Building your nest egg early pays off

Everyone knows it's inevitable, but very few actually know how to plan for it. Especially for the scores of expatriates living in the UAE and the wider GCC region, thinking of the life after retirement brings with it a mix of anxiety and worries.

Aspiring to live life comfortably after retirement and actually living it up are two completely different worlds, say financial planners. However, if one draws a sketch of how would his life be after retirement and starts building up the nest egg to maintain the same standard of living and lifestyle one is used to, it can make a whole lot of difference, maintain experts.

Anyone having read Jonathan D Edelfelt JD's Who said you need millions? Retirement Strategies for the Rest of Us, published a couple of years back, would get a fair idea of the various ways to plan and implement a workable retirement strategy.

Just by investing in real estate, equities, fixed income instruments, or keeping some liquid cash in banks and then sit back won't be enough for a retirement kitty, say experts. Rather, one needs to carefully plan for it.

There are various ways and investment options available to expatriates for retirement planning, experts point out.

"An individual who is employed can put aside a small sum from their salary on a monthly basis. Similarly, there are other products suitable for a person who may be a business owner or an entrepreneur and who doesn't have a regular monthly income; but when they paid on an ad hoc basis it's quite a substantial sum," says Darren Ashley, Managing Director, Candour Consultancy, Dubai.

If you speak to a financial advisor, they should be able to advise on a suitable product, which will allow you to invest your retirement contributions in diverse range of investments ranging from cash and bonds to equities, commodities, property, etc, he adds.

Stepladder approach

As one starts parting with a small sum towards his retirement kitty, the nature of investible asset classes also keeps on changing in line with the investor's age level and his changing risk appetite, analysts add. In the early years, their portfolio could include mainly the equity funds or managed funds as they can have a greater risk appetite. As they get near to their retirement, they can take out some portions of the more volatile high-risk equity investments and hold that part in the forms of cash and bonds to protect their capital, says Ashley.

In case of non-resident Indian expatriates (NRIs), the retirement planning needs to be attuned to the amount one would want to earn every month once he is out of work after a certain age, say analysts.

"If they've decided that they want to get Rs10,000 or Rs 50,000 every month or any other amount after retirement, they'll have to plan accordingly, says Sajith Kumar PK, Director and CEO, JRG International Brokerage DMCC, Dubai, part of JRG Securities, an Indian brokerage house.

He says majority of NRIs are investing their money into fixed deposits, property, and post office savings schemes and when they go back to India, they simply rely on these funds to live their post-retirement life.

However he adds that for the last five years, many NRIs are going for start-up ventures when they go back thus securing their lives not only for post-retirement but for pre-retirement years as well.

"Earlier they were only saving money, but now they're also investing the money in some kind of business," says Kumar.

Additionally, he says, NRIs can think of insurance plans that include portfolio such as pension plans and children education plans.

Since most of the NRIs do not receive any kind of pension benefits from the Government of India after they return to their roots, they need to be diversified in terms of their investment whether in stock market, mutual funds, or insurance plans, he says.

Disciplined investing

For low and middle-salaried NRI people, the ideal solution is investing in mutual funds because a person can start with an amount of only Rs5,000. Since an NRI can invest in any mutual fund available in India he can also invest in mutual funds through systematic investment plan by investing a fixed sum every month, says KV Shamsudheen, Director of Barjeel Geojit Securities, Dubai.

He says an NRI can also directly invest in Indian stock markets and there's no restriction. However, an NRI investor cannot speculate or participate in intraday trading. NRIs can invest money in Indian stocks only for investment purposes and not for trading purposes.

There're two bank accounts – an NRE or NRO account and portfolio investment service (PIS) account – an NRI has to open with a bank based in India and two accounts with Indian brokerage house for investing in Indian stocks – a demat account or depository account and a trading account, he says.

Another investment option for NRIs could be the monthly income plan (or MIP which is a debt mutual fund or dividend yield plus fund), which can give a return of 10 to 12 per cent per annum. If a person, for instance, invests Rs1 million in MIP he can hope to get Rs10,000 per month. This will help them after they go back to India for permanent settlement to get a regular return, Shamsudheen says.

NRIs can also invest in other equity-based mutual funds, which invest in equities and where return is much higher than debt funds and dividend yield funds, but risks are also higher.

Mutual fund dividends are tax-free so an NRI doesn't have to pay any tax in India. There's a 15 per cent capital gains tax, but it is applicable only if he sells his stocks or mutual funds before one year. Except that there's no long-term capital gains tax obligation applicable to an NRI.

Another investment option is property, except agricultural properties. However, for investment in any asset in India, whether mutual funds, stocks or property, an NRI or resident Indian has to have a Permanent Account Number (PAN) card, he adds.

In case of stock investment, he says, since they invest in Indian stocks in Indian rupee denomination, the dividend on stocks is also paid in rupee terms and is credited to their NRE account. However, when they go back to India permanently, they have to inform all the depository participants to change the status from NRE to resident status and subsequently the dividends will be credited to their resident account, not NRE account, he says.

As a measure to secure their future, NRIs can also look to invest in various insurance plans such as whole life plan, term plan, pension plan, endowment plan, or Unit Linked Insurance Plan (ULIP), say experts.

The person shouldn't invest according to what the salesperson say, but he must invest according to his real needs. He has to get the salesperson acquainted with what his requirements, responsibilities and life plans are and then get a suitable scheme for himself, he says.

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