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Siddharth (all names changed) left India for his masters in the US when he
was 21. Whilst he loved the quality of education and the freedom that he
had, he was sure that he would return back to India once he was done with
his education. Whilst still completing his masters, he found a job with a
Fortune 500 company, offering him a very exciting opportunity and an ability
to earn a handsome salary. He decided to take up the offer and deferred his
plans to return to India for another couple of years. One thing followed
another – he started to go out with a colleague at work , Amrita, and before
long, they were in Chennai exchanging wedding vows. Kids followed and Sid
suddenly found himself on the wrong side of 40, living the great American
dream with a nice house, nice car and a happy family. All of a sudden,
whilst speaking to some friends one evening , Sid and Amrita realised that
besides paying down their home loans and cars, they also needed to plan for
the education of their children and their own retirement. Since they were on
their way to India for their holidays in a couple of weeks, they decided
they would discuss it in greater detail once they were in India.

Since I was the financial planner for one of his friends, Sid called me when
he was in India to understand how he could get started with his investments.
As we started to discuss his financial goals, I asked him what his future
plans were.  Was he looking to retire to India or was he likely to continue
to be in the US? Well, well, Amrita and me have discussed this a lot. Its
always wonderful to spend time with friends and family. Life is good in the
US – its convenient, its comfortable and we have a great work life balance.
But if I put my hand on my heart and ask myself where it feels like home,
its when I land back in India. So India it is for us, where we finally wish
to retire.

Thats great, I said. In our experience, this is one of the most difficult
decisions to make for a large number of NRIs, irrespective of which part of
the world they are currently based in. Having clarity on where you are going
to retire to is one of the most crucial decisions to make before you decide
on how your investment portfolio needs to be constructed. Sid was surprised
to hear this and asked me to explain this in greater detail. Why would that
be?

There are two critical reasons for that, I said.

1. Inflation levels in India tend to be much higher than most other parts of
the globe. Whilst the current inflation rates in the region of 10% as per
the consumer price index may be a little higher than normal, they have
ranged between 7.5% to 8% pa over the last couple of decades. Thus, going by
historical trends, portfolios for investors looking to retire in India need
to be designed keeping these high inflation rates in mind, rather than the
low inflation rates that are prevalent in the developed world.

2. Costs of maintaining the lifestyle that NRIs have got used to overseas,
can end up being significantly higher in India. Take for example, the sizes
of homes. An NRI moving from most cities in the US will not only find it
difficult to find houses of the size that he has got used to, but also find
it far more expensive in large cities in India. Thus, he could end up having
to buy more than one apartment and then look to consolidate them, so that he
has more living space. Alternatively, he may need to look at gated
communities in certain locations, that will allow him to get a feeling of
the lifestyle that he has been used to.

So whats a good way to begin, asked Sid.

First of all, its a great idea to get a good estimate of what your
retirement in India are likely to be, as of todays cost. For a lot of NRIs,
this may not be easy to do , as they may not be completely aware of multiple
living costs in India. They may either need to sit down with a close family
member to go item by item in terms of expenses, both recurring and annual,
or sit with a financial planner who can guide them on the various components
and estimates that make up the cost of living for a particular lifestyle in
India.

Once these cost of living estimates have been made, an appropriate
retirement age will need to be established. This choice could either be
driven by the retirement age in the country of residence of the NRI, or by
other parameters such as the ages of children or dependent parents.

Post establishing both the likely costs and retirement age, by using an
appropriate inflation rate, the quantum of the retirement portfolio needed
can be established. Post this,the investment portfolio can be created
keeping in mind the risk profile, expected rate of return,and product
restrictions if any. For example, some investment products are not available
for NRIs or may have restrictions for NRIs from certain geographies to
invest in them.

This portfolio could be a blend of real estate, equities, fixed income and
commodities and could be created using managed solutions like mutual funds
or portfolio management services, or can be created through directly buying
an investment product like a stock, or physical real estate or a bank
deposit.

