Hi, I am 62 and retired, and my terminal dues are invested in Mutual Fund and Equities in India. I earn monthly pension of Rs.60000/-. I have term insurance of Rs.50 lacs plus other life insurance for Rs.20 lacs. I also own a property in India. My son and daughter (both married) are settled abroad. My son continues to be NRI but my daughter have relinquished her Indian citizenship. My son is planning to buy his first home abroad and I feel he may need some financial assistance from me. Is it advisable to send money abroad particularly for acquiring property out of India? My next concern is how do I ensure financial support for my wife in my absence. In absence of both of us, how does inheritance work in connection with my ancestral and own property in India. I have no libilities in India.

Ans: I can certainly assist in drafting a will.

You also need to understand implications where you are currently residing. I can certainly assist.

Ans: First, congratulations on your retirement! Transitioning into this new phase can be both exciting and challenging. With your wealth of experience and the assets you've accumulated, you're in a good position to enjoy a fulfilling retired life. Let's examine your financial situation and devise a plan that ensures your financial security while allowing you to enjoy your golden years.

You have a pension of Rs 75,000 per month starting soon, a substantial FD of Rs 15 lakhs in the Senior Citizens' Savings Scheme (SCSS) at the post office, and Rs 30 lakhs in bank FDs. Additionally, you own a house in your hometown valued at approximately Rs 1.5 crore and two flats in Bangalore worth Rs 1.5 crore, one of which is rented out. You also have significant gold assets and health insurance coverage. However, you are also a guarantor for your sons' education loans, totaling Rs 45 lakhs.

Evaluating Your Current Investments
Fixed Deposits and Senior Citizens' Savings Scheme
Fixed Deposits (FDs) and the Senior Citizens' Savings Scheme (SCSS) offer safety and guaranteed returns, which is beneficial for risk-averse investors. The SCSS, in particular, provides a higher interest rate compared to regular FDs and comes with tax benefits under Section 80C.

However, the returns from these instruments may not keep pace with inflation in the long run. While they ensure capital protection, they do not offer growth, which is crucial to maintaining your purchasing power over time.

Real Estate Assets
Your real estate holdings are significant, with a home and two flats in Bangalore. Real estate can provide rental income and potential appreciation. The rental income from one of your flats adds to your cash flow, which is beneficial. However, real estate can be illiquid and requires maintenance and management.

Gold Investments
Gold is a traditional form of investment and serves as a hedge against inflation. Owning 3/4 kg of gold provides a substantial asset base that can be liquidated if necessary. However, gold does not generate regular income and its value can be volatile.

Health Insurance
You and your husband each have health insurance coverage of Rs 5 lakhs, which is essential. Additionally, you have an FD of Rs 1 lakh under the Angel scheme at Canara Bank, which is commendable. However, considering medical costs can escalate, you might need to consider enhancing your coverage.

Addressing Education Loans
Being a guarantor for your sons' education loans is a significant financial responsibility. It's crucial to have a plan in place to ensure these loans are managed without jeopardizing your financial security. Engaging with your sons to ensure timely repayments will be essential.

Exploring New Investment Avenues
Given your experience with mutual funds, it is understandable that you might feel apprehensive. However, with the right guidance, mutual funds can offer the growth potential needed to combat inflation and ensure financial security. Here’s a detailed approach:

Mutual Funds: A Balanced Approach
1. Diversification and Professional Management

Mutual funds offer diversification, spreading your investment across various assets, which reduces risk. They are managed by professional fund managers who make informed decisions based on market analysis.

2. Types of Mutual Funds

Equity Funds: These invest in stocks and have the potential for high returns but come with higher risk. They are suitable for long-term growth.

Debt Funds: These invest in bonds and other debt instruments, offering lower but more stable returns. They are suitable for generating regular income with lower risk.

Hybrid Funds: These invest in a mix of equity and debt, balancing risk and reward. They are suitable for investors seeking moderate growth with some level of income stability.

3. Regular Plans through Certified Financial Planners

Investing in mutual funds through a Certified Financial Planner (CFP) can be beneficial. CFPs provide expert advice, help with fund selection, and offer ongoing support. Regular plans, as opposed to direct plans, come with professional advice and assistance, which can be invaluable.

Enhancing Your Health Insurance
Given the rising cost of healthcare, your current coverage of Rs 5 lakhs each might not be sufficient. Consider enhancing your health insurance coverage. Family floater plans or senior citizen-specific plans can offer higher coverage at reasonable premiums. Additionally, top-up or super top-up plans can provide extended coverage beyond your base policy.

Creating a Travel Fund
Since you want to enjoy traveling during your retirement, creating a dedicated travel fund is advisable. This can be done through a systematic investment plan (SIP) in balanced or hybrid mutual funds. SIPs allow you to invest small amounts regularly, which can grow over time and fund your travel aspirations without affecting your other financial goals.

