This would mean that one would have to wait a long time to make up for the loss of capital before making a return.
Q I am a 30-year-old government employee. My net monthly savings is ₹ 30,000 and I have just started investing ₹ 7,000 per month in two ELSS SIPs with a return of around 7%. I want to invest my remaining savings of 23,000 which will help me to achieve my goal of invest 1.5 lakh corpus in 3-4 years. I can bear moderate-to-high risk and my taxable income for FY21 is zero. Please advise
a. If you have a target within 3-4 years, then it is not good to invest in an equity fund to achieve it. Therefore, ELSS funds are not a good vehicle for this goal. Although you have limited your return expectations to 7%, we are in a market boom in stocks for the last six years, resulting in most stocks becoming quite expensive, if not overvalued. Markets can do quite right from here.
A deep improvement should be made, even to the bounce-to-current level your brain may take longer than the 3 to 4 year timeframe. This would mean that one would have to wait a long time to make up for the loss of capital before making a return. Yes, SIPs can help lower your costs on average but they can start giving returns only when the market bounces.
The other problem with ELSS SIP is that each installment you pay is locked for 3 years. You will be able to withdraw all your money after 6 years only when every SIP completes the lock-in period of 3 years. Yes, ELSS SIP is a good tool for tax savings and goals over 6-7 years. But, you should consider stopping your SIPs if you were not aware of these factors before starting them. In future, if you do not need tax benefits, avoid ELSS and invest in plain index funds.
If you give up to ₹ 30,000 to invest every month for the next 4 years, you can easily get ₹ 15 lakh as the value of your capital alone in these 4 years will be ₹ 14.4 lakh.
You can stick to secure devices that provide capital protection. A simple recurring deposit with HDFC Bank (5.3%) or Axis Bank (5.4%) can cost you more than deposit 16 lakhs with minimum risk of your capital.
You can also consider SIP in very conservatively managed ultra-short-term debt and liquid funds. If you go for the growth option, it is more taxable than the dividend option and also the recurring deposit. After 3 years your profit will be taxed as capital gain after considering inflation index.
Q I am a 30-year-old government employee. I invest a maximum limit of PP 1.5 lakh in PPF every year. I want to invest through SIP with ₹ 5,000 per month. Can you recommend the best fund manager to invest in? My risk appetite is moderate.
a. Public Provident Fund is a good option for any new investor for its high tax-free returns and you should continue your savings with it. Before starting SIP or getting down to choose a fund, it would be good to meet your financial goals with their deadline. In case of unfortunate circumstances it would be good to keep the basics of your investment by building an emergency fund, buying life and health insurance to save your income.
First of all, save up to six months of bank FD expenses to take care of your income or any interruptions in sudden emergencies. If you have dependents, you should buy a pure insurance policy so that your family does not lack financial security. To prevent health related issues from making a big dent in your finances, get a basic ₹ 5-lakh health insurance policy.
Once these building blocks are in place, list your financial goals and your dependents you plan to meet. Keep a time limit for each goal. Where you invest for each goal will depend on both your return requirement and the time you have.
FOr invest in safe instruments such as 1 to 3 year targets, post office time deposits, recurring deposits and FDs with major banks. For goals of 3 to 5 years, consider SIPs in short-term debt mutual funds. For targets of 5 to 7 years, hybrid funds may fit the bill or post office schemes such as NSC can be explored.
For goals over 7 years, SIPs in carefully selected multi-cap equity funds or broad market index funds would be ideal. A qualified financial advisor can help plan all of this. But if you want to choose funds on your own, it would be better to do SIP in index funds like Nifty 500 and Nifty 100, rather than trying to choose active-managed equity funds on your own.
Why. I am 38 years old and I am in the private sector. I save ₹ 5,000 per month, which I have been investing in MF for the last six years. I would like to aim
1 crore for retirement …
a. At an estimated return of 10% CAGR, you will have to invest approximately ₹ 13,100 in equity funds or other avenues over the next 20 years to get the ven 1-crore corpus. However, it is wrong for you to assume that you will have enough money for your retirement. Remember, even at the rate of 5% inflation, the monthly expenditure of ₹ 50,000 has increased to ₹ 1.32 lakh in 20 years. As a rule of thumb, you should try to live at least 25 years by the time you retire (you can use an online retirement calculator for more accurate calculations).
So, your retirement corpus should be around 3.9 crores in 20 years time (1.32 * 12 * 25).
Retirement planning will require you to extend those SIPs over the years, adjust your retirement goals based on your lifestyle and liabilities and continuously monitor and rebuild your portfolio to ensure it is on track. If you do not have the time or skills, then use the services of a qualified financial planner to actually do the systematic work.
Q Is there a government licensing agency website that can provide a list of licensed financial planners? If not, what is the best way to find a genuine and reliable financial planner? Can you give an idea of a financial planner’s notional fee for consulting?
a. In fact, it is very wise for you to seek professional help to make a financial plan and help you in your investment journey. Most people who consult a variety of professionals for doctors, lawyers, accountants and their other needs prefer to think that they can manage their financial journey on their own.
Financial planning requires a lot of expertise because it requires you to prioritize and set deadlines, keep the basics of the portfolio, and go through the product options before you set and set your goals. Before the asset allocation plan has to be made. Your financial plan is also not a one-shot exercise and will require constant attention throughout your life. As most people do not require expertise and cannot devote enough time, it is best to engage a fee-based Registered Investment Advisor (RIA) or Certified Financial Planner.
This listing on SEBI website will allow you to search for an RIA in your city: https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognised
Fpi = yes and intmId = 13. This link to the Financial Planning Standards Board will allow you to find a financial planner in your city: https://india.fpsb.org/cfp-certificants-directory/.
Unfortunately, there is no publicly available rating or feedback process that will allow you to assess financial planners before choosing one.
A test of a good RIA is how long it takes you to understand your financial situation, goals and risk profile before your financial plan goes down. A consultant who starts pushing products by word go is avoided.
See a systematic process and a fairly large roster of existing clients before signing up. Ask for customer testimonials. If you can get a friend or acquaintance to recommend good financial advisors, they will be a good start. The fee structure varies from flat to property percentage. SEBI guidelines have a maximum fee of 1.25 lakh per customer per year or 2.5% of assets under advice for registered investment advisors. However, the actual fees can be very low. The professional planner will ask you to sign a written proposal before proceeding.
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