r2i forum

Would any of the folks that have R2I?ed and are USC?s care to share the ways that they have invested their monies in India without really giving out specific numbers (for those worried about privacy). Most importantly, it would be enlightening to know about their experiences (good and bad) in trying to optimize returns.


For example:
25% of monies in Fixed deposits at X bank garnering X% interest returns
35% of monies in RBI bonds at an post tax return of Y%
40% in corporate equity/bonds with dividends of Z (latest) and growth of N%

And so on and so forth?

This would definitely help those of us who are planning to R2I in the foreseeable future.

Thanks

I havent R2Ied yet, but plan on R2ing as a USC in the near future - here is what I would suggest.

These suggestions are based on my learnings from this great forum (and the old one) and particularly from senior member, ever helpful and immensely knowledgable Bobus

Assuming that you have an emergency fund (8 - 10 month's expenses) and short term financial goals (3 years or less) are taken care of, for one's long term retirement/kids education portfolio, I would do the following:

1) Decide on a equity:fixed income that suits your risk profile. For me, this ratio is 65 equity:35 fixed income

2) In the equity allocation decide how much US versus foreign. In this case, my allocation is 60 US:40 foreign. In the foreign, India is slightly overweighted.

3) Try to keep the fixed income portion of your long term portfolio in the currency of residence and invested in country of residence - meaning India. This can be spread as follows:

- 25% in cash (FD)
- 25% in Liquid funds in father's/mother's name to avoid PFIC tax consequences
- 25% in short term debt funds (growth option) in father's/mother's name to avoid PFIC tax consequences
- 25% in RE, small flat out to rent or land

4) For equity allocation, build a diversified "global" portfolio. I will be using the following funds

- VTSMX - for US portion
- VGTSX - foreign
- DODFX - foreign
- for India portion of equity, use Indian mutual funds. Make sure you diversify accross fund houses and managers.

5) Yearly savings should go towards your 65:35 (or whatever ratio) long term portfolio. In this, you can max out PPF and KVP etc to claim the 100,000 yearly tax benefit.

6) If you have a 401k in the US, roll it over to an IRA before u R2I and once in India, start converting to ROTH IRAs in small chunks every year, so as to minimize taxes. This will also be a part of your long term global portfolio. Contributions (read rollover amounts from IRA) in a Roth can be withdrawn anytime penalty free.


I believe this plan will give you the following advantages

- equity portion is globally diversified and primarily indexed and low cost
- fixed income is diversified and held in local currency so it can keep up with India's higher inflation
- is tax efficient (no PFIC consequences, use liquid funds instead of all FD, IRA to Roth conversion strategy, LTCG for Indian mutual funds is zero)
- Fixed income piece is in cash and short term bonds, meaning low interst rate sensitivity

Hope this helps.

Let me know if you would like me to suggest India mutual fund specifics (for the Liquid funds, Short term Debt funds and equity fundS)

Vivmat ,

Good Post. Couple of comments

4) For equity allocation, build a diversified "global" portfolio. I will be using the following funds

- VTSMX - for US portion
- VGTSX - foreign
- DODFX - foreign
- for India portion of equity, use Indian mutual funds. Make sure you diversify accross fund houses and managers.

use VFWIX(similar to VGTSX+canada+foreign tax credit) instead of VGTSX
MINDX for indian equity if not comfortable investing in parents name.

>>use VFWIX(similar to VGTSX+canada+foreign tax credit) instead of VGTSX
MINDX for indian equity if not comfortable investing in parents name.

How will you get $$ while working in India? By forex conversion? How about the conversion loss, 2 ways assuming the money will be consumed in India finally.

Laks,

yes, with VGTSX one cannot claim foreign tax credit - valid point. But IMHO, its a "small" price to pay for an otherwise excellent one stop foreign fund.
On my last tax return , I remember I got a $10 tax credit for my DODFX distributiuons, so the tax credit factor in my opinion is not critical to picking a fund - but thats just me.

Also, in my case, by the time I start withdrawing from my VGTSX allocation, I'll have no income in India and will therefore be under the US tax Standard deduction anyways.

Havent researched VFWIX (looks to be a new VG fund) - will look it up

I also am invested in MINDX, but at that time I did not consider investing in indian MFs under parents name (which I now believe is a better option).
As you mentione, MINDX is definitely a good option for folks that have those reservations (of not investing in parents name).

Thanks for your inputs

Old Spice,

I believe the concern you raise about USD conversions is when you have to rebalance your portfolio going forward? Say you have to buy more of VTSMX or VGTSX (while you are in India) to maintain the overall equity:bond allocation?

In that case, yes some currency would have to be converted. OR you can leave some dollars behind in the US (part of your "cash" allocation) of the long term goal and use that.

Either way, I believe you might run into some currency issues....

Its hard to predict currency fluctuations. IMHO one can only diversify (hold both USD and INR) and hope for the best :)

Don't know if one can brag about being vested in only one asset class. Currently 100% in RE :o.

I have probably committed the cardinal mistake in investing (if there is something like that), but as dumb luck may have it, it has been a happy mistake until now - in India and in the US too.

I was totally ignorant of such terms as AAP, DCA, CAGR, etc until this forum. I am a convert now and don't intend to press my luck anymore. I plan to diversify after R2I'ing.

From what I've learned in this forum, I'll be handicaped because I'll be a USC and PFIC makes mutual funds unattractive. RE, once again, is the most attractive asset!

An USC/ROR can invest in individual stocks, RE (and possibly some US mutual funds - mindx?) and park some amts. in banks. 10% interest on FDs is nothing to sneeze about. Would I be making a mistake if I go for the longest lock-in period?

vivmat;19613I havent R2Ied yet, but plan on R2ing as a USC in the near future - here is what I would suggest.[/quote]

Thanks for posting in such detail. It really would help novices like me if others posted what they would do if they were a USC and a resident of India.

Hi Dosai,

You wrote

From what I've learned in this forum, I'll be handicaped because I'll be a USC and PFIC makes mutual funds unattractive. RE, once again, is the most attractive asset!

An USC/ROR can invest in individual stocks, RE (and possibly some US mutual funds - mindx?) and park some amts. in banks. 10% interest on FDs is nothing to sneeze about. Would I be making a mistake if I go for the longest lock-in period?

You mean handicapped only when it comes to India portion of AAP. For other Global equity portion of AAP you have the whole world of Mutual funds to choose from (should not be restricted only to MINDX as you have indicated)