Emergency Fund
Maintaining an emergency fund is essential. You already have Rs 30 lakhs in bank FDs, which can serve as a part of this. Ensure that a portion of this amount is easily accessible to cover unforeseen expenses. An emergency fund equivalent to 6-12 months of expenses is typically recommended.

Estate Planning
Proper estate planning ensures that your assets are distributed according to your wishes. It also helps in minimizing potential disputes and taxes. Here are some key aspects:

1. Will Creation

Creating a will is crucial. It clearly outlines how your assets should be distributed, ensuring your wishes are respected.

2. Nomination and Beneficiary Designation

Ensure that all your financial accounts, investments, and insurance policies have updated nominations and beneficiary designations. This ensures a smooth transfer of assets.

3. Power of Attorney

Consider appointing a trusted individual with power of attorney for financial and healthcare decisions, in case you are unable to make them yourself.

Reviewing Your Financial Plan Regularly
Retirement is a dynamic phase, and your financial plan should be reviewed regularly. This ensures that it adapts to any changes in your financial situation or goals. Regular reviews with a Certified Financial Planner can help you stay on track and make informed decisions.

Final Insights
Retirement is a time to enjoy the fruits of your labor. With a well-structured financial plan, you can achieve financial security and enjoy your retired life to the fullest. Your current assets provide a strong foundation. By diversifying your investments, enhancing your health coverage, and planning for contingencies, you can create a balanced and secure financial plan.

Take small steps towards understanding mutual funds and other investment options. With the guidance of a Certified Financial Planner, you can navigate these options confidently. Regular reviews and adjustments to your financial plan will ensure that it remains aligned with your goals.

Remember, retirement is not just about managing money but also about enjoying life. Plan your finances wisely, but don't forget to make time for the activities and travels that bring you joy.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: I offer my opinion on your above questions, point wise as under :
01. First of all refer to the "WILL" of your Father & Mother. Their share should be transferred, in the name of the beneficiary of the WILL, may be you, your wife of anybody else.
02. Till the date of death, your father & mother are entitled to 1/3 RENTAL INCOME EACH.
03. You are supposed to file ITR of your Father & Mother, after their death, till the date they were alive, along with their all other Income, whether from pension or any other source. ITR should be filled by you as their legal heir/representative asessee.
04. Portion of rental income of your wife, shall be continued to be shown in her ITR.
05 When property share of your father & mother is transferred in the name of beneficiaries, they will be responsible to show this income in their ITRs.
06. If there is "REGISTERED WILL" property can be transferred in the name of beneficiary. If there is no "WILL" then the property shall be divided among all legal heirs equally. However, some of the stake holders may opt for having no share in the property.
Most welcome for any further clarifications. Thanks.

Ans: Hi,

Welcome back to India and Congratulations on taking this big decision to move back to India.

Before I start my response to your queries, just want you to know we share a couple of things in common. I was abroad for a considerable time and returned back to India and I was also in the IT field at that time, before I moved ship to Personal Finance and Financial Planning. So I can relate to some of your concerns, queries and thought process in that regard.

This may be a bit long but hopefully its helpful.
Your current Financial summary -
Cash/Liquid funds - INR 4 Crores
PPF equivalent - INR 70 Lakhs available at age 65
Inherited properties - valued at INR 30 crores no plan to liquidate as of now
Salary/Income - INR 1.3 lakhs per month in hand

As a few critical data points are not mentioned but with few indicators in queries, I will make some assumptions for the same - Age 37 years, Location for housing/work - Metro/2nd tier city.

Lets get a couple of things kept aside for this discussion -
PPF equivalent - INR 70 lakhs > for retirement can grow to an amount between INR 2 Crores (@4% returns) to INR 4.5 Crores (@7% returns), will cover this again when I mention Retirement below.
Inherited Properties - as there is no plan for liquidation, excluding this completely.

Decisions to be made -
1. Investment Options
2. Housing Buy/Rent
3. Financial freedom/independence

Lets go through each of these and I will add more for your consideration as they will have a weightage on all future decisions.

1. Investment Options
A> Commercial real estate with investment on INR 4 Crores and return of INR 1.5 lakhs per month
Pros -
Regular month income
Commercial Real Estate asset

Cons -
Return on Investment is 4.5% before reducing charges for maintenance, may be below 4% net in hand
Rental Income is taxable (added to other incomes and taxed as per slab rate) expect highest tax rate of 30% as total income will exceed INR 30 lakhs (Salary + rent)
All available funds will be deployed

Note - Commercial real estate appreciation is primarily based on location. Capital gains on Commercial real estate attract tax at 20% as of now.

B> Lets consider an alternative approach assuming investment is for a long term which is usually for real estate assets e.g. 20 years
Invest INR 4 Crores in Mutual funds.
A well diversified portfolio can generate 12% returns over the long term. The Corpus after 20 years will be over INR 38 Crores.

