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Ramalingam Kalirajan4625 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 05, 2024

Asked on - Jun 05, 2024Hindi

Hello sir First of all thank you so much to evaluate my portfolio Sir I already accumulate 15 lakh for emergency Now I want to accumulate 1 cr in next 7 years with my SIP’s which I mentioned previously , and I took 1cr life cover plan and and 4 life insurances policies(3 already paid and one is going on ) all these policies will mature in 2028-2033 So pls sir suggest me to accumulate 1cr in next 7 years , should I have to increase my SIP amount or cureently amount is okay i.e 24500/-
Ans: Current Financial Situation
Your emergency fund of Rs 15 lakh is an excellent start. It acts as a buffer, providing financial security in case of unexpected expenses. It's important to ensure that this fund is easily accessible and kept in a low-risk, liquid investment, such as a savings account or a liquid mutual fund. This ensures you can access it quickly without the risk of market fluctuations affecting its value.

Having a Rs 1 crore life cover plan indicates your foresight in securing your family’s future. It’s essential that this coverage amount is reviewed periodically to ensure it continues to meet your family’s needs, considering inflation and changes in your financial obligations.

Evaluating Your SIP Contributions
Your current SIP of Rs 24,500 is a strong start, but let’s delve deeper into the calculations to see if it’s sufficient to reach your goal of Rs 1 crore in seven years.

To accumulate Rs 1 crore in seven years with a conservative annual return of 12%, the formula used earlier indicated a shortfall. Here’s a more detailed breakdown:

This indicates that with a SIP of Rs 24,500, you would accumulate approximately Rs 32.2 lakhs, which is significantly below your target of Rs 1 crore.

Adjusting SIP Contributions
To reach Rs 1 crore, we need to find the required SIP amount.

You would need to increase your SIP to approximately Rs 75,950 per month to achieve your goal of Rs 1 crore in seven years, assuming an annual return of 12%.

Reviewing Your Insurance Policies
Your insurance policies, while providing necessary life cover, might not be the most efficient investment vehicles. Traditional life insurance policies, including ULIPs and endowment plans, often have lower returns compared to mutual funds.

Surrendering and Reinvesting
Evaluate Surrender Value: Determine the surrender value of your policies. Contact your insurer or check your policy documents to find out how much you would receive if you surrender these policies.

Cost-Benefit Analysis: Compare the surrender value and the potential returns if reinvested in mutual funds. This analysis will help you understand if surrendering the policies is beneficial.

Reinvestment Plan: If the analysis favors surrendering, reinvest the proceeds into mutual funds through SIPs. This could significantly boost your potential returns.

Benefits of Reinvesting in Mutual Funds
Mutual funds, particularly equity funds, typically offer higher returns compared to traditional insurance plans. They also provide greater flexibility and liquidity. By reinvesting the surrender value, you can accelerate your progress towards accumulating Rs 1 crore.

Benefits of Actively Managed Funds
Disadvantages of Direct Funds
Direct funds require investors to have a good understanding of the market. Without professional guidance, you may miss out on strategic investment opportunities and risk making uninformed decisions.

Advantages of Regular Funds
Investing through regular funds with a Certified Financial Planner offers several benefits:

Expertise: Fund managers possess the expertise and experience to make informed investment decisions, which can lead to better returns.

Convenience: You don’t have to manage the investments yourself. The fund manager takes care of portfolio selection and management.

Performance Monitoring: Regular reviews and adjustments by the fund manager ensure your investments remain aligned with your financial goals.

Strategic Investment Planning
Increase SIP Contributions
Based on our calculations, increasing your SIP to around Rs 75,950 is crucial. This might seem challenging, but it’s essential for meeting your Rs 1 crore target.

Diversify Portfolio
Diversification helps mitigate risk. Consider spreading your investments across different types of mutual funds, such as large-cap, mid-cap, and multi-cap funds. This strategy balances risk and potential returns.

Regular Reviews
Periodic reviews of your investment portfolio are vital. They help ensure your investments are performing well and remain aligned with your goals. Adjustments might be needed based on market conditions and changes in your financial situation.

Understanding Market Volatility
Investing in mutual funds involves market risk. Equity markets are inherently volatile, and it’s essential to have a long-term perspective. Short-term fluctuations can be unsettling, but staying invested usually yields better returns over time.

Mitigating Risks
Diversification: Spread investments across various sectors and asset classes to reduce risk.

Regular Monitoring: Keep track of market trends and economic indicators. Your Certified Financial Planner can help with this.

Stay Invested: Avoid the temptation to withdraw investments during market downturns. Historical data shows that markets generally recover and grow over time.

Tax Efficiency
Utilizing Tax Benefits
Mutual funds offer tax-efficient returns. For example, Equity Linked Savings Schemes (ELSS) not only provide the potential for high returns but also offer tax benefits under Section 80C of the Income Tax Act.

Planning Withdrawals
Plan your withdrawals to minimize tax liabilities. For instance, holding equity mutual funds for more than a year qualifies for long-term capital gains tax, which is lower than short-term capital gains tax.

Role of Certified Financial Planner
A Certified Financial Planner (CFP) provides a structured and disciplined approach to achieving your financial goals. They offer:

Goal-Based Planning
Align your investments with specific financial goals. This ensures a focused approach and helps in measuring progress accurately.

Risk Assessment
Assessing your risk tolerance is crucial. A CFP can recommend investment options that match your risk profile, ensuring you are comfortable with the level of risk.

Performance Monitoring
Regular monitoring and rebalancing of your portfolio help in maintaining the right asset allocation and optimizing returns. A CFP ensures that your investments stay on track to meet your financial goals.

Empathy and Understanding
I understand that financial planning can be daunting. It's impressive that you have taken significant steps towards securing your financial future. By increasing your SIP contributions and considering the surrender and reinvestment of your insurance policies, you can move closer to your goal of Rs 1 crore in seven years.

To accumulate Rs 1 crore in seven years, it's crucial to increase your SIP contributions, potentially to around Rs 75,950. Additionally, consider surrendering your low-return insurance policies and reinvesting the proceeds in mutual funds. Engaging a Certified Financial Planner ensures that your investments are managed professionally, helping you stay on track to achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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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