scorecardresearchYour Questions Answered: Where can you invest if you are moving to Canada?

Your Questions Answered: Where can you invest if you are moving to Canada?

Updated: 11 Jul 2022, 10:10 AM IST

Every Monday, we try to answer some of your most pressing personal finance questions. It is time to make the most of your money!

Your Questions Answered: Where can you invest if you are moving to Canada, merits of a balanced advantage fund and much

Your Questions Answered: Where can you invest if you are moving to Canada, merits of a balanced advantage fund and much

Q1. Is a Balanced Advantage Fund worth investing in as an alternative to debt funds?

Balanced Advantage or Dynamic Asset Allocation funds invest in both equity and debt asset classes and their allocation is dynamically managed based on market conditions to provide decent risk adjusted returns. Every AMC follows their in-house asset allocation model based on different market valuation metrics such as PE or PB followed by the fund manager’s conviction.

For example, during an equity favourable scenario, when valuations are attractive the fund manager invests more into equity and decreases debt allocation. While doing this mechanism, the exposure into gross equity (equity plus arbitrage) remains at 60-65% and to enjoy equity taxation. Such a strategy fund acts as a cushion to a portfolio against market volatility.

Debt investments on the other hand falls under stable assets when compared with equity asset classes. The purpose of debt investments is to generate fixed or stable returns with low volatility and market risk with an ideal time horizon of 3 years + (to avail taxation benefit).

Both balanced advantage funds and debt funds serve different purposes, and they cannot be considered as direct alternatives to each other. Let us understand with an example, if you want to accumulate money for child’s graduation which is due in 10 years and wish to invest into lower volatility funds, you may consider entire allocation to balanced advantage funds which will generate returns similar to equity (more than debt) but with low risk or bifurcate into both these asset classes. As you approach your goal, you can start deviating the same money to debt funds only to avoid any market uncertainties.

Q2. Where to invest my money If I will be moving outside India to Canada via l1 transfer down the line. Should I invest in short term mutual funds? or leave my current money with my family in India only??

Suggest the right approach, it is particularly important to define “down the line” clearly to your financial advisor. Does this mean you would be moving within a year or sometime in the future you plan to move to Canada?

Depending on what your period is, the plan would change. However, I would like to give you a generic view on this situation. While you are planning to move abroad for your work via L1 or internal transfers it would be good to spend some time and think if this move is a short term one or a long term one.

Are you open to settling down abroad or are you clear you will choose to come back to India at least for the post retirement phase? If you are certain that you would come back to India, then you should hold the investments in India and during the earning phase also continue to invest in INR.

However, if you are not sure if you would come back or not, then it is important to hold investments in both the currencies – INR and the new country you choose to live in. Another way to look at it is to define your financial goals and based on where these goals are likely to be achieved, you hold investments in those currencies.

For e.g., if you have young child/ren then most likely their undergraduate and graduate would be abroad, so it is important that you have investments in the USD / CAD / foreign currency.

Coming to the next question where to invest, you could look at investing in Mutual Funds or even a PMS i.e., Portfolio Management Service assuming the investment is for a longer term. Please note the minimum investment required in a SEBI regulated PMS is INR 50L. While you can choose to hold investments in your name, it will be important for you to update your KYC as NRI to continue transactions.

Lastly, your risk profile i.e., your comfort with market fluctuations, and the time horizon for your financial goals would help determine the debt- equity allocation of your portfolio.

For e.g., if your financial goal is long term in nature (i.e., you have 7yr + period to achieve the goal) and you are an aggressive investor then you could look at higher equity allocations. There are many more investment options available and depending on your specific situations SEBI Registered Investment Advisors would provide a tailored plan.

Q3. Does it make sense to put money in PPF if I reach the 1.5L limit using EPF? Like anyways EPF offers higher returns than PPF. Am I missing something?

