What Investment Options Can Minimize Tax Burden for NRE Turned Resident in India?

Ans: Best investment options for senior citizens include Senior Citizen Savings Scheme (SCSS), pradhan mantri Yojana, post office schemes, bank FDs but in all cases interest income is taxable. For Interest earned from deposits with banks, post office or co-operative banks, deduction is allowed for a maximum interest income of up to ₹ 50,000.

Equity mutual fund (growth schemes) provides tax relief on maturity proceeds upto Rs 1 lacs if it held for more than 12 months but equity schemes comes with risk exposures as compare to other investment avenues.

Ans: For senior citizens looking to invest in tax-saving mutual funds (Equity Linked Savings Schemes or ELSS), several factors need consideration, including risk tolerance, investment horizon, and financial goals. Since ELSS funds come with a lock-in period of three years and invest primarily in equity, it's essential to choose funds that align with your preferences and objectives.
Here are a few considerations and recommendations for senior citizens investing in ELSS:
1. Risk Tolerance: Evaluate your risk tolerance, as ELSS funds are equity-oriented and subject to market volatility. If you have a lower risk tolerance, consider balanced funds or debt-oriented funds with tax-saving benefits.
2. Investment Horizon: Determine your investment horizon and assess whether you can stay invested for the ELSS lock-in period of three years or longer.
3. Past Performance: Review the historical performance of ELSS funds, focusing on consistency and long-term returns. Look for funds with a track record of delivering competitive returns over various market cycles.
4. Fund Manager Expertise: Assess the expertise and track record of the fund manager managing the ELSS fund. A skilled and experienced fund manager can add value through strategic investment decisions.
5. Expense Ratio: Consider the expense ratio of the ELSS funds, as lower expenses can enhance your overall returns over time.
It's essential to conduct thorough research, consult with a financial advisor, and carefully evaluate your investment options before making any investment decisions. Additionally, consider your overall financial plan, including asset allocation, diversification, and risk management, to achieve your long-term financial goals.

Ans: It’s great to see you thinking about safe investments for your savings. With Rs 1 crore to invest, let’s discuss a strategy that balances safety, growth, and income.


At 64, planning your investments carefully is crucial. Your focus on safety and returns is commendable. You deserve peace of mind and steady returns.

Understanding Your Financial Goals
Investment Amount:

Rs 1 crore
Objective:

Safety of principal
Regular income
Moderate growth
Time Horizon:

Medium to long-term
Types of Investments
Diversifying your investments will help achieve a balance between safety and returns. Here’s how you can allocate your Rs 1 crore:

1. Debt Mutual Funds
Overview:

Debt mutual funds invest in fixed-income securities like government and corporate bonds.
They provide regular income and are less volatile than equity funds.
Advantages:

Lower risk compared to equity funds.
Provides stability and steady returns.
Risks:

Interest rate risk: Value may decrease if interest rates rise.
Credit risk: Possibility of issuer default.
Recommended Allocation:

Allocate Rs 40 lakh to debt mutual funds.
Choose funds with a mix of high-quality corporate bonds and government securities.
2. Balanced or Hybrid Mutual Funds
Overview:

Hybrid funds invest in a mix of equity and debt.
They offer a balanced approach to investing, providing both growth and income.
Advantages:

Diversification across asset classes.
Potential for moderate growth with reduced risk.
Risks:

Market risk from equity component.
Interest rate and credit risks from debt component.
Recommended Allocation:

Allocate Rs 30 lakh to balanced or hybrid mutual funds.
This provides a balanced exposure to both equity and debt.
3. Monthly Income Plans (MIPs)
Overview:

MIPs are mutual funds that primarily invest in debt instruments but also have a small equity component.
They are designed to provide regular monthly income.
Advantages:

Regular monthly income.
Lower risk due to high debt component.
Risks:

Market risk from the equity component.
Interest rate and credit risks from debt component.
Recommended Allocation:

Allocate Rs 20 lakh to MIPs.
This ensures regular income with moderate growth potential.
4. Liquid Funds
Overview:

Liquid funds invest in short-term debt instruments.
They offer high liquidity and low risk, ideal for emergencies.
Advantages:

High liquidity.
Better returns than a savings account.
Risks:

Lower returns compared to other debt funds.
Interest rate risk.
Recommended Allocation:

Allocate Rs 10 lakh to liquid funds.
This ensures quick access to funds in case of emergencies.
Power of Compounding
The power of compounding is essential in long-term investing. By reinvesting your returns, your money grows exponentially over time.

