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NRI in Germany: How to Invest 40K/Month for a 10 Cr Corpus in 10 Years?

Ramalingam

Ramalingam Kalirajan  |6986 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 16, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Sep 16, 2024Hindi
Money

Hi, I stay in Germany as NRI for past 2.5 years. I do invest in India through my SBI account through mutual funds (SIPs) as INR 10K per month but I have leverage to invest upto INR 40K per month. Can you please suggest below? 1) Can I directly invest in India through my NRE account or I first need to transfer funds to NRO account for transactions in India? 2) If I need a corpus of INR 10 Cr in next 10 years, is investing 40K per month enough? If not please suggest alternate strategy. 3) Please suggest some good mutual funds for investments as per my requiremets.

Ans: You have an excellent opportunity to grow your wealth by investing in mutual funds from Germany. Your current monthly SIP of Rs 10,000 can be increased to Rs 40,000 to align with your future financial goals. Let’s address your queries step by step.

1) Can You Invest Through an NRE Account?

As an NRI, you can invest in Indian mutual funds using either an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account. Here's a breakdown of how both accounts work for investment purposes:

NRE Account: You can invest directly through your NRE account. The money you transfer from abroad into your NRE account can be used for investments in mutual funds. Funds invested through the NRE account are fully repatriable, meaning you can easily transfer the money back to your foreign account, including the profits.

NRO Account: If your money is in an NRO account, it generally consists of funds sourced from within India (such as rent or dividends). Investments made from an NRO account are subject to certain repatriation limits, and the tax implications are different. This option is more suitable if you have Indian income sources that you wish to invest.

Recommendation: Since you are based in Germany and earning abroad, investing directly from your NRE account is simpler and tax-efficient. You won’t need to transfer funds to an NRO account unless you have local income in India.

2) Is Rs 40,000 Monthly Enough for a Rs 10 Crore Corpus?

Your goal of accumulating Rs 10 crores in 10 years is ambitious and achievable with the right strategy. However, investing Rs 40,000 per month alone may not be sufficient, depending on the expected rate of return. Let’s evaluate this:

Assumed Rate of Return: Equity mutual funds in India have historically given returns ranging from 12% to 15% per annum. However, achieving a corpus of Rs 10 crores in 10 years with a Rs 40,000 SIP would require an extraordinarily high return, which is highly improbable.

Possible Scenario: With Rs 40,000 per month, even assuming a 12-15% return, your corpus might reach around Rs 1.5 to Rs 2 crores. To bridge the gap between Rs 2 crores and Rs 10 crores, you would need to significantly increase your monthly investments or consider other strategies.

Alternative Strategy to Achieve Rs 10 Crore:

Increase SIP Amount: To reach Rs 10 crores, you would likely need to invest more than Rs 40,000 per month. Depending on the returns, increasing your SIP to Rs 1 lakh or more per month could bring you closer to your goal.

Lump Sum Investments: Consider making additional lump sum investments when possible. This can come from bonuses, salary hikes, or any other windfall earnings.

Diversify Investments: While equity mutual funds should be the core of your investment portfolio, you could also consider other avenues such as international funds to hedge currency risk and provide better returns. However, stay focused on your risk tolerance and long-term goals.

Stay Invested for Longer: If you can extend your investment horizon beyond 10 years, it becomes easier to reach your Rs 10 crore target with consistent SIPs. The longer you stay invested, the more power compounding has to grow your wealth.

3) Recommended Mutual Funds for Your Investment:

For a long-term goal like yours, equity mutual funds are ideal because of their potential to deliver inflation-beating returns. Here are some fund types that would suit your needs:

Small-Cap Funds: Small-cap funds can deliver higher returns, but they come with increased volatility. Over a long horizon, they can be an excellent wealth builder, provided you have the risk appetite.

Mid-Cap Funds: Mid-cap funds offer a balance between risk and return. They have the potential to outperform large-cap funds in the long run and are a good mix for a growth-focused portfolio.

Large-Cap Funds: Large-cap funds provide stability. They invest in the top 100 companies and are less volatile compared to small-cap and mid-cap funds. For a 10-year horizon, having a portion of your portfolio in large-cap funds is essential for risk mitigation.

Flexi-Cap/Multicap Funds: These funds invest across market capitalizations. They offer flexibility, allowing fund managers to shift between small, mid, and large caps based on market conditions. This adds diversification and balance to your portfolio.

Sectoral/Thematic Funds: If you want to bet on a specific sector like technology or banking, thematic funds are an option. However, they carry a higher risk as they are concentrated in one sector. Consider them only if you understand the sector well.

Active Management over Passive Investments:

Avoid index or passive funds for your goal. Actively managed funds have the potential to outperform the benchmark over the long term, especially in a growing economy like India. Passive funds, while lower in expense, will only deliver market-level returns and may not help you achieve a 10-crore target.

Regular Plans over Direct Plans:

While direct mutual funds have lower expense ratios, they require active monitoring and decision-making. Since you are an NRI, it is more beneficial to invest through a certified financial planner (CFP) via regular plans. The guidance from a CFP will ensure proper asset allocation, fund selection, and regular portfolio rebalancing based on market conditions and your life stage.

Other Important Considerations:


Rebalancing Portfolio: Over time, as markets change and your financial situation evolves, rebalancing your portfolio is essential. For example, you may want to move from high-risk small-cap funds to more stable large-cap or debt funds as you approach your goal.

