Vineet Nair is an IT professional with over ten years of experience. The 35-year old is married and the couple has a three-year-old child. Ms Nair is a post-graduate, but is not working at present. The family has lived in Singapore for the past five years.
Financial Goals
Mr Nair has already purchased a house, and there is no outstanding loan on that, so one major expense is already taken care of. Beyond this, the couple’s priorities are a good education for their child and her eventual marriage, both of which are more likely in India as the Singapore assignment may not be permanent.
The couple also needs to figure out a way for a happy landing in homeland post retirement. Mr Nair’s parents are based in Hyderabad, but they are not financially dependent on him.
Where is he now?
On the asset side, Mr Nair already has a big advantage — a house purchased in Hyderabad. Beyond that however, investments are primarily in the form of some insurance policies, mutual funds and national saving certificates. While the liquid saving pool is not very large, the cash flows are very strong. Post his salary, Mr Nair has a monthly saving of `1 lakh. In addition to this, he also recieves an annual bonus of `3.5 lakh.
Recommendations
As an NRI, Mr Nair can invest in government securities, post savings except Indira/ Kisan Vikas Patra, shares and debentures of Indian company ( both on repatriable and on non repatriable basis), mutual funds, equity portfolio management services, real estate etc.
For any Indian working overseas, it is mandatory to have an NRE and an NRO account with a recognised bank in India for remitting money for investment purposes. If he hasn’t started these accounts already, we suggest he do so immediately.
It is to be noted that Sale/maturity proceeds of securities purchased out of funds in NRO accounts can only be credited to NRO accounts and cannot be remitted abroad. Also, a power of attorney (poa) has to be created in favour of a relative in India to carry out investments on his behalf in India.
Mr Nair needs to increase his insurance cover. Given his age and income, a term cover of `1 crore is recommended for him. This would mean an annual outgo of about `32,500, which will be tax deductible. As his wife is not working currently, the existing insurance is enough, as there is no need to insure against the loss of income.
However, a health insurance for the entire family, beyond what the employer provides, is mandatory. A family floater policy providing a cover of `25 lakh would be `21,000 per year.
The other investments needed are a PPF account — with an annual investment of `70,000 — also eligible for a tax benefit, and some investments in mutual funds via the SIP route. The suggested value is `50,000 per month for an equity fund and `20,000 per month for a gold ETF.
These two investments should add up substantially over the years. Unutilised amounts, plus annual bonuses can be put in higher return vehicles such as portfolio management.
Overall, Mr Nair should follow a 64:36 mix of equity and debt. He shouldn’t have any problems in meeting all his financial goals if he follows this route
(L. Ravindran, PhD, is a financial advisor and managing director of Wealthmax Enterprises Management Private Ltd.)