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Ramalingam Kalirajan3951 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 23, 2024

Asked on - May 22, 2024Hindi

Hello. I need your financial advise here. Can we maintain a Mutual Fund for long-term? Suppose if I have these funds: Nippon India Large Cap fund (large cap), PGIM India Mid Cap fund, Quant Small cap fund. Can I decide to maintain this for long-term (10-15 years)? Or should we regularly monitor these funds and opt for other funds where we get better returns than these. I am looking for a long-term investment let it be retirement plan or kid's education. All I am looking for is long-term. Could you pls suggest what to do in this scenario? How can I manage this?
Ans: Long-Term Investment in Mutual Funds: A Strategic Approach
Understanding Your Current Investments
You have chosen three mutual funds for your long-term investment goals:

Nippon India Large Cap Fund (large cap)
PGIM India Mid Cap Fund
Quant Small Cap Fund
These funds cover large, mid, and small-cap categories, providing a diversified portfolio.

Your dedication to long-term investment planning is commendable. Balancing large, mid, and small-cap funds shows a strategic approach to diversification.

Benefits of Long-Term Mutual Fund Investment
Compounding Effect
Investing in mutual funds for the long-term allows you to benefit from the power of compounding. Over time, the returns on your investments can generate their own returns, significantly growing your wealth.

Reduced Market Volatility
Long-term investments help mitigate the impact of short-term market volatility. Staying invested through market ups and downs can lead to more stable and substantial growth.

Monitoring and Managing Your Investments
Importance of Regular Monitoring
While long-term investments are beneficial, regular monitoring is essential. Market conditions and fund performance can change, requiring adjustments to your portfolio.

Evaluating Fund Performance
Regularly review the performance of your mutual funds. Compare their returns with benchmark indices and peer funds. Consistent underperformance might indicate the need for a change.

Role of a Certified Financial Planner
A Certified Financial Planner (CFP) can provide professional guidance. They can help you evaluate fund performance, recommend adjustments, and ensure your investments align with your goals.

Actively Managed Funds vs. Index Funds
Disadvantages of Index Funds
Index funds track a specific market index and aim to replicate its performance. They lack the flexibility to adapt to market changes, potentially leading to lower returns compared to actively managed funds.

Benefits of Actively Managed Funds
Actively managed funds, like those you have chosen, are overseen by professional fund managers. They can adjust the portfolio based on market conditions, aiming for higher returns and better risk management.

Direct Funds vs. Regular Funds
Disadvantages of Direct Funds
Direct funds save on commission fees but lack the personalized guidance of a professional. Investing through a Mutual Fund Distributor (MFD) with CFP credentials ensures you receive expert advice and strategic insights.

Benefits of Regular Funds
Regular funds offer the expertise of professional advisors who can help you make informed decisions, optimize your portfolio, and achieve your long-term investment goals.

Long-Term Investment Goals
Retirement Planning
Investing in a mix of large, mid, and small-cap funds can help build a substantial corpus for retirement. Regular contributions and long-term growth can ensure financial security in your retirement years.

Kid's Education
Long-term investments are ideal for funding your child's education. Starting early and staying invested can generate the necessary funds to cover higher education expenses, even for overseas studies.

Strategic Portfolio Management
Asset Allocation
Maintain a balanced asset allocation across large, mid, and small-cap funds. This diversification helps manage risk and optimize returns.

Regular Rebalancing
Periodically rebalance your portfolio to maintain your desired asset allocation. This involves selling overperforming assets and buying underperforming ones, ensuring your portfolio stays aligned with your goals.

Managing Market Uncertainties
Staying Invested
Market fluctuations are inevitable. Staying invested through market cycles can yield better long-term returns. Avoid making impulsive decisions based on short-term market movements.

Systematic Investment Plan (SIP)
Continue investing through SIPs. SIPs allow you to invest a fixed amount regularly, averaging out the cost of investments and reducing the impact of market volatility.

Building a Contingency Fund
Importance of Liquidity
Ensure you have an adequate contingency fund. This fund provides liquidity for emergencies, reducing the need to withdraw from your long-term investments.

Planning for Future Financial Goals
Setting Clear Goals
Define your financial goals clearly. Whether it's retirement, your child's education, or other long-term objectives, having specific targets helps create a focused investment strategy.

Professional Guidance
Seek regular advice from a Certified Financial Planner. They can help you set realistic goals, develop a strategic investment plan, and adjust your portfolio as needed.

Maintaining a long-term mutual fund portfolio is a sound strategy for achieving financial goals. Regular monitoring, professional guidance, and a balanced approach can help you optimize returns and manage risks. Your commitment to securing your financial future is commendable, and with the right strategy, you can achieve your retirement and education goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

Asked on - May 23, 2024 | Answered on May 23, 2024
Thank you very much for your professional assistance here. This has a detailed explanation of every element needed for investment. One question - Can we use these online SIP/Lumpsum calculators to get to know our goal-based investment amount? For example, I tried the SIP calculator by INDMoney (online) where I entered the following details under "I know my goal amount" under SIP as: Goal amount: 3,00,00,000 Time period: 15 years Growth rate: 12% (approx) And, it shows the monthly required amount to be 63k/month to reach this goal. I am not sure if this is the correct way to calculate the monthly investments required for our goals. Could you provide your guidance here.
Ans: Using online SIP (Systematic Investment Plan) or Lumpsum calculators can be a convenient way to get a rough estimate of the monthly investment required to reach your financial goals. However, these calculators come with several limitations:

Limitations of Free Online Calculators:
Simplistic Assumptions: Most online calculators use a fixed rate of return assumption (e.g., 12% in your case), which might not reflect market volatility and actual performance over time.
Lack of Personalization: These tools don't account for your individual financial situation, risk tolerance, inflation rates, tax implications, and other factors that could impact your investment strategy.
No Consideration for Market Dynamics: Real-world investments are subject to market risks and fluctuations. A steady growth rate assumption can be overly optimistic or pessimistic depending on market conditions.
Inflation Impact: Many calculators do not properly factor in inflation, which can erode the purchasing power of your goal amount over time.
Periodic Review and Adjustment: Financial goals and market conditions change. Free calculators do not provide a mechanism for periodic review and adjustment of your investment plan.
Seeking Professional Guidance:
To develop a more accurate and personalized investment strategy, it is highly recommended to consult with a certified financial planner (CFP). A CFP can:

Conduct a Comprehensive Financial Assessment: Understand your current financial situation, future goals, and risk tolerance.
Develop a Tailored Plan: Create a customized investment plan that takes into account various factors like inflation, market conditions, tax implications, and your personal financial goals.
Ongoing Monitoring and Adjustments: Provide continuous monitoring of your investments and make adjustments as necessary based on changes in your life circumstances and market conditions.
Holistic Advice: Offer advice on a wide range of financial matters beyond just investment, including retirement planning, estate planning, and insurance needs.
Practical Steps:
Use Calculators as a Starting Point: Use online calculators to get a basic idea of the investment required.
Consult a Financial Planner: Schedule a meeting with a CFP to get a comprehensive and personalized financial plan.
Review Regularly: Periodically review your investment plan with your financial planner to ensure it remains aligned with your goals and market conditions.
By taking these steps, you'll be better equipped to achieve your financial goals with a well-rounded and realistic investment strategy.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,


Ramalingam Kalirajan3951 Answers  |Ask -

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

Asked 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,

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
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,

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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