by Moiz Mannan
Only one thing is certain about working in the Gulf: you’ve got to return one day. In the last edition of this column, we discussed the plight of Indian workers in the gulf who have to return to India prematurely.
Financial insecurity is by far the biggest issue. Even if your job is as secure as it will last until your retirement, the time to return is bound to come. We have seen that assistance from the government or from employers to help you resettle can hardly be expected. For most blue and white collar workers, the thought of not being able to maintain the present standard of living is scary. Add to that the additional costs of health care in old age and one realizes the need to do some serious financial planning.
Traditionally, those who would not avail of pension benefits after retirement would look at options such as provident fund, savings certificates and term deposits. However, now that the mutual fund industry in India has matured a fair bit and also there is an increased understanding among the common people about equity investments, this is a good option.
First of all, to be able to decide on an option or a combination of options, one must set a target. This is done by calculating the monthly expenses one would need to incur after a particular age. The idea is to work towards creating a retirement corpus that would factor in inflation and provide regular returns to fund the desired standard of living. For example, a person who has a monthly expenditure of Rs10,000 today will need to spend Rs40,000 a month to maintain his lifestyle after thirty years even if the rate of inflation is just 5 per cent. It means, this individual needs to work towards a corpus that will yield at least Rs40,000 a month after 30 years.
Investment experts are unanimous here that only equity investments have the capacity to beat inflation over the long term. But there are many, particularly among non-residents, who are wary of investing in the stock market. The recent roller-coaster behavior of indices globally have done no good to the confidence of the risk averse.
Some would therefore prefer term deposits which are currently offering returns of 8 to 9 per cent. It might be a good idea for those nearing retirement to rely more heavily on such options. However, for those whose retirement is more than 30 years away, it is better to be a little aggressive.
Real estate too is a good option, but NRIs often find it difficult to maintain properties from a distance. In fact, most non-residents prefer to acquire residential properties to live in rather than to sell off later to make a profit.
Experts further advise NRIs to obtain insurance linked retirement plans. Insurance firms offer variety of products promising security and returns to suit retirement needs of overseas Indians. ICICI, LIC, HDFC, and many other insurance firms have retirement & pension plan which can be availed by NRIs. Most of the insurance companies also offer comprehensive health insurance which must be taken for retirement purposes.
You can buy retirement plan with cover or without cover. You can also have unit linked retirement plan which will give high returns but also presents high risk. ULIP, after the changes made by IRDA, has become more attractive and can provide much better returns than typical insurance products.
The State Bank of India (SBI), for example, offers such products. The SBI life Lifelong pension plus is an option for NRIs looking for a non - participating plan and security of their investments. On the other hand, the SBI life smart pension is aimed at NRIs who are looking for their investment to be divided into parts that assure them guaranteed returns and a part that is invested in units can go for this plan.
Bajaj Allianz has a CashRish Insurance Plan a plan that provides cash benefits at three important stages of one’s life cycle. It also offers an accumulated compound reversionary bonus on completion of premium payment term. The whole policy term consists of two phases; a premium payment term and a cash back period, both selected by the investor at the inception of the policy. At the end of the premium payment term, the accumulated compound reversionary bonus shall be payable, followed by the payment of Cash Back benefit of 5 percent of the sum assured plus the annual cash bonus (if any as declared by the company), at the end of each policy year, till the end of the policy term.
The Life Insurance Corporation has Jeevan Akshay, a voluntary pension plan meant for employees retiring with inadequate pension benefits or none at all. A monthly pension is paid to the purchaser and on his death, a guaranteed insurance sum (GIS) equal to the purchase price is paid to the nominee. The final bonus is also payable in addition to GIS. Jeevan Dhara provides a regular income from a selected date with death benefits. It also participates in profits at the time of vesting of the annuity and then until the death of the annuitant after the vesting of the annuity.
As for equity-linked investments, one of best bets in the long run are mutual funds through systematic investment plans.(SIPs). SIP is one effective way to pulling through the ups and downs and still emerging with returns that counter inflation. SIPs smoothen unpredictable market movements by accumulating more units when the markets fall.
The UTI Retirement Benefit Pension Fund provides pension in the form of periodical income/cashflow to the unit holders to the extent of redemption value of their holding after they complete 58 years of age. While picking mutual funds, experts generally suggest a mix of mid and large caps. The choice of fund depends on one’s objective and risk-taking ability. Each asset offers funds that enable you to meet specific goals. NRIs looking for fixed income may consider switching to hybrid debt options like Monthly Income Plans, which have an exposure of 85 percent to debt and 15 percent to equity. One can also look at Fixed Maturity Plans and Quarterly Interval Plans with dividend payouts for steady income.
The Peninsula
