If a US-based NRI is looking for an investment option but he is not sure about how to go about it, he may consider investing in mutual funds. If he is married with children and after a point, he tends to get back to India along with his family, it would be beneficial for him to start planning and investing in different mutual fund schemes.
If he makes up his mind to invest Rs 50,000 in each mutual fund, he needs to consider his income and other expenses first. For any amount, he must have to get his KYC done and documents verified physically by the AMC, KRA if his NRI status has not been updated yet. A FATCA form is also required to be filled in, based on the AMC’s declaration form while processing transactions. Although NRIs are eligible to invest in mutual funds in India (if they adhere to the rules of the Foreign Exchange Management Act), not all asset management companies (AMCs) accept mutual fund applications from US-based NRIs. Some do not allow execute online transactions either. So, he is suggested to check with an AMC first and then proceeds further.
He may select mutual funds from the large and Flexi-cap categories. But he can only have one active and one passive in each category. In such a case, he can invest following a systematic investment plan (SIP).
Secondly, let’s assume that the individual wants to quit his job, seeking early retirement at the age of 55 years. Currently, he possesses amounts of Rs 1.35 crore and Rs 40 lakh in his PF and PPF accounts. Besides, he also has Rs 30 lakh each in his mutual funds, superannuation fund, and an investable surplus, and he is confident that he doesn’t have to depend on these funds for at least the next six months. However, he wonders about how to manage his monthly expenses post six months.
If he tends to generate at least Rs 60,000 from Rs 1,36,20,000 each month, first he needs to divide his corpus among four buckets. The first bucket will meet the monthly needs. For that, he is required to invest around Rs 1.6 crore to receive a monthly payout of a little more than Rs 60,000 and calculate an annual return of 5%. He then can invest this sum in debt funds and FDs. Additionally, he can consider investing in corporate FDs from reliable companies. But he has to highly avoid any lock-ins, so he can make required alterations when interest rates rise. He may follow SWP (Systematic Withdrawal Plans) to withdraw a pre-decided monthly amount from debt funds.
The second bucket is significant as it means to cater to inflation going forward. So, investments in an index, Flexi cap, and hybrid funds should be equity-oriented schemes for different time brackets. If he wishes, he can realign his mutual fund portfolio for the same.
The third one implies his fixed-income portfolio, however, not for monthly use. He can now even keep some amount in his EPF, but he will have a taxable interest and eventually switch it to a government scheme like RBI’s Floating Rate Savings Bond 2020.
The final bucket is for contingencies and expenses covering payment of insurance premiums and other miscellaneous costs. Invest this in easily accessible sweep-in fixed deposits and liquid funds.