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Ramalingam Kalirajan4992 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 18, 2024

Asked on - Jun 17, 2024Hindi

Money
Hello Gurus, I need some Guidance. I am a 24 year old male and Am currently working as consultant. I did Btech and MBA. I stay with parents so mostly no living expense Total Yoe- 1 current CTC -10 LPA In-hand - 68k post PF and Tax A total of 9k in deposited in PF for me per month (Employee+Employer) I Do Sip's of 14k per month (1 year return 25%, mix of many funds) 2000 NPS per month I need some guidance on my investments. Am i doing it right. Should I plan my investments differently. Also please help me understand is my salary low. I get this feeling many times whe. I hear that people get handsome salaries at my age.
Ans: Your question is very thoughtful and shows a proactive approach towards financial planning. At 24, having completed a BTech and MBA, and securing a job as a consultant with a CTC of Rs 10 lakh per annum is commendable. Your current investments and savings strategies show a strong financial foundation. Let’s delve deeper into your situation, assess your current strategy, and explore ways to optimize your investments.

Understanding Your Current Financial Situation
Salary and In-Hand Income
Your current CTC is Rs 10 lakh per annum, with an in-hand salary of Rs 68,000 per month post PF and tax deductions. Additionally, Rs 9,000 is deposited into your PF account monthly, combining both employee and employer contributions.

Investments
You are currently investing Rs 14,000 per month in SIPs and Rs 2,000 per month in NPS. Your SIPs have yielded a return of 25% over one year, which is impressive. The NPS contribution adds to your retirement savings, benefiting from tax deductions under Section 80C and 80CCD.

Assessing Your Investment Strategy
SIPs (Systematic Investment Plans)
SIPs are an excellent way to invest in mutual funds. They promote disciplined investing, averaging out market volatility, and compounding returns over time. A one-year return of 25% is quite good, but it's important to evaluate these funds periodically. Diversifying your SIPs across different types of funds (equity, debt, hybrid) can balance risk and return.

Advantages of SIPs:

Disciplined Investing: SIPs encourage regular investments and help in averaging out the market highs and lows.
Compounding Returns: Regular investments over a long period lead to significant wealth accumulation due to the power of compounding.
Rupee Cost Averaging: Investing at regular intervals averages the purchase cost of units, reducing the impact of market volatility.
Recommendation: Continue with your SIPs but ensure you review and rebalance your portfolio periodically. If any fund consistently underperforms, consider switching to a better-performing one.

NPS (National Pension System)
NPS is a long-term retirement savings scheme, and your Rs 2,000 per month contribution adds to your retirement corpus. NPS also offers tax benefits under Section 80C and 80CCD, reducing your taxable income.

Advantages of NPS:

Tax Benefits: Contributions are eligible for tax deductions, reducing your taxable income.
Retirement Security: NPS ensures a regular pension income post-retirement.
Market-Linked Growth: Investments in NPS are market-linked, providing the potential for higher returns.
Recommendation: Continue with your NPS contributions. Consider increasing the amount gradually as your income grows to enhance your retirement corpus.

Evaluating Your Salary
Feeling that your salary is low compared to peers is common, especially when hearing about higher salaries in the industry. However, comparing salaries can often be misleading due to varying factors like job roles, locations, and additional benefits.

Factors to Consider:

Industry Standards: Research industry standards for your role and experience level.
Skill Development: Continuously upgrade your skills to increase your market value.
Career Growth: Focus on career growth opportunities within your current role.
Recommendation: Evaluate your salary against industry standards. Focus on skill development and career growth opportunities. If you feel underpaid, consider discussing it with your employer or exploring better opportunities.

Optimizing Your Investments
Diversification
Diversifying your investments reduces risk and enhances returns. Since you are already investing in SIPs and NPS, consider adding different asset classes.

1. Debt Mutual Funds

Debt mutual funds are less volatile than equity funds and provide stable returns. They invest in fixed income securities like bonds and government securities.

Advantages of Debt Funds:

Lower Risk: Less volatile compared to equity funds.
Stable Returns: Provide stable and predictable returns.
Liquidity: Easily redeemable, providing liquidity.
Recommendation: Allocate a portion of your investments to debt mutual funds to balance risk and ensure stability in your portfolio.

