Financial Planning applies to all individuals, as every individual can benefit from having a professionally created, structured Financial Plan in place to help achieve his or her life goals, such as planning for a child’s education and marriage, planning to purchase an asset such as property, in India or abroad, planning for one’s retirement – again this could be in India or abroad. And investing into the Indian equity markets for such long term goals is a great way to boost the yield you will earn on your investments.

 

One’s own retirement is most often the biggest goal that an individual has to plan for – as it involves structuring the investments such that over a period of time and with continuous investment, one builds a corpus large enough to sustain at least 20 to 30 years of post retirement life, with no fixed stream of income such as salary or business income to depend on.

 

As an NRI, the concept of Financial Planning plays an even bigger role to you, as the main life events that you might face would possibly include shifting back to your home country post retirement, with a sea change in the income and expenses thereafter.

 

Here are a few things you, as an NRI, should keep in mind, when planning your finances:

 

1. Know Your Life Goals

   The best way to achieve something is to plan it out correctly.
   Just as you plan your vacations and your trips back home, it is just good sense to plan for your life’s major events and ambitions, so that you can achieve them comfortably.
   Common life goals can include:
    
   • Planning for your child’s education and marriage (abroad or in India)
   • Planning to purchase an asset such as a home (abroad or in India) or new cars every few years, while you are living abroad, and then if you are planning to retire in India, then post your retirement in India.
   • Your Retirement - whether you decide to retire in the country where you have been working or decide to come back home to India, your Retirement is still most likely going to be the biggest thing you will ever plan for. It is vital to get it right, so that your lifestyle post retirement is comfortable and safe.
   • Regular vacations, pursuing a hobby, and any other life goals and dreams you might have can also be planned for, to enhance the likelihood of achieving them to the maximum extent possible.
   
    

2. Know how much you need to invest and where you should invest

   The one and only way to achieve the best out of your wealth, is to just sit down and plan what all you want to do with it. Once you have a list of such goals, with their timelines and possible required amounts, we can get started on achieving them. This means, you need to know how much these goals and dreams are going to cost you once they come around.
   
   To do so, your Financial Plan needs to factor in inflation.
   You may have some goals which are going to take place abroad. For example, suppose you have shifted to a particular country, say the UK, for work, and settled down there and your children have been born there. Most likely, you would want them to continue their schooling and their higher education there as well, or else perhaps in another foreign country.
   
   In this case suppose your child wants to go to university abroad, and this goal is going to take place in 10 years.
   Currently, a Masters course in the UK can cost up to GBP 20,000 – that is approximately Rs. 14.40 lakhs.
   
   However inflation needs to be factored in to see what this same degree is going to cost in 10 years time. Assuming an inflation rate of say 5% per annum (much less than the 10% per annum one can assume when planning for an education in India), the same degree will cost approximately GBP 32,600 (approximately Rs. 23.45 lakhs).
   
   Now suppose you are planning for your child’s wedding, and this is to happen in India. Inflation for wedding expenses can be factored in at 10% per annum, as this is a fair inflation rate for these expenses in India. If you were to spend Rs. 15 lakhs on your child’s wedding in rupees in today’s terms, and the wedding is planned to happen in say 15 years, the marriage in India would cost approximately Rs. 62.65 lakhs.
   
   Your Financial Plan will show you how much each of your goals will cost at their time of occurrence, factoring in inflation rates as required – depending on the country where the goal is likely to occur, and will then show you how much you need to invest starting today, for each goal. It will also provide you with specific investment avenues for each goal, such as invest Rs. 10,000 per month into x, y and z equity or debt mutual funds, or FDs. Factoring in a rate of return on your investments, your Financial Plan will show you how you can achieve your goals.
    

3. Know whether you want to repatriate the investments or not

   The first question you should ask yourself when investing in India, is do you want to repatriate the funds (take them back abroad to your country of residence once you are done with the investment) or not?
   
   If you do wish to take them back abroad, such as in the above example where you are investing in India for your child’s education which is to happen abroad, then you would need to invest from your NRE account. If you do not wish to repatriate the funds, for example if you are investing for your retirement in India, then you can invest from both your NRE or NRO account.
   
   Let’s look in more detail at your NRE account – as it allows repatriation.
   
   NRE stands for Non-resident External Account. This is an account that is designated in INR and can be a savings account, current account or term deposit account.
   
   If you want to open such an account, you should do so as follows:
    
   • Remit foreign exchange from abroad, through approved banking channels
   • Open it with foreign currency or traveler’s cheques brought to India when visiting India for a temporary stay
   • Transfer funds from your existing FCNR (Foreign Currency Non Resident) account
      
   There are certain advantages to your NRE account, as follows:
    
   • Interest earned on deposits in this account are not liable to income tax in India
   • The entire balance in the account can be repatriated out of India without having to refer to the RBI
   • You can freely make local payments from this account
   • It is very easy to invest from the balance held in this account – investing in mutual funds, stocks, debentures and so on can all be done through this account.
   • Maturity / sale proceeds from any investments made can be credited to this account without any reference to the RBI
      
   The main thing you need to worry about is currency fluctuations.
   
   Anytime you remit money from abroad into your NRE account, it is first converted into Indian rupees at the prevailing forex rate and then credited to your account. Any withdrawal from the NRE account happens in reverse, the Indian rupees are first converted to the foreign currency and then the funds leave the account.
    

4. Know how your investments will be taxed

   When investing, one of the things you need to have awareness on is how the investment will be taxed on its maturity / redemption.
   
   This brief table will summarize it for you:
    

   Asset Class / Time Horizon	Short Term (Less than 1 year)	Long Term (More than 1 year)
   Equity	15%	Nil
   Debt	As per your income tax slab	10% without indexation, 20% with indexation

   
   
   In the case of assets such as gold and real estate, the short term period is defined as less than or up to 36 months, and long term is defined as more than 36 months. In this case the same taxation rules apply as to Resident Indians i.e. for a short term capital gain made on sale of a property, the tax payable is as per your tax slab, while for a long term capital gain the tax payable is 10% without indexation or 20% with indexation. As an NRI, you are also entitled to avail of the NHAI / REC Bonds, however this should be done only from your NRO account.
   
   So, to summarize, Financial Planning is as vital if not more so, for you as an NRI. Remember the 4 things you need to know and begin the process to achieve your life’s goals and ambitions.

 

*Please note: Quantum Information Services Pvt. Ltd (PersonalFN) does not serve US / Canada based NRIs, and persons holding US citizenship.

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