Regular Reviews: Keep reviewing your portfolio at least once a year. This will help ensure that your investments are aligned with your financial goals. If required, make adjustments based on market conditions or your personal life changes.

Finally: A Path to Rs 10 Crore

Achieving a corpus of Rs 10 crores in 10 years is an ambitious goal. Here’s a quick action plan for you:

Invest through your NRE account for simplicity and repatriation benefits.

Increase your monthly SIP to more than Rs 40,000 to stay on track for your Rs 10 crore goal.

Diversify your investments across small-cap, mid-cap, and large-cap funds for optimal risk-adjusted returns.

Consider additional lump sum investments and stay disciplined with your long-term investment strategy.

Work with a certified financial planner (CFP) who can help you monitor and adjust your portfolio as needed.

With a well-planned strategy and disciplined investments, you can grow your wealth significantly and get closer to your goal.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
Asked on - Sep 16, 2024 | Answered on Sep 16, 2024
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Dear advisor, Thank you for your quick response and detailed explanation, really insighful. I have a follow up question for the "lump sump" investment option you suggested to get closer to my goal. 1) Is it better to invest lump sump in mutual funds or rather in direct stocks/shares for long term (10+ years)? Please suggest different options for the lump sump investment. 2) I may have an ability to do lump sump investments later this year or next year based on withdrawal of PF from earlier Indian employment. Do you think keeping the money in PF makes sense for longer term (without further Indian employment) or rather withdraw the money and invest lump sump in mutual funds or direct shares? This could be ~10 lacs lump sump.
Ans: For your lump sum investment, mutual funds are generally a better option than direct stocks for long-term growth, especially if you prefer lower risk and professional management. Mutual funds offer diversification, which reduces the impact of individual stock volatility. Direct stocks can offer higher returns, but they also come with higher risks and require active management.

Regarding your PF, if you are no longer employed in India, it may make sense to withdraw and invest in mutual funds , as PF interest rates may not match equity market returns over the long term. However, you should factor in your risk appetite before making a decision.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Hi, i have 20,000$ USD available to invest. Will transfer them to my NRE account this month. Please suggest best ways i can invest money in india for max returns - both short term and long term
Ans: That's a significant amount to invest, and it's great that you're considering your options carefully. Since you're looking to invest in India, Mutual Funds (MFs) can offer a diversified and potentially rewarding investment avenue. Here's a suggestion for both short-term and long-term investment:

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Consider investing a portion of your funds in Liquid Mutual Funds. These funds invest in short-term debt instruments with a maturity period of up to 91 days, providing liquidity and stability. They are ideal for parking funds temporarily while you decide on your long-term investment strategy. The repatriable nature of these funds allows you to easily convert your investment back to USD whenever needed.
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Ramalingam

Ramalingam Kalirajan  |6986 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 22, 2024

Asked by Anonymous - Jul 22, 2024Hindi
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Hello Mr.Ramalingam Kalirajan I am 34 years old having 1Cr in bank. Just 1 lakh investment in mutual fund. Having a land of 4.5 cr Home of 1.30cr Currently there is no investment done because I have had lost a lot of money on Crypto and dumb investments on stocks without proper knowledge about 7 years back. I am considering for some heavy investments in India. Can u tell me some suggestions.
Ans: You are 34 years old and have Rs 1 crore in the bank. You have Rs 1 lakh invested in mutual funds. You also own land worth Rs 4.5 crore and a home valued at Rs 1.3 crore.

You have no current investments due to past losses in crypto and stocks.

It's great you want to invest heavily now in India.

Investment Strategy and Diversification
Equity Mutual Funds
Actively managed equity mutual funds are a strong option. These funds can potentially offer high returns over the long term. Fund managers use their expertise to outperform the market.

Balanced Funds
Balanced funds provide a mix of equity and debt. This can help balance risk and returns. They offer stability with moderate growth potential.

Debt Mutual Funds
Debt funds are low-risk options. They provide regular income and capital preservation. Ideal for diversifying your portfolio and managing risk.

Avoiding Index Funds and Direct Funds
Disadvantages of Index Funds
Index funds are passively managed. They cannot outperform the market. Actively managed funds, with professional oversight, aim to exceed market returns. This makes them a better choice for aggressive goals.

Disadvantages of Direct Funds
Direct funds may seem cheaper due to lower fees. However, investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) credential offers professional guidance. This can lead to better fund selection and higher returns.

Systematic Investment Plan (SIP)
Consider setting up SIPs for regular investments. SIPs help in averaging out market volatility. They ensure disciplined and consistent investing.

Emergency Fund
Maintain an emergency fund. This should cover at least 6 months of expenses. It's essential for financial security and to avoid liquidating investments prematurely.

Diversification and Regular Review
Diversify your portfolio across different asset classes. This reduces risk and increases potential returns. Regularly review your portfolio and make adjustments as needed.

Seeking Professional Guidance
Consult a Certified Financial Planner (CFP) for personalized advice. They can help design a strategy tailored to your financial goals and risk tolerance.

Final Insights
You have a strong financial foundation.

Investing wisely and diversifying can help you achieve your goals. Focus on equity, balanced, and debt mutual funds. Avoid index and direct funds for better returns.

Maintain an emergency fund and consider SIPs. Seek professional guidance for a well-rounded investment strategy.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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