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How can you prepare for threatening financial situations?

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Life is unpredictable – that is the least we can say about life. Though you cannot predict what will happen in the future, you can prepare for it. Most of us prepare only for the situations we want to happen. For example, we plan for retirement, a holiday home, or a foreign vacation. It is good to plan for these events, but what if life takes unexpected turns? How can you prepare for threatening financial situations?

Financial planning helps you and your family survive even the tough times. Sadly, not everyone does it. Today, we will discuss the four threatening financial situations. We believe that everyone must acknowledge them and prepare to face these situations. You may think these situations only happen to people around you, but the reality is these are common life situations and can happen to anyone.

Situation One: The Worst Case

Have you thought about what will happen to your loved ones in the unfortunate event of your death? If you are the only breadwinner in the family and not prepared for this situation, your family will have tough times – mentally and financially. Financial goals like a child’s education cannot be compromised, and you must ensure they are no hindrance to such financial goals. Your responsibility as a breadwinner is not only to earn money but to secure your family’s future. You must have adequate life insurance and planning to ensure in the unfortunate event of your death, your family can maintain the same living standard. You need to ask yourself this difficult question – Is my family financially secure in case I am no more? If not, you need to act now.  Our life is more precious than our cars that we religiously cover.

Situation Two: You lose your job

In today’s economic situation, there is always a possibility that one may lose his job. If a recession comes, many may lose one’s job. Yes, you can get another job. However, during the phase when your monthly income is zero, can you handle the situation? In such a situation, can you take care of your monthly EMIs, children’s education fees, health needs, etc? What if one is not able to get a job for an extended period?  These are some things you cannot avoid or park for the next month. You have to take care of them monthly.

You must plan for such a situation. You should either have enough savings or an alternate income source to save you on rainy days. Do you have another skill that can give your job immediately? You should ask yourself – Can I financially survive a few months without pay? If the answer is NO, you should plan for it. We are sure you do not want to be in such a situation, nor want your family to be in it.

Situation Three: You need a few lacs immediately

You or someone close to you may require a few lacs immediately. It could be a situation of a calamity, a medical emergency, or some other requirement. Can you handle such a situation? Every individual should maintain a reserve of three to six months of their monthly expenses in emergency funds. You can keep your emergency fund in liquid funds or fixed deposits. The important thing is that you should withdraw these funds only when there is an emergency – you need the cash immediately.

Situation Four: You or your family member is hospitalized

Like death, hospitalization drains you mentally and financially. The medical treatment cost in India is very high, and it is increasing with every passing year. If you met with an accident or are diagnosed with a critical illness like a heart ailment or cancer, the treatment cost is high. If you are unprepared for such situations, all your life savings may drain quickly. Have health insurance plans with riders to have all-around protection. The health insurance plan should cover you and your family members.

What you must do?

You must plan for every financial situation. You need to create a financial plan that ensures that life goals get fulfilled in all life situations. You not only have to plan but also plan carefully. For example, having the right cover for the term plan is essential. You should evaluate your financial situation completely, and accordingly, select the coverage amount. The same holds for a health insurance plan.

Financial planning requires a certain level of expertise, and we at Right Horizons have been doing it for years for our clients across the globe. We look at your situation holistically and offer the best possible solutions for your financial needs. Reach out to us if you want to have complete financial protection.

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Best Investment Options for NRIs in India in 2022

Portfolio Management Services
The Indian Market

Over the last few decades, India has experienced tremendous economic growth to become the fifth largest economy in the world. This makes it an attractive destination to invest for NRIs.  Debt returns also are relatively more attractive compared to most other countries. Further, NRIs are given tax concessions, especially for bank fixed deposits.

However, one needs to keep in mind that investing in India is procedurally more cumbersome.  India is a high return market, yet the risks are also higher.

We out line below, the best investment options for NRI’s in 2022

Fixed Deposits

Fixed Deposits (FDs) are a good option for NRIs to consider. Bank FDs are regarded as among the safest investment options because they are rarely defaulted on by banks and the tight oversight by the Reserve Bank of India. More importantly, fixed deposits are tax-free for NRIs.  NRIs can open a savings account using their FCNR, NRO, or NRE FD accounts. The rate of interest is determined by the bank, the amount of the deposit, and the duration of the deposit.