As mentioned, you have already exhausted the 80C limit of Rs. 1.5 lakhs with investment in EPF. So now while evaluating, you need to compare PPF with any other instrument that you plan to invest this amount in (and not with EPF). If you look at the stable (debt) assets options available, PPF scores better with: -

  • Higher returns as compared to most of the other debt products e.g., Fixed Deposits.
  • The interest earned yoy is tax free for you.
  • Backed by sovereign guarantee.

While evaluating options for investments, priority should be given to your risk appetite and to the period you want to keep the money invested (generally the year of requirement of goals).

Q4. I had a 5-year home loan of 35 lakh, at 6.6% interest. My EMI is 68,646 and I have already paid 41,18,734. I have 35 lakh in hand and want to invest it to earn the interest back (post tax) I paid for my home loan. I have a 5-year target to earn this money. Please tell me how to invest this money. 

An interest of ~Rs. 6.19 L is paid by you over 5 years for your home loan of Rs. 35L. If you would like to earn this interest back from Rs. 35L you currently hold, then you can invest the funds into any instrument providing an interest 3.31% p.a. post tax or 4.8% p.a. pretax (assuming you fall under the 30% tax bracket).

However, this is not the right approach. The interest paid towards the home loan was for building an asset (house). You have paid this interest over a period and therefore involves time value of money. There is inflation also that you need to look at.

With Rs. 35 lakhs in hand, if you are looking to earn back the interest paid in the past, you are losing the opportunity to create wealth. Instead, you can look to utilise the amount to fund your future financial goals and invest based on your requirements, risk appetite, time horizon and overall portfolio allocations.

Q5. 22 M here. A sole earner of my family, I must take care of my mother. Just started earning. Post all deductions I get 95K at the end of the month. I don't have any loans; I don't have any assets from my ancestors either. I am confused about what should be my priority in buying a car and owning a house. If I want to buy a car, could you please let me know the financial analysis behind it? I searched a lot about it on the internet but couldn't find anything. Any help regarding this would be helpful for me. Thanks.

It's great that at the age of 22 you have started defining your financial goals and are wanting to work towards achieving the same. As a next step in goal planning, you should prioritise your goals to choose which one to go first with. Say, you are living on rent and are keen to shift to your own house then buying a house would be of higher priority. If you are tired of public transport and cancellations from Ola/Uber drivers and thus looking out for convenience of travelling, then buying a car becomes a higher priority for you.

Once you can prioritise, then focus on the price of the asset you chose to buy. Even if you are looking to take a home loan or a vehicle loan, please note you will need to pay at least 15-20% as down payment for both. I.e., if you are looking to buy a home of Rs. 1Cr then at least 15L-20L you will have to put from your pocket and balance you can fund via home loan.

The next thing that you should look at is the EMI or Equated Monthly Instalments that you need to service for the loan. The EMI amount should not be more than 30-35% of your in-hand income. Therefore, for an in-hand income of Rs. 95K per month, the total EMIs per month for all loans should not be more than Rs. 33,250 per month. This means, you can opt for a Rs. 50L loan with an interest of ~7.75% p.a. for a home loan of 10 years. Although the bank might provide you a higher loan resulting in higher EMI % from the take-home income but to manage future cash flows and in case of any emergency that may arise we suggest keeping the EMI to 30-35% of in-hand income only.

While you are focusing on goals planning, it would be good to keep below hygiene factors also in place:

  • Emergency Corpus (equivalent to 3-6 months of expenses)
  • Life Insurance (to cover your mother’s expenses for life)
  • Health Insurance for you both (Minimum cover of Rs.10-30 lakhs each)
  • Nominations in place & a simple WILL stating all assets should go to your mother (assuming she is the only dependent you have).

Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.

International Money Matters is a 20-year-old SEBI registered financial planning-cum-investment advisory boutique that has helped over 500+ families as clients, globally. Whether your dreams are big or small, it is never too late to start planning for your finances and building your wealth. We will help build the financial plan and investment strategy you need based on your goals.

First Published: 11 Apr 2022, 11:33 AM IST