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Ramalingam Kalirajan |4098 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 27, 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 Ratheesh on Jun 26, 2024Hindi

Dear Sir, I'm an 42 year Nri have 2 kids of 10 year girl and 5 year boy.I earn 80k per month and have expense 35k.My investments are, have FD of 20L , 7k per month in mutual funds,12k monthly in Sukunya yojana for aiming my girl's higher education and marriage,12k monthly PPF aiming for my boy's higher education and 5k each for me and my wife's NPS aiming for the retirement expenses. Sir,Please suggest my current investments are adequate, or need any changes to beat the inflation and future expenses.

Ans: You have a good mix of investments, but there are always ways to optimize and ensure you're beating inflation and preparing for future expenses. Let’s evaluate and provide some suggestions:

Income and Expense Overview
You earn Rs. 80,000 per month with an expense of Rs. 35,000.

This leaves you with Rs. 45,000 to invest and save monthly.

It's great that you have a significant portion available for investments.

Maintaining a balance between expenses and savings is crucial for long-term wealth creation.

Current Investments
Let's break down your current investments:

1. Fixed Deposit (FD):

You have an FD of Rs. 20 lakh.

FDs offer safety but may not always beat inflation.

Consider diversifying to investments with higher returns.

2. Mutual Funds:

You invest Rs. 7,000 per month in mutual funds.

Mutual funds can offer good returns over the long term.

Actively managed funds are preferable over index funds.

Actively managed funds have the potential to outperform the market.

3. Sukanya Samriddhi Yojana (SSY):

You invest Rs. 12,000 monthly for your daughter's future.

SSY is an excellent scheme for girl child savings.

It offers tax benefits and decent returns.

This is a good strategy for her education and marriage expenses.

4. Public Provident Fund (PPF):

You invest Rs. 12,000 monthly in PPF for your son's education.

PPF is a safe investment with tax benefits.

However, consider diversifying for higher returns.

5. National Pension System (NPS):

You invest Rs. 5,000 each for you and your wife in NPS.

NPS is great for retirement savings with tax benefits.

However, review the asset allocation to ensure it matches your risk profile.

Suggestions for Improvement
To ensure your investments beat inflation and cover future expenses, consider these adjustments:

1. Increase Mutual Fund Investments:

Mutual funds can potentially offer higher returns than traditional investments.

Consider increasing your monthly SIPs in equity mutual funds.

Diversify across large-cap, mid-cap, and small-cap funds.

2. Review and Adjust FD Allocation:

FDs provide safety but may not always keep up with inflation.

Consider reducing your FD allocation and investing in higher-return instruments.

Debt funds can be a good alternative for better post-tax returns.

3. Optimize PPF and SSY Investments:

While SSY and PPF are safe, they might not beat inflation over the long term.

Continue with SSY for its benefits for your daughter.

For PPF, consider balancing it with equity mutual funds for higher growth.

4. NPS Asset Allocation:

Review your NPS account's asset allocation.

Ensure it includes a higher equity exposure for better returns.

Consider increasing your contribution if possible, as NPS can be a good retirement tool.

Child’s Education and Marriage Planning
Education and marriage are significant future expenses. Here’s how you can plan:

1. Education Planning:

Estimate the future cost of education, considering inflation.

For your daughter’s higher education, SSY is a good start.

However, supplement it with mutual funds for better growth.

For your son's education, use a mix of PPF and mutual funds.

2. Marriage Planning:

SSY can cover some marriage expenses for your daughter.

Start a dedicated mutual fund SIP for marriage expenses.

A long-term SIP can grow substantially, helping you cover these costs.

Retirement Planning
Retirement planning is crucial for financial independence in later years:

1. Increase NPS Contributions:

NPS is a solid retirement savings tool.

Consider increasing your contribution to maximize benefits.

Review and adjust the equity exposure within NPS.

2. Diversify with Mutual Funds:

Apart from NPS, invest in mutual funds for retirement.

Equity mutual funds can offer higher returns over the long term.

This will help you build a substantial retirement corpus.

Tax Planning
Effective tax planning helps in maximizing your take-home income:

1. Utilize Section 80C:

Your investments in PPF, SSY, and NPS already provide tax benefits.

Ensure you’re fully utilizing the Rs. 1.5 lakh limit under Section 80C.

2. Health Insurance:

Premiums paid for health insurance qualify for deductions under Section 80D.

Ensure you have adequate health insurance coverage for your family.

3. NPS Additional Deduction:

NPS offers an additional deduction of Rs. 50,000 under Section 80CCD(1B).

Make sure you’re availing of this benefit.

Building an Emergency Fund
An emergency fund is crucial for financial stability:

1. Target Amount:

Aim for an emergency fund that covers at least 6 months of expenses.

With your expenses at Rs. 35,000 per month, aim for Rs. 2.1 lakh.

2. Where to Park:

Keep this fund in a liquid or ultra-short-term debt fund.

This ensures easy access and safety of your money.

Final Insights
Your current investments are a good mix of safety and growth.

Increasing your mutual fund investments will help beat inflation.

Review and adjust your FD and PPF allocations for better returns.

Ensure your NPS has adequate equity exposure for higher growth.

Tax planning and a robust emergency fund are also crucial.

Your financial goals are achievable with consistent and disciplined investing.

Consult a Certified Financial Planner for personalized advice and periodic reviews.

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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