2. Balanced or Hybrid Funds

Balanced or hybrid funds invest in a mix of equity and debt instruments, providing the growth potential of equities and the stability of debt.

Advantages of Hybrid Funds:

Balanced Risk: Mitigates risk by diversifying between equity and debt.
Steady Growth: Provides steady returns with moderate risk.
Recommendation: Consider investing in balanced or hybrid funds to diversify your portfolio further and balance risk and return.

Emergency Fund
An emergency fund is essential for financial security. It should cover at least six months of living expenses to manage unexpected situations without liquidating investments.

Recommendation: Build and maintain an emergency fund. Allocate a portion of your savings towards this fund until it reaches the desired level.

Tax Planning
Efficient tax planning maximizes your take-home income and ensures compliance with tax laws.

Tax-Saving Instruments:

ELSS (Equity Linked Savings Scheme): Provides tax deductions under Section 80C and has a lock-in period of three years.
PPF (Public Provident Fund): Long-term investment with tax benefits under Section 80C.
Recommendation: Invest in tax-saving instruments like ELSS and PPF to optimize tax benefits and enhance your savings.

Regular Monitoring and Rebalancing
Regularly monitoring and rebalancing your portfolio ensures it aligns with your financial goals and risk tolerance. Market conditions change, and so do your financial needs.

Recommendation: Review your portfolio at least annually. Rebalance your investments if needed to maintain the desired asset allocation.

Seeking Professional Guidance
A Certified Financial Planner (CFP) can provide personalized advice tailored to your financial situation and goals. They offer expertise in investment planning, tax efficiency, and risk management.

Advantages of a CFP:

Expert Guidance: Provides professional advice and personalized strategies.
Regular Monitoring: Ensures your portfolio stays aligned with your goals.
Tax Efficiency: Helps in optimizing tax savings and compliance.
Recommendation: Consider consulting a CFP for a detailed financial plan and ongoing portfolio management.

Final Insights
You are on the right track with your investments and savings. Your proactive approach and diversified investments in SIPs and NPS are commendable. To further optimize your financial strategy, consider diversifying into debt and hybrid funds, maintaining an emergency fund, and efficient tax planning. Regularly monitor and rebalance your portfolio to ensure it aligns with your financial goals. Lastly, evaluate your salary against industry standards and focus on skill development and career growth opportunities. Consulting a Certified Financial Planner can provide personalized guidance and help you achieve your financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
(more)
Ramalingam

Ramalingam Kalirajan4992 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 15, 2024

Asked on - Jun 15, 2024Hindi

Money
I am planning to buy a luxury car by age of 35. I am a 24 year old guy with 10 LPA package. How much should i save and invest
Ans: Purchasing a luxury car is a dream for many, and it's great that you have set a clear goal for yourself. As a 24-year-old with a package of Rs 10 LPA, you have a solid foundation to build upon. However, buying a luxury car involves significant financial planning and consideration. Let's explore how you can achieve this goal while also ensuring long-term financial stability.

Current Financial Situation and Analysis
Understanding your current financial position is the first step. You earn Rs 10 lakhs per annum, which translates to approximately Rs 83,333 per month before taxes. It's essential to evaluate your monthly expenses, savings, and investments to create a comprehensive plan.

Monthly Income: Rs 83,333 before taxes.
Monthly Expenses: Assess your fixed and variable expenses. This could include rent, utilities, groceries, transportation, entertainment, and other personal expenses.
Setting Clear Financial Goals
Having a clear financial goal is crucial. You want to buy a luxury car by the age of 35. This gives you 11 years to plan and save. However, it's important to balance this goal with other financial objectives such as retirement planning, emergency funds, and potential future expenses like a house or family.

The Concept of Delayed Gratification
A luxury car is an example of instant gratification. While it offers immediate pleasure and status, it is a depreciating asset. Its value decreases over time, and it does not contribute to your long-term wealth. Instead, focusing on delayed gratification can yield better financial results.