There are a few more things to be kept in mind if you are planning to retire
in India

1. Establish the location in India that you would like to retire to, so that
you can start to plan to purchase the ideal home that you would like to
retire to. It is not critical to make the purchase today, if you wish to
retire after 20 years. However, it is crucial to plan for this purchase as
well, so a portion of your investments need to go towards supporting this
goal.

2. Start thinking about your plan for some of the assets that you own for example, whats your exit strategy for your current home in Singapore. Its

great for you today because you are working there but what happens to it
when you retire.

3. Different countiries have different tax treatments for global income and
reporting of global assets. Be sure to consult with a tax advisor in both
India and your current country of residence.

4. There may be retiral plans that you are contributing to, in your country
of residence. Please understand how they would work when you would leave the country and go back to India.

5.  Since you will need medical coverage during your retirement, start
buildng a medical corpus or look for a medical insurance cover that will
support medical treatment in India as well.

Sid and Amrita now have their retirement plan in place and are looking
forward to spending their golden years in India. Start thinking about your
retirement location and plan accordingly, if you have yet to decide. I
promise, it will throw up many more questions than I have covered.

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One fine day, I got a call from CNBC TV18. I thought it was the usual call from my media friends wanting to chat about the latest happenings in the world of personal finance.

But no, this was no ordinary call. This was a call to inform us that Plan Ahead had been nominated for the CNBC TV18 Financial Advisor Awards 2012. Plan Ahead was amongst the top 3 Financial Advisors nominated for the Independent Financial Advisor Mega City West category. These awards are given to recognise India’s best financial advisors and the contribution they have made in providing productive financial advice thereby partnering in their prosperity. These awards are powered by ICRA, one of India’s leading rating agencies, and the nomination process covers multiple qualitative and quantitative parameters.

We at Plan Ahead are thrilled and grateful for the recognition.

We are happy to share the same with you all who are our extended Plan Ahead family ie. Plan Ahead clients, friends and families. We would like to take this opportunity to thank you all for the constant support, good wishes and encouragement that we receive regularly from all of you. Thank you all.

We are more aware than ever that this recognition now puts more responsibility on our shoulders to push ourselves to strive harder and outdo ourselves, and live up to the title theme of the CNBC TV18 Financial Advisor Awards i.e. the guardian angels of your wealth.

Vishal Dhawan and the entire Plan Ahead team

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With the India-England series having ended with a 4-0 whitewash for India, a significant amount of time is now being spent by experts and commentators to understand what went wrong with the same Indian team that won the World Cup just a few months ago and was the number 1 rated test team before the series started.

In just a few weeks, a captain who could do no wrong has been criticised for not talking enough to his bowlers, reputations of senior players with significant experience have been severely hit and India has been relegated to third place in the world rankings.

We believe that there are significant lessons for investors with regard to their investment portfolio from this test series loss that India faced.

1. The past should not be looked at as a prediction of the future

Investors would recollect that there were significant inflows into equity mutual funds, stocks, IPOs and NFOs (New Fund Offerings) on the basis of approximately 40 per cent annualised return over the previous 5 years till 2007.

Investors expected this to repeat over the next 5 years as well. Those who invested during that period are still seeing returns that are either negative or sub-optimal today. Similarly, investors are looking at equity returns over the last 5 years today and shunning equities as the last 5 years returns on the Sensex are below 8 per cent per annum. They should avoid looking into the rear view mirror to predict the future. In the same way, just because this same Indian team won the World Cup earlier this year and had performed well in the past in test series both in India and overseas, it does not make it an automatic qualification to continue to do well in the future.

2. Build a strong foundation

The Indian cricket team made some fundamental mistakes in England like dropping catches and carrying injured players who were unable to even play full matches, forget playing to their potential. In the same way, investors tend to make some fundamental mistakes like not planning for a contingency fund of 4-6 months that may be required in case of a job loss or medical emergency or not having adequate life insurance cover to provide for their family in case of an unfortunate event. There is a tendency to focus on investments excessively, without taking care of the basics.

