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: First, let me appreciate your thoughtful and forward-looking approach towards managing your finances and planning for your family's future. It’s commendable that you’re thinking about how to support your son while ensuring financial security for your wife and considering the inheritance for your children. Now, let’s break down your concerns and address them one by one.
Evaluating Financial Assistance to Your Son
Your son is planning to buy his first home abroad, and you’re considering sending him financial assistance. Let’s evaluate this carefully:
Legal and Tax Implications
Sending money abroad has legal and tax implications. In India, the Liberalized Remittance Scheme (LRS) allows residents to send up to $250,000 abroad per financial year without needing special approval. However, you should be aware of the tax implications both in India and the country where your son resides.
Consult with a Certified Financial Planner to understand the tax liabilities. Ensure all documentation and compliance with the Reserve Bank of India's regulations are followed. This will help avoid legal complications.
Financial Impact on Your Retirement
Assess how this financial assistance will impact your retirement corpus. You have a pension of Rs. 60,000 per month, and investments in mutual funds and equities. While assisting your son is a noble gesture, it's important to ensure it doesn’t compromise your financial security.
Consider how much you can afford to give without straining your retirement funds. A detailed analysis of your current investments and future cash flow requirements can help determine a comfortable amount to assist your son.
Emotional Considerations
Providing financial assistance to your son can be emotionally rewarding. It strengthens family bonds and provides him with a significant boost. Discuss this openly with your son to understand his needs and ensure that both of you are on the same page.
Ensuring Financial Support for Your Wife
Your next concern is ensuring financial support for your wife in your absence. Here’s a detailed approach:
Regular Income Sources
Your monthly pension of Rs. 60,000 is a reliable source of income. Additionally, your investments in mutual funds and equities can generate returns. It’s important to maintain a diversified portfolio to mitigate risks and ensure steady income.
Consider setting up a systematic withdrawal plan (SWP) from your mutual fund investments. This will provide a regular monthly income to your wife. Ensure that the investments are in her name to avoid any complications.
Term and Life Insurance
You have term insurance of Rs. 50 lakh and other life insurance of Rs. 20 lakh. Ensure that your wife is the nominee for these policies. This will provide her with a lump sum amount in case of your absence, which can be invested to generate regular income.
Healthcare and Emergency Fund
Allocate a portion of your investments to a healthcare fund. Medical expenses can be significant, and having a dedicated fund ensures that your wife’s healthcare needs are met. Additionally, maintain an emergency fund equivalent to 6-12 months of expenses to cover unforeseen situations.
Inheritance and Property
Inheritance planning is crucial, especially with properties involved. Here’s a structured approach:
Creating a Will
Drafting a will is essential to ensure that your assets are distributed according to your wishes. Specify the distribution of your ancestral and personal property in the will. Appoint an executor to manage the execution of your will.
Nomination and Joint Ownership
Ensure that all your investments, including mutual funds, equities, and bank accounts, have your wife as a nominee. Joint ownership of property with your wife will simplify the transfer process.
Legal and Tax Implications
Inheritance laws vary, and it’s important to understand the legal and tax implications. In India, inheritance tax is not applicable, but there may be other taxes or fees. Consult with a legal advisor to ensure all aspects are covered.
Mutual Funds and Their Role
Mutual funds play a significant role in your investment portfolio. Let’s delve into the details:
Types of Mutual Funds
There are various types of mutual funds, each with its own risk and return profile. Equity funds invest in stocks and have high growth potential but come with higher risk. Debt funds invest in fixed-income securities and provide stable returns with lower risk. Balanced or hybrid funds invest in both equities and debt, offering a balanced approach.
Advantages of Mutual Funds
Diversification: Mutual funds provide diversification, reducing risk by investing in a mix of assets.
Professional Management: Fund managers with expertise manage the investments, ensuring optimal returns.
Liquidity: Mutual funds offer liquidity, allowing you to redeem your investments when needed.
Flexibility: You can choose funds based on your risk appetite and financial goals.
Risks and Compounding
Market Risk: Equity funds are subject to market fluctuations, affecting returns.
Interest Rate Risk: Debt funds are impacted by changes in interest rates.
Despite the risks, the power of compounding can significantly grow your investments over time. Reinvesting dividends and staying invested for the long term can yield substantial returns.
Final Insights
In conclusion, your proactive approach towards financial planning is commendable. Here are the key takeaways:
Financial Assistance to Son: Assess legal, tax, and financial implications. Consult a Certified Financial Planner for detailed advice.
Support for Wife: Ensure regular income through pensions, SWPs, and insurance. Allocate funds for healthcare and emergencies.
Inheritance Planning: Draft a will, ensure nominations, and consult a legal advisor for smooth inheritance transfer.
Mutual Fund Investments: Continue leveraging mutual funds for diversification, professional management, and compounding benefits. Choose funds aligned with your risk appetite and financial goals.
Your thoughtful planning ensures financial security for your family and a bright future for your children.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
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