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Praveen
Praveen
Ramalingam

Ramalingam Kalirajan6607 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 20, 2024

Asked on - Aug 02, 2024Hindi

Money
Dear Sir, I am Praveen, a 36-year-old from Bangalore. I wish to invest in mutual funds for 20 years at ?10,000 per month, targeting ?1 crore. Could you please suggest how to create my portfolio?
Ans: Praveen, your decision to invest Rs 10,000 per month for 20 years is wise. This long-term horizon allows you to benefit from the power of compounding. Targeting Rs 1 crore is achievable with a well-structured portfolio. Let’s break down how you can reach this goal effectively.

Analysing Your Investment Horizon

A 20-year investment period provides a great advantage. You can afford to take on more risk initially, which may lead to higher returns. Over such a long period, market fluctuations tend to smooth out, making equity funds an ideal choice for wealth creation.

Importance of Diversification

Diversification is key to managing risk while aiming for high returns. It’s essential to spread your investments across different types of funds. This way, you protect your portfolio from market volatility and maximize growth potential.

Large-Cap Equity Funds: Stability with Growth

Large-cap funds invest in well-established companies. These funds provide stability and consistent growth, especially over a long period like 20 years. They are less volatile compared to mid-cap and small-cap funds.

Mid-Cap Funds: Capturing Growth Potential

Mid-cap funds invest in companies with medium market capitalisation. These companies have the potential for high growth, although they come with higher risk compared to large-cap funds. Including mid-cap funds in your portfolio can boost returns during bull markets.

Small-Cap Funds: High-Risk, High-Reward

Small-cap funds invest in smaller companies that are often in the early stages of growth. These funds are the riskiest among equity funds but can offer significant returns if the companies perform well. Given your long-term horizon, a small allocation to small-cap funds can be beneficial.

Flexi-Cap Funds: Flexibility and Balance

Flexi-cap funds invest across large, mid, and small-cap stocks. They provide flexibility to fund managers to allocate investments based on market conditions. This flexibility helps in capturing opportunities across different market segments and can add balance to your portfolio.

Balanced Advantage Funds: Managing Market Fluctuations

Balanced advantage funds dynamically allocate between equity and debt based on market conditions. These funds offer equity growth potential while managing downside risk through debt investments. They are ideal for reducing overall portfolio risk, especially as you near your goal.

Avoiding Index Funds

While index funds are popular for their low cost, they simply mirror the performance of an index. This means they cannot outperform the market, limiting your return potential. In an actively managed fund, the fund manager can make strategic decisions to outperform the index, especially in a volatile market.

The Pitfalls of Direct Funds

Direct funds might seem attractive due to lower expense ratios. However, they lack the professional guidance that regular funds offer through a Certified Financial Planner (CFP). Investing in regular funds through a CFP ensures that you receive personalized advice, regular monitoring, and expert insights. These benefits far outweigh the slightly higher cost of regular funds.

Building Your Mutual Fund Portfolio

Now, let’s structure your portfolio with a Rs 10,000 monthly SIP.

Large-Cap Fund: Allocate Rs 3,000 to a large-cap equity fund. This provides stability and consistent returns over the long term.

Mid-Cap Fund: Allocate Rs 2,500 to a mid-cap fund. This captures growth opportunities in medium-sized companies.

Small-Cap Fund: Allocate Rs 1,500 to a small-cap fund. This adds high-growth potential to your portfolio, albeit with higher risk.

Flexi-Cap Fund: Allocate Rs 2,000 to a flexi-cap fund. This adds flexibility and balance to your portfolio by investing across different market segments.

Balanced Advantage Fund: Allocate Rs 1,000 to a balanced advantage fund. This helps in managing market fluctuations, especially as you get closer to your investment goal.

Regular Monitoring and Rebalancing

Investing is not a one-time activity. Regularly monitoring your portfolio and rebalancing it is crucial. As you approach your goal, you might want to shift more of your investments to safer funds, such as large-cap or balanced advantage funds, to protect your accumulated wealth.

Leveraging the Expertise of a Certified Financial Planner

Investing through a Certified Financial Planner (CFP) ensures that your portfolio is aligned with your financial goals. A CFP provides personalized advice, taking into account your risk tolerance, investment horizon, and financial objectives. They also offer regular reviews and adjustments to keep your portfolio on track.

