regular principal payments in addition to your EMIs. This practice reduces the loan tenure and total interest paid.
Conclusion and Encouragement
Your determination to clear your home loan early is commendable and a wise financial decision. By implementing a disciplined, goal-based investment strategy, you can achieve your goal efficiently and effectively.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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