r2i forum

MSV;55578Experts,

What Vanguard Funds do you recommend for $20K to be used for Kids education after R2I in 3-5 Years. Alternate recommendations are also welcome. I want to add something around $300 every month to this fund(s) for the next 3-4 years.[/quote]

Where will education occur - India, US or some other place? Is it going to occur between 2010 and 2012? R2I date? Your immigration/citizenship status at R2I?

Bobus;55579Where will education occur - India, US or some other place? Is it going to occur between 2010 and 2012? R2I date? Your immigration/citizenship status at R2I?[/quote]

It struck me that expert members are not mind readers so it would make sense if you ask your questions in the full context. Well here is a short summary of what I need.

Parents and Kid : USC/OCI
Education : KG to Class XII
Where : India (Hopefully some good International School)
School start Year : 2011
R2I : 2009/2010
Average Fee (Initial Years) : 1.5 - 1.7 Lacs
Total Education cost : About Rs 45 Lacs ( assuming some inflation )

Initial investment : $20000 (now)
Monthly Addition : $300.00
After R2I Yearly addition : Rs 75000

What would be the best strategy to invest this amount to make the best use for schooling. My plan was to invest the initial $20000 in a couple of mutual funds in Vanguard and add $300 every month till R2I. This account can be untouched for 5 years if need be, since I can use some funds in India for first year at school. After 4-5 years move this amount to India and invest it very safely by adding about Rs 75,000 every year. The idea is to procure funds from this investment for schooling for as long as possible.

Experts I made an spread sheet with some calcs. I am not sure if this is concrete but want to do something on those lines.

Bobus;55848#429 MSV:

Since the spending is going to occur in India, a good portion (at least the fixed income portion) of the investment shd be made in Indian debt market, while the equity portion can be in diversified world equity market funds.

Since you are USC, Indian mutual funds are ruled out - coz they are PFIC. That leaves India rupee fixed deposits (which are not tax efficient) for the fixed income portion. The equity portion can be invested in a combo of MINDX, emerging market, pacific, european and US stock index.

If you are not going to retire anytime soon after R2I (before kid finishes high school), and will have decent savings from India salary, I would suggest meeting the goal from annual savings from salary, and using the money that is available now and the money that you will save until R2I for other financial goals that you will likely have.[/quote]

Hi Bobus,

The idea is good and makes sense. Something that I am really not aware of if what do you mean by Indian debt market. I have never understood this concept. I tried reading some threads when I bumped into avoiding PFIC in Indian market. I am sure there will be many in this boat.

What is debt market in plain english ? How to invest and what to invest in ? What kind of returns can you expect ? what are the risks ?

thanks,
MSV

Bobus;55961MSV:

By debt market I refer to instruments that borrow money, as opposed to equity market whch s the market for stocks. Bank FDs, bonds, bond mutual funds, company deposits ... would comprise the debt market.

Other than Indian bond/debt mutual funds, the others are tax inefficient from an India tax perspective, though safer than equity. The expected returns are commensurate with risk.[/quote]

Bank FDs are tax inefficient although we have about 9% now. Where would we go about learning and buying bond mutual funds and company deposits. How we as NRIs can tap this. Do we need a brokerage account for this ? Also how are they treated tax-wise. If we hold company deposit/bond mutual fund for more than a year, are they treated as long term gain and no tax like equities?

MSV;56732Bank FDs are tax inefficient although we have about 9% now. Where would we go about learning and buying bond mutual funds and company deposits. How we as NRIs can tap this. Do we need a brokerage account for this ? Also how are they treated tax-wise. If we hold company deposit/bond mutual fund for more than a year, are they treated as long term gain and no tax like equities?[/quote]

Pls read prior post about Indian mutual funds being PFIC and not being advisable for USC coz of IRS tax.

Company FDs are tax inefficient too, just like bank FDs. Interest is taxable as ordinary income.

USC's fixed income investment in India is a problem coz Indian mutual funds are virtually ruled out for USC. No easy solution.