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If your goals are due in two years, cut equity holding via staggered plans

  • It’s important to do goal-based planning, which helps in investing in the right asset classes in accordance with the goals
  • If the PPF account is opened when the investor was a resident Indian, and during the course of holding the account he becomes an NRI, then the investor can continue with the account and is not required to close it

Can you explain how savings should be realigned as one’s goal nears? I have three goals, which are five, 10 and 15 years away. I have invested in eight schemes. When and where should I move my money as my goal nears. Also, should I shift the entire money?

—Ridhima Vermani

It’s important to do goal-based planning, which helps in investing in the right asset classes in accordance with your goals. However, it becomes critical to further align and rebalance the investments as your goal nears maturity.

Let’s say your goals are due in the next two years. If in case your investments are done in an equity asset class, you need to reduce equity holdings by using a staggered plan, STP (systematic transfer plan), and move from equity to debt over the next 12 months. This is for reducing the volatility in the equity asset class. However, if your investments are in a safe asset class, then the portfolio is already aligned and it does not require any changes.

If someone’s residential status changes to non-resident Indian (NRI), can he continue to contribute towards Public Provident Fund (PPF)? Can NRIs continue to invest in PPF or they can only hold the account till maturity?

—Ajay Rana

If the PPF account is opened when the investor was a resident Indian, and during the course of holding the account he becomes an NRI, then the investor can continue with the account and is not required to close it.

The investment can be continued in the PPF account. However, this decision has gone through changes. Earlier, the investor was asked to close the PPF account on turning an NRI, but the decision was subsequently changed. Now, if the PPF account was opened as a resident individual, then the account carries the same benefit, irrespective of the current residential status of the investor.

However, the PPF account cannot be extended beyond its maturity for a block of five years if the investor is an NRI. The PPF account continues to be exempt from tax in India, but NRIs may be required to show the income earned in the PPF account in their global income and pay taxes, as per their country of residence.

Surya Bhatia is managing partner of Asset Managers. Send in your queries and views at mintmoney@livemint.com

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