  • Fixed deposits in the NRE account: You could want to open an NRE account in Indian Rupees. You will not be taxed on the interest you earn, but you may be taxed in your home country. Depending on the duration of the deposit, the interest rate ranges from 5% to 7%. 

  • Fixed deposits in the NRO account: The NRO account can be used to manage your Indian revenue. Rental income or dividends from stocks and mutual funds, for example, could be deposited into the NRO account.

  • Deposits in the FCNR account: The FCNR (Foreign-Currency Non-Resident Account) can be opened in any foreign currency. It could last anywhere from one to five years. You will not be taxed on the interest you earn. Furthermore, the deposits in the FCNR account are unaffected by foreign exchange movements since they are denominated in foreign currency. However, the interest rates of FCNR deposits are lower than other fixed deposits.

As interest rates have started inching up, FDs are an avenue to consider in 2022.  You can look at shorter-term deposits currently and move them to longer-term deposits when interest rates go up.

National Pension Scheme

Another good investment which we recommend for NRI’s is the National Pension Scheme

An NRI can open an NPS account with a POP (Point of Presence) in India if they are between the ages of 18 and 60. If you have a PAN card or an Aadhaar card, you can also open an eNPS account. You could invest in the National Pension System with your NRO or NRE bank account.

You can choose the active option, which allows you to choose your asset allocation between equity (E), corporate bonds (C), and government securities (G) (G). However, you can only invest up to 75% of your portfolio in equities. If you can’t decide on the proper investment proportions, you can use the auto pick option, which allocates assets based on life stages (age).

If you leave the NPS before reaching the age of 60, you can only take out 20% of the money you’ve saved. The remaining 80% of the corpus must be annuitized as a matter of course. If you are 60 years old or older at the time of withdrawal, you can take out 60% of your money and the remaining 40% must be utilized to purchase an annuity plan. The National Pension System will pay the pension in Indian Rupees.

One can look at investing in NPS in 2022 under the moderate risk-moderate return category and use the fund option based on your risk appetite.  Keep in mind that this is a long-term option.

Mutual Funds

NRIs from countries other than the United States and Canada can invest in most Indian mutual funds. NRIs from the United States and Canada are subject to specific restrictions and can only invest in a limited number of mutual fund schemes. If your KYC is done, Mutual Funds can be one of the simplest ways to invest into India. 

An NRI can invest in equity funds, balanced funds, debt funds, liquid funds, and MIPs, depending on their risk profile. Short-term capital gains are gains realized on the sale of non-equity funds within three years of purchase. It will be taxed at a rate of 30%. Gains on non-equity funds sold after three years are long-term gains. After indexation, they will be taxed at a rate of 20%. We suggest you to invest in a direct Mutual Fund plan rather than the regular plan 

Mutual Funds can be purchased in a variety of ways. Regular investments can be made with SIPs, and regular withdrawals can be made with SWPs. ELSS, or equity-linked savings schemes, have become one of the most popular tax-saving strategies for everyone, including NRIs with income in India.

Since mutual funds offer a whole range of options, it is important to be able to choose the right option for you.  Also, one needs to keep in mind cross border taxation while you choose between dividend and growth options.

Mutual funds with the ease of investing, its liquidity and the range of options that it offers; is an avenue to consider for NRIs in 2022.

Direct Investment in Stocks / Portfolio Management Services:

If you are an evolved NRI investor willing to accept some risk in the stock market and have awareness of individual stocks and sectors in India, you can consider investing in equities. Under the RBI’s Portfolio Investment Scheme (PINS), NRIs can participate directly in the Indian stock market. To invest in the Indian stock market, NRIs must have an NRE/NRO bank account, a Demat account, and a trading account.  The banks take care of the day-to-day reporting of transactions of NRIs to RBI.

For investors without the expertise of individual stocks and sectors, one could use Portfolio Management Services (PMS) schemes.  This is managed by a PMS Fund Manager and provides higher flexibility to the investors as compared to MFs.  

Investors who have the time and expertise of investing in stocks can look at direct investment in stocks in 2022.  PMS schemes have also done very well and are an option to consider for high-net-worth investors.

Purchasing Real Estate

India’s real estate market is expanding. Over the last few years real estate prices in major Indian cities such as Delhi, Mumbai, Bengaluru, and Pune have moved. Many non-resident Indians are buying homes in India for themselves when they return or they look to rent out the property. There are numerous possibilities available, including developed plots, villas, and flats, among others.