3. Experience matters

Rahul Dravid was the only batsman who redeemed himself in the star-studded Indian batting line-up that failed so miserably. His rich experience of playing in English conditions surely helped him. In the same way, money managers with experience of handling money during both positive and negative economic environments can be critical, as they can tailor their responses accordingly and use their experience to their advantage.

4. Build a well-balanced portfolio

There were times where it looked like the Indian team did not have the right blend of experience and youth to cope with the conditions. In the same way, your investment portfolio needs to have a good balance of different asset classes like equities, fixed income, commodities and real estate rather than having only one of them that is significantly overweight like real estate or gold.

5. Don’t focus only on the stars, track the universe of portfolio managers

The England team that beat India so comprehensively had also done extremely well over the last few years and was already the world no. 2 before the series began. In the same way, you need to look at your portfolio managers carefully and you will find that there is not just one manager who delivers all the time. There will be portfolio managers who are probably doing nearly as well as the ones who are ranked at the highest level and you need to track them as well. In case you find that difficult, you may need to use the services of a professional advisor who tracks portfolio managers more closely.

6. Worry about the silent killers

A large number of players, though apparently fit, were obviously not so and were silent about it. They thus failed to deliver when required. In much the same way, inflation is a silent killer on your portfolio. Whilst fixed income may give you a lot of comfort and help you avoid any fluctuations on your portfolio, it is unable to match inflation most of the time and is thus unable to deliver when required for your goal.

Whilst I am sure there are multiple other lessons that can be learnt from this series loss, we believe investors should look closely at some of the above lessons in case they have not done so already.

This article was written by Vishal Dhawan, CFPCM and appeared in the EXIM INDIA newsletter on 26th September 2011 .

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TWO EVENTS over the last few days have hit the headlines one from India and the other from Pakistan, in which the person with the mandate to protect has done quite the opposite. Both unfortunate events the killing of a leading politician by his bodyguard in Pakistan, and the significant financial losses caused by a relationship manager closer home, have driven home the point clearly that whether it’s your life or your wealth, you need to take responsibility to protect it yourself.

While protecting your life is not something that I pro-fess to have much expertise in, protecting yourself from financial fraud can definitely be minimised by greater alertness and awareness. Unfortunately, investors spend far more time buying a television set than investing five times the amount in a financial product.

Betrayal of trust does create a lot of angst, so it is critical that investors take referrals from friends and family before choosing a financial adviser. Unfortunately, a lot of investors choose their financial advisor based on the rice the cheaper the better, which is contrary to what they do when they buy other products where the belief is that the more expensive the product, the better the quality.

Once the due diligence on the advisor has been done, what can an investor do to protect oneself:

■ As investors seek new products, financial product manufacturers tend to create exotic instruments to fulfill that need. Investors need to stick to products that are more transparent and where risks are clearly understood. Remember the mortgage backed securities in the US a couple of years ago that took some big names down with them or guaranteed return products that did not even return the principal, forget the guaranteed returns.

■ Multiple products today use back testing data, which essentially demonstrates how the product would have performed over different time frames.

This is different from actual performance and is exposed to the risk of data selection bias. Ideally, the track record should be independently verifiable. For example, mutual fund performance data is available on independent websites, so investors can do their own verification of performances and track records.

  • Any product that offers returns that are completely out of sync with competing product returns needs to be closely subscribed. In an era, where fixed income returns range between eight and ten per cent, a guaranteed return of more than 15 per cent should definitely cause you to do a significant amount of homework.
  • While time is definitely at a premium for everyone in today’s busy world, time spent on understanding where you’re putting your money is definitely time well spent. Avoid signing blank documents and cheques just because you don’t have time.
  • Many investors have small sums of money in multiple investments making them very difficult to track.

With larger chunks of money in each investment, you will tend to give it more thought both at the time of investment and also monitor it on an ongoing basis.

This article was written by Vishal Dhawan, CFPCM and appeared in the Deccan Chronicle  on  8th  January 2011 .

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