Overview:

Compounding is earning returns on your initial investment and the returns generated.
The longer you stay invested, the more your money grows.
Advantages:

Exponential growth of wealth.
Maximizes long-term returns.
Example:

Investing in mutual funds and reinvesting the returns can significantly grow your corpus over time.
Avoiding High-Risk Investments
Given your priority on safety, avoiding high-risk investments is prudent.

Equity Exposure:

Limit equity exposure to reduce volatility.
Focus on funds with a higher debt component for stability.
Real Estate:

Real estate can be illiquid and high maintenance.
Focus on liquid and manageable investments.
Disadvantages of Index Funds
While index funds are popular, they have some drawbacks compared to actively managed funds.

Limited Flexibility:

Index funds mirror the market and cannot adapt to changing conditions.
Actively managed funds can adjust to market trends and opportunities.
No Outperformance:

Index funds aim to match the market, not outperform it.
Actively managed funds can potentially deliver higher returns.
Recommended Approach:

Prefer actively managed funds through a Certified Financial Planner for tailored advice and potential outperformance.
Disadvantages of Direct Funds
Direct funds might seem attractive due to lower expense ratios, but they come with their own challenges.

Lack of Guidance:

Direct funds require you to make all investment decisions.
Investing through a Certified Financial Planner provides expert advice and tailored strategies.
Time-Consuming:

Managing direct funds can be time-consuming and complex.
Professional guidance simplifies the process and ensures informed decisions.
Recommended Approach:

Invest through regular funds with guidance from a Certified Financial Planner.
Regular Monitoring and Rebalancing
Overview:

Regularly review your investment portfolio.
Rebalance your portfolio to maintain the desired asset allocation.
Advantages:

Keeps your investments aligned with your goals.
Reduces risk by maintaining diversification.
Recommended Actions:

Review your portfolio every six months.
Rebalance if any asset class deviates significantly from the desired allocation.
Tax Considerations for NRIs
Tax Implications:

Understand the tax implications of your investments.
Consult with a tax advisor for NRI-specific tax benefits and obligations.
Double Taxation Avoidance Agreement (DTAA):

Take advantage of DTAA between India and your resident country.
This helps avoid double taxation on your investment income.
Emergency Fund
Maintaining an emergency fund is crucial, especially at your age. Ensure it is accessible and sufficient for at least 6-12 months of expenses.

1. Liquid Funds
Overview:

Liquid funds invest in short-term debt instruments.
They offer quick access to funds with minimal risk.
Advantages:

High liquidity.
Better returns than a savings account.
Risks:

Lower returns compared to other debt funds.
Interest rate risk.
Recommended Allocation:

Keep a portion of your emergency fund in liquid funds.
This ensures quick access and better returns than a savings account.
Regular Income through SWP
A Systematic Withdrawal Plan (SWP) can provide regular income from your mutual fund investments.