But considering your requirement for a monthly income from this investment, lets do another approach. Split your Investment.
Invest INR 2 Crores in a well diversified Mutual Funds portfolio expecting a 12% return - Corpus at the end of 20 years = INR 19+ crores
For regular income, Invest INR 2 Crores in Balanced Advantage mutual funds and considering a modest return of 10% (last 10 years data will show higher returns). Keep investment for 1 year before withdrawing to attract Long term Capital Gains tax (tax efficient approach). After 1 year you can receive INR 1.5 lakhs per month (increasing at 5% annually) for the next 20 years.

Pros -
Investment generates higher rate of return, Corpus growing/compounding at 12% return
Regular month income
Investment returns are more tax efficient
Flexibility to deploy all or partial funds towards building a corpus
Corpus can be liquidated in future much faster and easily than Real estate

Cons -
No real estate asset

Recommendation - Approach B is recommended as this will provide liquidity and appreciation towards wealth creation. This will also provide availability of funds for a new venture as and when required if that becomes a viable option in the future.

2. Housing Buy/Rent
If you plan to stay in India for long and settle down (not clearly indicated considering career options), you can consider buying a house property. But if the work location is not what you believe to be the place where you would like to settle down, then start with a Rental option and over time reconsider location for buying option.

Buying Property
Pros -
Asset is generated
Stability of residence if/when self occupied
Some amount of tax deductions/exemptions can be claimed if Loan is taken

Cons -
A large amount of funds required/blocked for full payment / partial payment (with loan)
EMI on Loan reduces income/funds in hand
EMI is much higher than rent
Locked to the property, change will be expensive

Renting Property
Pros -
Capital is not deployed immediately
Rent can be claimed for tax benefits
Provide opportunity to consider long term housing decision
Difference between EMI and Rent can be Invested to generate a good corpus
Flexibility to move jobs across locations

Cons
No Asset is generated
Rent is an expense
No sense of ownership in the house you stay

So in summary, the decision is more individual and how you perceive the house property as an asset. For flexibility to settle down in your career in India I can recommend to start with a Rental option and I am sure in a few years you will know where and what to buy (if at all) towards your house property. Also Location is again critical towards budget and type of housing to consider.

3. Financial freedom/independence
This is probably more important than we realize. With time if we accumulate debt through loans, and expenses, this is one goal which takes a back seat.
Assuming you have worked on the above 2 goals and finalized your options/approach for them, I would strongly recommend you plan your monthly expenses and cash in/outflows to understand what amount you have in hand that can be considered towards savings for the future.
With a long road ahead in your work life (another 20+ years), Asset allocation needs to be considered when planning to deploy your savings. Equity based investment can provide health returns for investments that are for more than 7 years and a well diversified Mutual Fund portfolio can achieve this. For requirements within 5-7 years do consider debt products to park your money and earn modest returns giving priority to liquidity and safety.

Few very important points are not mentioned but I would like to highlight and you should start considering them immediately.

1. Life Insurance - Buy a Term Life plan for yourself and once your wife starts earning, for her too. The amount needs to be calculated and my final recommendation (last para below) will cover this. Start with INR 50 lakhs and keep adding based on the Financial plan.

2. Health Insurance - Buy a good coverage for Family (even though you may have some with your employer). Recommend to go upto 1 Crore (and there are multiple options Base cover + Top-up covers for this).

3. Emergency Funds - Keep aside at least 6-9 months of expenses as emergency funds in a safe and liquid investment e.g. Fixed Deposits.

4. Your child's education - Within another 1.5 years schooling (pre-primary) will start and the education expenses are not as easily managed now. They will require a plan as they escalate very quickly as the child moves towards higher levels of education. Education inflation is in the range of 12% ~ 15% on average. So depending on what your decide for the school/education institute, this becomes a considerable amount and if unplanned may erode your corpus very quickly.

5. Though you have mentioned Retirement briefly, the PPF-equivalent amount will not be sufficient for retirement. Retirement typically at 60 years of age demands a corpus to cover the next 20-25 years of lifespan. Considering inflation may be just getting covered by the modest returns on your INR 70 lakhs fund, you are definitely short on the retirement side.

As you can see we have not considered the inherited property in this discussion, it can have a considerable impact towards your over financial plan.

Though I have provided some responses to your individual queries, this will still need a more comprehensive Financial Planning.
Hence I strongly recommend you approach a Certified Financial Planner and go through the process to arrive at a Financial plan which will be in sync with your Life plan. A CFP will take into account all aspects of your personal preferences and guide you towards various options and alternatives you can consider. The comprehensive Financial plan will include/cover all aspects of Investment management, Risk management (life and health Insurance), Retirement planning and Tax management - a tax efficient approach towards your requirements. Please remember just as Life is ever changing and evolving for each of us, so will your Financial plan require the changes and evolution to stay relevant for you, and this is where a CFP will add the most value when you have a long association. A CFP will plan and re-plan your goals and its requirements over the years and provide options and recommend the amounts and product categories to consider for each of them.

Best wishes for you to settle down and hope the above has provided a start towards it.

Thanks & Regards
Janak Patel
Certified Financial Planner.