Before selecting to invest in Indian real estate, you should assess your needs and risk profile. Real Estate in India is expected to do well over the next ten years, after coming out of a long downturn. It may be noted that NRIs, not allowed to invest in agricultural land or plantations in India.

If one plans to come back to India, then purchasing a property for yourself is an option to consider in 2022.

Conclusion:

Despite the market slowdown, India is still a strong investment opportunity. We expect India to perform very well through this decade.  The government has taken various steps to improve the economy and its standing in the global economy. It’s a great time for an NRI to invest in the country as it looks to emerge as one of the top 3 economies in the world.

Right Horizons is one of the leading financial advisors in Bangalore, with offices in four other major cities: Mumbai, New Delhi, Chennai, and Hyderabad. We strive to cater to all of your personal finance needs under one roof. We help define, plan and track your financial goals.  We also keep in mind taxation aspects while we support you on your investments.

Our contrarian investment strategy, combined with a singular focus on long-term investments, ensures that our clients receive tax-efficient and superior risk-adjusted returns. Join the Right Horizons family and experience financial freedom for the rest of your life.

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NRIs: Where to invest for one’s child’s overseas education

investing child’s overseas education as an NRI

As an old generation NRI, you may have lived a large part of your life in India, and you would want to spend your post-retirement years in India. You may have moved to a foreign land for a better life, better opportunity or higher income, or other reasons. Whatever the reason was, you may have decided to return to your homeland post-retirement.

However, there is a strong chance that your child, who would have spent most of his life outside, would want to continue living there and complete his education.

By the time your child is ready for higher education, you may have retired and not have a regular income. Also, as your child wants an education overseas, you will need a large sum of money. If you believe that you will be in the same boat in the coming years, you have to start planning for it now. Planning a child’s overseas education close to your retirement will be a huge risk.

How much to save for a child's overseas education?

Calculating the amount for your child’s education 10 to 15 years from now can be a daunting task. You may end up making a random guess as you are unsure what field your child will pick then. As you approach the requirement and you begin to understand your child’s interests, you can plan more specifically.  You could start off with a default course like Engineering that is not too low, nor too high. The idea is simple – the more you can save and invest for your child’s future, the more flexibility you give them to pick the field they desire.  

Few things to know before getting started

Before we discuss the areas where you can invest as an NRI for your child’s overseas education, you need to do your homework. We can call it pre-planning.

  • Get yourself insured – Life is full of uncertainties, and when we talk about long-term goals, we need to have a plan B. For financial goals such as a child’s education, you would want no compromise, even in the unfortunate event that you are not around. Hence, you should have an insurance plan to ensure your child will receive good education under all circumstances.
  • Zero-debt – Ideally, you will have to ensure you don’t have any excessive debt when you fuel your child’s learning.   You can consider taking an educational loan for tax saving purposes and if you would like your child to inculcate a savings habit when they start earning.
  • Define your Goals – You need to define goals that should clearly state how you will accumulate the required amount for your child’s overseas education.
  • Develop an investment plan– Look for a good mix of debt and equity instruments. Study instruments that suit the education need.  As you approach the requirement, you can reduce the risk by moving towards a debt bias.

Where to invest in a child's overseas education?

Mutual funds / PMS – Your child’s education is a long-term goal, and hence you can invest in mutual funds through a Systematic Investment Plan (SIP) or a lumpsum investment into a Portfolio Management Scheme(PMS) if the tenure is long enough and you have liquidity for a lumpsum investment. They give you great returns over time and safeguard your money from market volatility. It also avoids double taxation via the Double Taxation Avoidance Treaty (DTAA) rule, if eligible.

Global Investment Options: You can also invest in global funds through mutual funds, low cost ETFs or invest directly into the US stocks. It comes with an additional advantage. For example, if you invest in US companies, you create a hedge against currency risk. You give have double benefits to stock growth and from depreciation of rupee against dollar.

Unit Linked Investment Plan (ULIP) – As we mentioned above, you need insurance and investment options for your child’s education. You can fulfill these two goals through ULIP. With ULIP, a part of your investment goes towards the insurance bucket and the remaining towards the investment bucket. There are many ULIP plans with different features. Look for a ULIP that considers a child’s goals as one of the features.

