By Kurian Jose
By design or by choice, we find that non-resident Indians (NRIs) are a key investor segment in India. However, they continue to struggle with a more strategic and goal-based approach to investing, especially when it comes to retirement and pension planning.
The case for pension planning
Retirement benefits are getting impacted in countries such as the US and the UK, and a globally volatile environment is giving way to a future filled with cyclic unpredictability across economies. This demands that NRIs, especially in their 30s and 40s, to take a hard look at what retirement holds for them.
Some of the top factors they need to consider before arriving at retirement goals and pension planning would be the preferred country of retirement; post-retirement lifestyle needs and access to senior care, and existing investment portfolio and estimated returns for funding post-retirement lifestyle. Reviewing these factors can help NRIs effectively bridge the gap between emotional investing and a comfortable retired life.
The NPS opportunity
A well-diversified portfolio is key to safeguarding your retirement portfolio and pension. This is especially true in the backdrop of NRIs’ and Overseas Citizens of India (OCIs’) inclination for assets that are subject to market risk, low on liquidity and are fixed in nature.
The National Pension System (NPS) is a rather untapped opportunity. Designed for the resident Indian, it offers a host of features that make it equally ideal for NRIs and OCIs. The annual upper limit for investment is 10% of gross income and stays at Rs 1,50,000, under Section 80CCD1. NPS also offers special provision of tax deduction under Section 80 CCD1B for investment up to Rs 50,000.
It offers the potential to build a well-diversified, tax-free pension corpus for those starting early.
- Here are the key reasons why NRIs and OCIs could do well to include NPS as part of their portfolio diversification and pension planning strategy:
- Low entry barrier as compared to assets such as real-estate allows early investing; the resulting compounding growth has the potential to transform pension corpus tremendously in the long-run;
- Potential for higher returns as compared to traditional fixed return assets makes it easier to build a corpus that serves retirement goals;
- Flexibility to seamlessly toggle investment between debt and equity basis evolving needs and economic scenarios;
- Opportunity to invest regularly and average out market volatility effectively and access to India’s equity market without direct exposure (through stocks) to benefit from the India growth story.
Reasons to begin in 2023
The year 2023 may see periods of economic uncertainty. However, NPS allows subscribers the choice to switch between debt and equity exposure and vice versa, making decisions easier. Its low entry barrier and minimal instalments make it ideal for younger NRIs who are still building their wealth and want to have substantial cash in the bank in case of job losses; a scenario that seems to be playing out quite actively in recent times. Also, NPS allows systematic investments to meet future goals without leading to present-day cash stress.
- Flexibility to toggle investment between debt and equity
- Allows NRIs to access equity market and benefit from the India growth story
- Potential for higher returns as compared to traditional assets
(The writer is CEO, Tata Pension Management)