Why plan?
- ·To focus on goals
- To achieve financial freedom
- To improve the quality of life and gain peace of mind
Their previously established investment strategies in India should have been reconsidered and revised in light of the new tax system, different investment products, interest rate changes and currency risks. You must have a ready plan for your post-retirement life stages to ensure that you or your loved ones do not outlive your accumulated body. So how do you do the math right?
Where to invest
This is one of the most pertinent questions faced by most NRIs. Should they invest in Indian assets or assets in their current country of residence? These questions can be answered based on their plans, risk appetite, income, and goals. Consider Jay, 40, with his wife and son (5 years old). He has lived in the USA for 10 years. He wants his son to continue living and studying in the US while he plans to retire and return to her hometown of Mumbai with his wife. It has a body equal to Rs. Saved 1.5 crores in various instruments, which he believed would be enough for life after retirement, but is that really enough?
Let’s say based on Jay’s current lifestyle he would need a monthly income of Rs. 1, 00,000 to cover his lifestyle expenses and live a comfortable life. Before moving to the US, he had invested in a house in Mumbai, where he intends to settle when he retires. He is still paying the EMI on the home loan in India which will continue for the next 5 years at an interest rate of 9% pa. He has estimated his son’s education expenses at Rs. 25,00,000 and his son’s marriage cost is set at Rs. 15.00.000. Based on these estimated numbers, what would be the appropriate investment path for Jay to achieve financial freedom?
The right body
Based on his projected monthly expenses of Rs. 1,00,000 Jay needs to create a corpus of approximately INR 7 crores to cover his expenses from retirement (age 60) to age 90. That’s the bare minimum he needs to cover his expenses. His current corpus of Rs. 1.5 crores post-inflation (@ c. 6%) will not suffice). He must make appropriate additional investments based on various factors, including his risk appetite and the attractiveness of the capital markets in which he wishes to invest. He must account for the cost of his son’s education, marriage, and other unforeseen expenses when calculating his corpus. Pinpointing the right amount may be difficult, but accounting for rising costs, falling interest rates, and inflation over the years gives you an approximate number that’s close enough to reach your goal.
physical assets
Investing in real estate can be difficult. Plans are never set in stone and therefore one must be careful when investing in physical assets as they are usually difficult to liquidate. For Jay’s home loan, he should consider transferring his loan from his Indian lender to a US lender. In all likelihood, he could take advantage of lower interest rates, considering the average interest rate on the most popular 30-year fixed-rate mortgage is 2.98%, according to data from S&P Global.
rupees or dollars
This is another question NRI investors often ask. The answer to these questions lies in the plan and the goals set. For example, take Jay planning to continue his son’s education in the US, the cost of which will be in dollars, so investing in dollars would be appropriate in this scenario. For his retirement, he plans to settle down in India, for which he is already investing in tangible assets such as a house. The remainder of his corpus could be invested in a combination of Indian equities or mutual funds and fixed income instruments such as PPF, FDs or government bonds depending on risk appetite. To be on the safe side, he could invest some amount in global investments to give his portfolio the necessary diversification and currency hedging. This not only ensures that his investments are well diversified, but also serves to hedge him against future changes in his plans if he decides to continue living in the US after retirement.
As an individual (NRIs or residents), making sure your finances are in order is a top priority. In this numbers game, an investor must ensure that they consider all of the important likely expenses while planning their financial future, in addition to covering themselves for the unforeseen. A well-crafted plan with a keen eye on the development of your portfolio will ensure you stay invested for the long term and achieve your goal of financial freedom.