Real Estate – Though many people don’t consider it an option for a child’s overseas education, it can be a good option if you have a lump sum amount to invest for your child’s future. The second important point is you should be able to find a property (residential or commercial) that has the potential to give you good returns.

Secure your child's future with us

Planning for the future is essential, but at the same time, it is tough for someone not into it. You need to have experience in planning and also the time to research to make the best investments. Right Horizons have years of experience making our client’s dreams a reality. Reach out to us if you want to enjoy your life while we take care of your crucial financial goals like a child’s overseas education.

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5 Things an NRI Must Know About Bank Fixed Deposits

nri bank fixed deposits

Central banks around the globe are increasing interest rates. It is likely that now you can get better returns on fixed deposits. Hence, NRIs looking for fixed-income investment options can start exploring fixed deposits. NRIs working in countries like the US, Australia, UK, etc get a much higher return on fixed deposits in India than in the developed nations. However, one needs to keep in in the negative impact of rupee depreciation. If you plan to open a fixed deposit account in India as an NRI, you need to know a few things.

Types of Fixed Deposits accounts

A fixed deposit is a reliable and risk-free investment option. You can choose one of the below options while opening a fixed deposit account:

  • Non-Resident External (NRE) Deposit: The deposit is rupee denominated in NRE deposit. The advantage of opening an NRE account is both the principal amount and the interest earned are tax-free. Another advantage is that you can repatriate your funds in any available foreign currency easily. Compared to traditional fixed deposits, the interest rate offered under NRE deposits is higher in some cases.
  • Non-Resident Ordinary (NRO) Deposit: If you have earnings in India, you can open a fixed deposit account under NRO deposits and invest your earnings from India. The interest earned is taxable as per IT laws.
  • FCNR Fixed Deposits: A Foreign Currency Non-Repatriable(FCNR) deposit allows you to deposit your money in foreign currencies that are accepted all over the world.

Eligibility Criteria For NRIs to open fixed deposits

You will have to share the below details with the bank:

  • Visa/Work permit: You need to present the visa documents that contain your work permit. Banks, in some cases, may ask for other employment-related documents.
  • Passport: Your passport needs to be shown for name, address, DOB, etc.

5 things to know before opening a fixed deposit account

Below are the top five essential points to know:

1. Fixed deposit interest rate: Different banks offer different interest rates based on the credit rating of the bank. The first point you need to know is the interest rate offered by banks. Opt for a bank that gives you a competitive interest rate. The rates will vary depending on your investment amount and tenure. While you choose the bank, ideally look for one with a credit rating above AA. The bank providing the highest interest rate could also have a higher risk of default. It requires some level of expertise to choose the best combination.

2. Repatriation of Funds: Repatriation allows you to transfer money earned overseas back to the country where you are based. NRE deposits allow unlimited repatriation. In most cases, both the principal and interest amount is available for repatriation. NRO fixed deposit accounts only let you repatriate a stipulated amount in the financial year, along with some increased documentation.

3. Tenure: As mentioned above, tenure is one of the crucial parameters to consider when opening a fixed deposit account. Unlike traditional FD accounts, the minimum period of an NRE fixed deposit account is one year. Usually, the longer the tenure, the higher the interest rate offered by the bank. However, a high FD duration is not always advisable. If interest rates are likely to go up, it is advisable to use shorter duration FD accounts.

4. Should be in line with your financial goal: Before opening an NRI fixed deposit account, you need to evaluate your financial goals. You need to know whether your FD investment is in line with your financial goals and help you achieve them. Also, you should know how much amount to invest in a fixed deposit.

5. Taxation: Last on the list but the most important parameter to consider when you are NRI and plan to invest in India. Taxation plays a crucial role in determining your net earnings from the investment. NRI fixed deposits are partially taxable in India – it depends on the type of account. While NRE FD is completely tax-exempted, the NRO FD is liable for tax on the interest earned.

Before you go

Opening an NRI fixed deposit is a simple process, and it can be done online or by visiting the bank’s branch. However, as discussed above, you need to be careful while opening an NRI FD. Taxation gets complicated for NRIs, and hence it is always better to consult an advisor. They give you the best investment advice and also take care of your taxation.

Right Horizons has years of experience in helping NRIs manage their money. You may want to open an NRI FD account, invest in a mutual fund, stocks or create a Will – Right Horizons is your one-stop solution. Leave all your financial worries with us and enjoy your time with your loved ones.