Final Insights

Praveen, your goal of Rs 1 crore is achievable with a disciplined approach. A diversified portfolio, regular SIPs, and professional guidance are the key elements to reaching this target. Your long-term horizon allows you to take advantage of equity growth, while a well-structured portfolio helps manage risk.

Stay committed to your plan, review your portfolio regularly, and make adjustments as needed. With the right strategy and discipline, you are well on your way to achieving your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
(more)
Ramalingam

Ramalingam Kalirajan6607 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 14, 2024

Asked on - Aug 02, 2024Hindi

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Money
Dear Sir, I am Praveen, a 36-year-old professional working in the private sector from Bangalore. I would like to purchase a 1 crore term insurance policy. Could you please inform me about the essential aspects that need to be covered and recommend which policy to buy?
Ans: Dear Praveen,

It’s great that you’re considering term insurance. A term insurance policy is essential for ensuring your family’s financial security. Let’s explore the key aspects you need to consider before purchasing a Rs. 1 crore term insurance policy.

Coverage Amount: Ensuring Adequate Protection
Choosing the Right Sum Assured: A Rs. 1 crore policy is a good starting point. However, assess your family’s future financial needs, including living expenses, loans, and your children’s education. This ensures that the coverage amount is adequate.

Inflation Impact: Consider inflation. Over time, the value of Rs. 1 crore may decrease. Ensure that the coverage amount is sufficient to meet future needs.

Income Replacement: Your term insurance should replace your income for at least 10-15 years. This will help your family maintain their current lifestyle without financial strain.

Policy Term: Matching Your Financial Goals
Align with Retirement Age: Ideally, your policy term should last until your retirement age, around 60-65 years. This ensures that your family is protected during your working years.

Long-Term Commitment: Choose a policy with a term that matches your financial goals. This ensures that your family is covered until your major financial responsibilities are fulfilled.

Premiums: Balancing Cost and Coverage
Affordable Premiums: While a higher sum assured provides better coverage, ensure that the premiums are affordable. Your premiums should not strain your current finances.

Premium Payment Options: Some policies offer flexible premium payment options, such as monthly, quarterly, or yearly payments. Choose the one that best fits your financial planning.

Fixed Premiums: Opt for a policy with fixed premiums throughout the term. This ensures that your payments remain consistent and predictable.

Riders: Enhancing Your Coverage
Accidental Death Benefit: Consider adding an accidental death benefit rider. This provides an additional payout if death occurs due to an accident.

Critical Illness Cover: A critical illness rider covers life-threatening diseases like cancer or heart attacks. It provides a lump sum payout on diagnosis, which can help with medical expenses.

Waiver of Premium: This rider ensures that your policy remains active even if you are unable to pay premiums due to disability or illness.

Income Benefit Rider: This rider provides a regular income to your family in addition to the sum assured. This can be crucial for meeting monthly expenses.

Claim Settlement Ratio: Ensuring Reliable Protection
High Claim Settlement Ratio: Choose an insurer with a high claim settlement ratio. This indicates the insurer’s reliability in paying out claims.

Transparent Process: Ensure that the insurer has a transparent and straightforward claim process. Your family should not face any difficulties when filing a claim.

Customer Reviews: Read customer reviews and testimonials. This gives you insight into the insurer’s service quality and claim processing efficiency.

Policy Terms and Conditions: Understanding the Fine Print
Exclusions: Understand the policy’s exclusions. Certain situations, like suicide within the first year, may not be covered.

Grace Period: Check the grace period for premium payments. This is the time allowed to pay overdue premiums without policy lapse.

Lapse and Revival: Know the process for reviving a lapsed policy. Some insurers allow you to revive your policy within a certain period.

Benefits of Buying Through a Certified Financial Planner
Expert Guidance: A Certified Financial Planner (CFP) provides expert guidance. They help you choose the best policy based on your financial goals and needs.

Customized Advice: A CFP can offer personalized advice, ensuring that your policy aligns with your overall financial plan.

Continued Support: Your relationship with a CFP doesn’t end after buying the policy. They offer continued support and advice throughout the policy term.

Final Insights
Praveen, purchasing a term insurance policy is a crucial step in safeguarding your family’s financial future. By considering factors like coverage amount, policy term, and riders, you can choose a policy that meets your needs. Also, working with a Certified Financial Planner ensures that you make an informed decision. Remember, term insurance is about more than just coverage—it's about providing peace of mind and security for your loved ones.

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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