- Client Background
Our client, a retired Non-Resident Indian (NRI) residing in Oman, was referred to us by one of our existing clients who had experienced satisfaction and trust with our services. Having accumulated wealth through his employment in Oman, the majority of his assets were held in fixed deposits, with a smaller portion invested in mutual funds. The client sought guidance on optimizing his investment portfolio to align with his financial goals and lifestyle requirements.
- Challenges Faced by the Client
- Limited Diversification: The client’s mutual fund investments was heavily concentrated in mutual funds from a single Asset Management Company (AMC), primarily focused on equity-oriented funds.
- Overreliance on Fixed Deposits: Approximately 80% of the client’s wealth was parked in fixed deposits, resulting in suboptimal returns and vulnerability to Additionally, following the client’s return to India after retirement, the interest earned on these fixed deposits became taxable, further reducing their net returns.
- Lack of Performance Tracking: There were no systematic processes in place for monitoring the performance of the client’s investments, making it difficult to assess their effectiveness.
- Suboptimal Tax Planning: The client’s portfolio lacked optimization from a tax perspective, potentially resulting in higher tax liabilities and reduced overall returns.
- No Provision for Monthly Income Withdrawals: Despite being retired, the client’s mutual fund investments and fixed deposits were not structured to provide regular monthly income, posing challenges in managing cash flow during retirement.
- Solution Provided
- Diversification Strategy: We proposed a diversified investment strategy, spreading the client’s portfolio across multiple asset classes, including equities, debt, and corporate fixed deposits, to mitigate risk and enhance potential returns. Because the client was not very comfortable with the idea of increasing more allocation in mutual funds (including debt funds), we suggested corporate fixed deposits, so he can earn 1%-1.5% more from the bank FDs.
- Transition from Fixed Deposits: Understanding and after sufficient provisioning for the liquidity, emergency and medical emergency needs of the client, we recommended allocating a portion of fixed deposit towards hybrid mutual funds gradually through systematic transfer with the aim of achieving better long-term returns.
- Implementation of Performance Tracking Mechanisms: We implemented robust performance tracking mechanisms to monitor the performance of the client’s investments regularly. This approach allowed us to stay informed about the performance of the portfolio and make timely adjustments as needed. Additionally, we discussed and adjusted the changes in the client’s expense requirements on a yearly basis to ensure that the investment strategy remained aligned with their evolving financial needs and inflation.
- Tax Optimization: We illustrated to the client how taxes could be optimized by utilizing a systematic withdrawal plan in conjunction with debt and arbitrage funds instead of relying solely on fixed deposits. The client expressed keen interest in this approach. Additionally, we highlighted that the returns generated from investments in debt and arbitrage funds were subject to a lower tax rate and taxed only upon withdrawal. As a result, this adjustment substantially reduced the client’s tax liability, aligning with their goal of maximizing tax efficiency in their investment strategy.
- Structured Income Generation: To fulfil the client’s need for monthly income, we reorganized his investment portfolio. We allocated a significant portion of his assets to stable and low-risk debt funds and implemented systematic withdrawal plans (SWPs) to ensure a consistent income stream throughout his This strategy was designed to cover his monthly income needs for at least 3 to 4 years. By doing so, we highlighted to the client the portion of his excess funds that were sitting idle in fixed deposits, generating relatively low returns for the overall portfolio, despite not being immediately needed.
- Risk Management through Health Insurance: Recognizing the importance of safeguarding against unforeseen medical expenses, which could erode his wealth significantly, we recommended the inclusion of comprehensive health insurance coverage. By securing adequate health insurance, the client could mitigate the financial risks associated with medical emergencies and ensure access to quality healthcare without depleting their savings or investment portfolio.
- Outcomes
By diversifying across asset classes, the client’s investment portfolio became more resilient to market volatility and better positioned to generate consistent returns over the long term.
Through the strategic transition from fixed deposits to low & moderate risk mutual funds and corporate deposits, the client witnessed improved overall portfolio returns. This shift not only safeguarded his wealth from the erosive impact of inflation but also propelled more efficient progress towards accomplishing his financial objectives.
Our tax optimization strategies resulted in significant savings on tax liabilities, allowing him to retain a higher portion of his investment gains.
With the implementation of structured income generation mechanisms, the client now receives regular monthly income withdrawals from his mutual fund investments, providing financial stability during retirement.
- Conclusion
Through a comprehensive analysis of the client’s financial situation and tailored investment solutions, we were able to address his concerns and optimize his investment portfolio to better align with his goals and objectives. The successful transformation of client’s investment portfolio underscores our commitment to delivering personalized financial solutions that empower clients to achieve financial success and peace of mind.
* We take our clients’ confidentiality seriously. While we’ve not disclosed their names, the results are real.
