- ·To focus on Goals
- To achieve Financial Freedom
- To enhance the quality of Life & gain Peace of Mind
Your previously charted investment strategies when in India would have needed a rethink and an overhaul considering the new tax regime, different investment products, change in interest rates, and currency risks. You need to have a ready plan for your post-retirement stages of life to ensure you or your dependents do not outlive your saved corpus. So how do you get the math right?
Where to invest?
This is one of the most pertinent questions most NRIs face. Should they invest in Indian assets or assets of their current country of residence? These questions can be answered based on their plans, risk appetite, income, and goals. Let’s consider Jay, 40, with a wife and son (5 years old). He has settled in the US for the past 10 years. He would like his son to continue living and studying in the US while he plans to retire and move back with his wife to their hometown in Mumbai. He has a corpus equivalent to Rs. 1.5 crores saved in various instruments which he believed was enough for a post-retirement life but is it truly enough?
Let’s assume based on Jay’s current lifestyle he would require a monthly income of Rs. 1, 00,000 to cover his lifestyle expenses and live a comfortable life. He had invested in a home in Mumbai before he moved to the USA, this is where he plans to settle post-retirement. 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% p.a. He has estimated his son’s educational expenses to amount to Rs. 25, 00,000 and his son’s marriage expenses are pegged at Rs. 15, 00,000. Based on these estimated figures what would be the apt route of investments for Jay to achieve financial freedom?
The right corpus
Based on his forecasted monthly expenditure of Rs. 1,00,000 Jay needs to create a corpus of approximately INR 7 crores to cover his expenses from retirement (at age 60) to 90years of age. This is the least he requires to cover his expenses. His current corpus of Rs. 1.5 crores post inflation (@ approx. 6%) will not suffice). He will need to make proportionate additional investments based on various factors including his risk appetite and the attractiveness of the capital markets in which he intends to invest. He needs to include the cost of his son’s education, marriage, and other unforeseen expenses while calculating his corpus. It may be difficult to peg the right amount needed, but the inclusion of rising costs, falling interest rates, and inflation over the years will give you a ballpark figure close enough to achieve your goal.
Investments in real estate can be tricky. Plans are never set in stone and hence one must be careful while 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 lender in the US. In all probability, he could avail of lower interest rates considering the average rate of interests for the most popular 30-year fixed mortgage is 2.98%, according to data from S&P Global.
Rupees or Dollars
This is another question that NRI investors often ask. The answer to these questions lies in the plan and goals set. Take for instance Jay plans his son’s education to continue in the US, expenses for which will be incurred in dollars so investing in dollars would be apt in this scenario. For his retirement, he plans to settle in India, for which he is already investing in a physical asset like a home. The rest of his corpus could be invested in a combination of Indian equity or mutual funds and fixed income instruments like PPF, FDs, or government securities based on his risk appetite. To play it safe he could invest some amount in global investments giving his portfolio that necessary diversification and currency hedge as well. This will ensure his investments are not only well-diversified but will also serve to cover him in case of future changes in his plans if he decides to continue living in the US post-retirement.
As an individual (NRIs or residents), ensuring your finances are in order is the top-most priority. In this numbers game, an investor must ensure to include all major foreseen expenses while planning for his/her financial future and additionally insure oneself for the unforeseen. A thoroughly sketched-out plan with a keen eye on your portfolio as it progresses will ensure you stay invested for the long-term and reach your goal of financial freedom.