Overview:

SWP allows you to withdraw a fixed amount regularly from your mutual fund investments.
It provides a steady cash flow.
Advantages:

Regular income while keeping your principal invested.
Flexibility to choose the withdrawal amount and frequency.
Risks:

Market risk: Value of investments can fluctuate.
Depleting principal if withdrawals exceed returns.
Recommended Allocation:

Set up an SWP for monthly income.
Withdraw a sustainable amount to ensure longevity of your investments.
Final Insights
By following this roadmap, you can effectively invest Rs 1 crore with a focus on safety and steady returns. Here’s a summary of the steps:

Debt Mutual Funds:

Allocate Rs 40 lakh.
Focus on high-quality corporate bonds and government securities.
Balanced or Hybrid Mutual Funds:

Allocate Rs 30 lakh.
Provides balanced exposure to equity and debt.
Monthly Income Plans (MIPs):

Allocate Rs 20 lakh.
Ensures regular income with moderate growth potential.
Liquid Funds:

Allocate Rs 10 lakh.
Ensures quick access to funds in case of emergencies.
Power of Compounding:

Reinvest returns to maximize long-term growth.
Avoid High-Risk Investments:

Limit equity exposure and avoid real estate.
Disadvantages of Index and Direct Funds:

Prefer actively managed funds with professional guidance.
Regular Monitoring and Rebalancing:

Review and adjust your portfolio every six months.
Tax Considerations for NRIs:

Understand tax implications and leverage DTAA benefits.
Emergency Fund:

Maintain liquidity and accessibility.
Regular Income through SWP:

Set up an SWP for steady monthly income.
By diversifying your investments and leveraging the power of compounding, you’ll be well on your way to achieving your financial goals with safety and stability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: It’s great that you have Rs. 10 lakhs in your NRE account. Having this liquidity gives you a lot of flexibility. Let’s explore your options to grow this money effectively while balancing safety and potential returns.

Understanding Your Situation
You mentioned you do not need this money for six months. That gives you a short-term investment horizon. We need to consider both safety and potential returns.

Mutual Funds: A Balanced Approach
Mutual funds can be an excellent option. They offer diversification, which spreads risk across various assets. Since you are looking for a short-term investment, we should focus on categories suited for shorter horizons.

Types of Mutual Funds for Short-Term Investment
Liquid Funds:

These are ideal for short-term investments. They invest in very short-term debt instruments. They offer higher returns than savings accounts and are relatively low risk.

Ultra-Short Duration Funds:

These funds invest in debt instruments with slightly longer maturities than liquid funds. They offer a balance between safety and returns.

Short-Term Debt Funds:

If you can extend your investment horizon slightly beyond six months, short-term debt funds are worth considering. They invest in debt instruments with maturities of one to three years.
Arbitrage Funds:

These funds exploit price differences in different markets. They are relatively safe and provide returns comparable to short-term debt funds.

Money Market Funds:

These invest in short-term instruments like treasury bills, commercial paper, and certificates of deposit. They are low-risk and suitable for short-term investments.
Advantages of Mutual Funds
Diversification:

Your investment is spread across multiple securities, reducing risk.

Professional Management:

Fund managers make informed decisions based on market research and analysis.

Liquidity:

You can easily redeem your investments without significant penalties.

Flexibility:

You can choose funds based on your risk appetite and investment horizon.

Risks to Consider
Market Risk:

Even though short-term debt funds are relatively stable, they are not entirely risk-free.

Interest Rate Risk:

Changes in interest rates can affect the returns of debt funds.

Regular vs. Direct Funds
Investing through a Certified Financial Planner (CFP) can be beneficial. Regular funds through an MFD with CFP credentials provide professional guidance. Direct funds might seem cost-effective, but the lack of expert advice can lead to suboptimal decisions.

I appreciate your cautious approach. It's wise to consider alternatives to traditional fixed deposits. Your decision to explore mutual funds shows your willingness to grow your wealth while managing risk. It’s also great that you’re seeking advice to make informed choices.

Final Insights
Investing Rs. 10 lakhs for six months requires a balanced approach. Mutual funds, especially liquid and ultra-short duration funds, offer a good mix of safety and returns. They provide diversification, professional management, and liquidity. If you prefer not to invest in mutual funds, treasury bills and money market funds are safe alternatives.

Always consider your risk tolerance and investment horizon. Consulting a Certified Financial Planner can help tailor investments to your needs. They can provide valuable insights and help you navigate the investment landscape effectively.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in