Understanding Depreciating Assets
Luxury cars are depreciating assets. They lose value over time, which means the money spent on them does not appreciate. Instead of spending a significant amount on a luxury car now, consider investing that money. Investments can grow over time and potentially fund your luxury car purchase without compromising your financial stability.

Benefits of Investing Early
Investing early allows your money to grow through the power of compounding. By starting now, you can build a substantial corpus over the next 11 years. This approach ensures that you have enough funds for your luxury car while also securing your financial future.

Investment Strategies for Wealth Creation
To achieve your financial goals, consider the following investment strategies:

Systematic Investment Plan (SIP): Investing in mutual funds through SIPs is a disciplined way to build wealth over time. It allows you to invest a fixed amount regularly, which helps in averaging the cost and mitigating market volatility.

Equity Mutual Funds: These funds invest in stocks and have the potential for high returns. Actively managed equity funds can outperform index funds by selecting high-potential stocks.

Debt Mutual Funds: These funds invest in fixed-income securities and provide stable returns with lower risk. They can balance your investment portfolio.

Balanced Funds: These funds invest in a mix of equities and debt, offering growth potential with reduced risk.

Budgeting and Saving for Your Goal
Creating a detailed budget is essential to track your income and expenses. This helps you identify areas where you can save more. Consider the following steps:

Monthly Savings: Set aside a specific amount each month for your luxury car fund. Automatic transfers to a dedicated savings account can help you stay disciplined.

Reduce Unnecessary Expenses: Analyze your spending habits and cut down on non-essential expenses. This can free up more money for savings and investments.

Emergency Fund: Maintain an emergency fund that covers at least six months of your expenses. This ensures financial stability in case of unexpected events.

Long-Term Financial Planning
While saving for a luxury car, it's crucial not to neglect other long-term financial goals. These include retirement planning, buying a house, and other significant expenses. Here's how you can balance multiple financial goals:

Retirement Planning: Start investing in retirement-specific instruments like EPF, PPF, and NPS. These provide long-term benefits and tax advantages.

Diversified Investments: Diversify your investment portfolio to include a mix of equities, debt, and other instruments. This helps in spreading risk and maximizing returns.

Regular Financial Review: Conduct regular reviews of your financial plan. Adjust your savings and investment strategies based on your progress and changing financial situation.

The Importance of Consulting a Certified Financial Planner
A Certified Financial Planner (CFP) can provide professional guidance tailored to your financial goals. They can help you create a comprehensive financial plan, select suitable investment options, and ensure you stay on track to achieve your objectives.

Avoiding Common Financial Pitfalls
When planning for a significant purchase like a luxury car, it's essential to avoid common financial pitfalls:

Over-Leverage: Avoid taking on too much debt. High-interest loans can strain your finances and reduce your ability to save and invest.

Impulse Purchases: Stick to your financial plan and avoid impulsive spending. This discipline is crucial for long-term financial success.

Ignoring Inflation: Factor in inflation when planning your savings and investments. Inflation can erode the purchasing power of your money over time.

Understanding the Disadvantages of Index Funds
While index funds offer low costs and diversification, they may not always outperform the market. Actively managed funds, guided by professional fund managers, can potentially provide higher returns by selecting high-performing stocks.

Benefits of Regular Funds Through MFD with CFP Credential
Investing in regular funds through a Mutual Fund Distributor (MFD) with a CFP credential offers several advantages:

Professional Guidance: Access to expert advice and personalized investment strategies.

Active Management: Benefit from the expertise of fund managers who actively select and manage stocks.

Convenience: MFDs handle the administrative aspects of your investments, making the process hassle-free.

Final Insights
Purchasing a luxury car is a significant financial decision that requires careful planning and consideration. While it represents a dream and a status symbol, it is also a depreciating asset. By focusing on delayed gratification, disciplined savings, and smart investments, you can achieve your goal without compromising your financial stability.

Start by creating a detailed budget, setting aside savings, and investing in diversified instruments. Consult a Certified Financial Planner to help you navigate your financial journey and make informed decisions. Remember, the key to financial success lies in balancing your short-term desires with long-term goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
(more)
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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