India has been a hub of talent for many countries for skilled as well as unskilled workers. These countries would attract them with a promise of good life and good money. A majority of them helps in nation building on two fronts: Country in which they reside and Home Country India where at times they would send remittances back home. These specials ones are called NRI’s. Many of them are pioneers in the developed world.
Our government doesn’t want talent to move out of India and at the same time they also want from the ones who have left to contribute to India’s growth story. Quite contrarian. However not much has been done on that front to motivate them in real sense. But that’s not agenda here today.
Agenda is to discuss their financial management and how can they optimise it.
I have seen two types of NRI’s.
One who will return to India by choice & the ones who will return to India by not having that choice.
Though Indians have immigrated globally but there is a specific problem these NRIs face of not having the choice to stay but to return to India. A large part of Indian hands is residing in Gulf countries. They are Saudi Arabia, UAE, Qatar, Oman, Kuwait, Bahrain. Here Indians have to return back home as their laws dont permit permanent citizenship.Most often these returns to home country is at the retirement age. Though they give handsome opportunities to Indians to move upwards in financial value chain but they also load fellow Indians to keep thinking and working towards their Retirement life mostly in India.
This is opposite to having a citizenship in US or UK where while earning you your job is to build your 401K or respective Retirement corpus in those countries only. Hence most NRI’s who are US/UK Citizens who are NRI’s don’t have to think much on that front. Their retirements are fully loaded with all the important features and not leaving them to worry much on financial front.
However, NRI’s who are working in Gulf countries will have to return to India or some other country and hence their retirement needs some serious planning.
I have met many Gulf Country NRI’s & told them investing in FD is not your retirement plan as they are only subjected to FD’s or Insurance Plans. They have built handsome corpus out their savings but here comes the shocker when they come back and find their income vulnerable when they needs the most have becomes taxable. Say if you have grown your retirement corpus to 5 Cr and have managed to lock-in long term deposits at interest of 6%, your entire 30 lacs would be subjected to resident tax slabs. Hence even after those smart management of saving taxes you would still end up paying 30%+ taxes every year.
There is another common trait of their investing which is locking the Fixed Deposits for max possible years as India traditionally has been on reducing the interest rate spree for several decades now. Hence they want to lock in for max tenure which has benefited them till they return to India. Even after returning to India most of them let those FD status of tax free run until they are subjected to penalties which comes as another shocker to them.
Whats the retirement Objective ?
Most of them would want to travel, have good health, contribute back to society in terms of the skills, start an NGO, mentoring a start-up, spirituality, do consulting or live a good life with their kids but very few would actually be doing what they should be actually doing.
What retirement actually become ?
When they comeback to India, they are also subjected to India’s problems. Inflation, Interest Rate Cycles, Taxation, Safety, Liquidity, Taxation , Equity’s Volatility , inheritance, laws and so on. There are more than 2000 financial instruments howling promising solutions and deepening the confusion .These often leads to losing of sleep and most of these retirees use their time to just doing management of funds in their retirement and it’s no fun anymore.
Mr Handa, who is enjoying his retirement life in India after returning from middle east mentions, “The biggest issues are Awareness, Accessibility & Confidence. Most of the Financial firms don’t have resident offices in gulf countries. Officials from Bahrain or Dubai would travel to offer these services. Currently everyone who returns with good corpus has obsession of investing in multiple properties but its not worth the pain against the maintenance and cost one has to levy.”
What could be a good approach to address these issues ?
Traditionally NRI’s have been incentivised to park funds traditionally in fix deposits with no levy on taxes. Secondly they have found insurance plans to be next best solution.
Technology today has enabled and reduce the distance between NRI’s and Financial Markets. They can now access different asset classes for their wealth creation in India. Now what they need is a good strategy and good advisor who can help them navigate them through different cycles of each asset class. If they can give time to learning the nuances themselves, they can even do it themselves. Here are some pointers to create a good strategy for yourself.
- Start early. As you move in gulf countries and have ability to save, start with building your contingency savings .
- Clearly write down your long term and short term objectives. Short term goals will keep getting achieved and new short term goals will be created.
- Build a well diversified, minimum corelated multi asset portfolio while you are saving when earning. Options to contribute on monthly basis are available.
- Consider Core asset class- Real estate (For your consumption), Equity, Debt, Gold, Currency , Fix Deposits. Most of them can be acquired by paying small amounts every month for long horizon.
- Inflation is a secret tax and hence in all scenarios your portfolio should be beating the same.
- Use Equity Stocks & MF’s and Real estate as an asset class to fulfil your long term objective. This will ensure Inflation is taken care and taxation is optimised.
- For Short Term Objectives, focus on fixed income funds.
- A small part of your funds will also get absorbed by some really good government schemes that can add to annuities at a later stage.
- Gold will bring stability to portfolio and gives a hedge against unforeseen scenarios.
- Investing in Good International Funds/ETF’s addresses two risks -Country Risk and Currency Risk which are essential ingredient while creating a portfolio.
- No retirement plan is complete without proper health insurance plan that sufficiently covers all the family members and last throughout their old age. Medical Inflation is one of the highest un-categorised inflations.
- When coming near retirement, change the approach with mix of safety and liquidity being paramount, beating inflation should be on your agenda too.
- Retirement will be about withdrawals to sustain yourself with your expenses and leisure goals over months and years mostly for yourself and your spouse. Preferably a 4% withdrawal rate is a good rate currently to ensure the corpus last in all scenarios till its needed.
A multi asset portfolio if managed well has potential to create 50% to 100% more wealth over long horizon with more efficient taxation plan in place.
Lastly remember retirement is not the end of the road. It is begining of the open highway. Choose your car and driver wisely.
If you like this blog, you may also love this blog which mentions about the first step of planning your finances.
Disclaimer: Google & other online platforms have made us real wise in making decisions. But still you would prefer a doctor to diagnose & recommend you a medication . Similarly one should always get hold of a professional who would diagnose you better and offer you right financial advise to help achieve your goals.