Increasingly at Personalfn we are meeting Indians living abroad who are relocating to India. Usually such individuals have a significant portion of their assets in the foreign country; investments in India are usually linked to inheritance or savings made before shifting abroad. The task we are entrusted with is to help such individuals plan their finances. Here's how we assisted one such family.

We recently met a Person of Indian Origin who was based in the United States; he has now shifted permanently to India. Let's call this individual Sanjeev.

Almost all of Sanjeev's savings are in the US; in US mutual funds and bonds. He has no exposure to India in his asset allocation, although he does expect to inherit some Indian assets over time.

More about Sanjeev -

• He is 44 years of age and was settled in US for many years before relocating to India

• He is married and has a 8-yr old daughter

• Although he is not sure, there is a likelihood that his daughter might want to go back to US for further studies

Sanjeev's investment details are as follows:

• His combined investment in stocks and funds in the US accounts for 50% of his net assets

• Remaining 50 per cent of his investments are in short-term deposits, again in the US

• Important to note that he does not own any residential property, either in the US or in India

As mentioned earlier, since the client is now settled in India, and is certain to be here for the rest of his life, in our view, it makes sense to shift his assets back to India. Why do we say that?

Well, if you know you are going to be in India, and all your future incomes and expenses are going to be in Indian rupees, why take on the risk of being invested in US dollars?

In case the US Dollar were to depreciate vis-�-vis the Rupee, the value of your US assets would effectively erode (Read our view on the currency). This is not to say that no one should have money invested in other currency assets. From our perspective, one should evaluate such investment opportunities only when one has completed their investment plans for domestic assets.

Importantly, you should have that much money in another currency asset that is required to meet future needs (that need to be provided for in the other currency).

In order to reallocate his assets, Sanjeev will need to liquidate his assets in the US and transfer the proceeds to India. Since his daughter might go back to US for higher education in future he will require money (US Dollars) at that point of time. Therefore, in his case, the liquidation and then allocation of assets must be based on his needs in India as well as in the US.

Keeping this in mind we proposed to conduct his entire financial planning exercise in two phases. The first phase involved understanding of his needs in India and the US and accordingly liquidating his investments. The second phase involved, investing the proceeds in India.

Liquidation process:

• We first started with liquidation of his investments in US, and for this, demarcating his needs in India and US became the starting point for us. Since the client has no prior investments in India, it gave us a good opportunity to define a well-diversified portfolio for him.

• The next step was to decide the quantum of investment to be liquidated based on his needs. In US, he has to continue with some of his investments for his daughter's future education. We found that around 10 per cent of the client's total wealth will be sufficient for this purpose and rest he can liquidate. Thus, we advised him to liquidate 90 per cent of his total investments in US.

• The next step was to transfer the proceeds to India. Normally, people who have foreign currency (in this case US Dollar) get apprehensive about the exchange rate at which their proceeds are to be transferred. In this particular case, since the client is already settled in India, we advised him not to pay much heed to the exchange rate and instead start transferring the funds.

Asset allocation based on the client's needs in India:

• Given that the client has no investment in property (he was living in a rented premise), the top priority was to invest in a property. About 40 per cent of his assets were allocated for the purpose. Given the hype about property, Sanjeev was keen to consider a higher exposure; however we recommended otherwise. In our view, and this holds true for most individuals, the number of properties you own should be linked to your 'real' needs i.e. property which you need to give as inheritance or property for self use.
  

• The fact that the client is financially very sound and in a position to take some risk, we recommended that he invest upto 35 per cent of the surplus in well-managed diversified equity funds in a disciplined manner based on his needs and objectives. The portfolio consisted of no more than six schemes.

  Equities as an asset class are best equipped to generate high returns over longer time frames (3-5 years). Thus, his investment in equities should be well equipped to cater his future needs such as his daughter's marriage, his retirement planning or any other need as and when required.
  

• Another 10 per cent of the surplus cash inflows could be invested in debt funds (short-term debt funds, as at present interest rates are on the rise). Inclusion of debt funds in the portfolio will ensure that the portfolio becomes well diversified across asset classes.
  

• The balance (5 per cent) could be maintained in liquid assets for any immediate requirement or for contingency.

  
  

• Sanjeev was also advised to take up a term insurance policy for himself. This is a pure risk cover plan that enables the individual to opt for a high insurance cover at relatively lower premiums.

It goes without saying that our recommendation to Sanjeev (although very critical) was just a starting point.

First and foremost, it needs to be executed (investing in mutual funds, buying property) and then the plan needs to be monitored regularly. This is necessary as over time, Sanjeev's risk profile will change, as he gets older, he may not be comfortable with a higher allocation to equity, so a portion of his money will have to be shifted to lower risk assets.

Also the performance of the mutual fund schemes will have to be monitored. Given the nature of the task, it is best for Sanjeev that he engages the services of a professional and competent financial planner who can actively monitor his financial plan.

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