Though India is the second-most populated country in the world, retirement planning is still not a priority here, data from the retirement survey by Reliance Capital Asset Management Co. Ltd along with IMRB International released on Tuesday shows.
While the government has started talking about the need for an organised social security and pension system, the idea apparently has not yet dawned in the minds of working individuals as traditional Indian society always expects the next generation to take care of their elderly parents.
India’s per capita retirement and pension assets as a percentage of the gross domestic product is at 15.1%, one of the worst in the world, says the research report. According to the Global Benefits Attitudes Survey conducted last year by global professional services company Towers Watson, 78% of Indian employees recognise that they will need to save more for retirement.
In the survey, only 15% of Indian respondents in the 30-55 age-group claimed to have planned for retirement. This may mean that a majority of the population is either planning to rely on pension, or on physical assets such as real estate and gold, or on their children.
If you consider an average inflation rate of 7% and a retirement date at least 30 years away, each rupee you have today will be worth only 13 paise. In other words, you will have to make your money increase at least 7.6 times today simply to match up with inflation. Also, you need to earn returns to grow your corpus.
“Most people don’t want to compensate on lifestyle after retirement. So they want to build a corpus that can not only cater to comfort throughout their remaining life but also manage fancies like catering to grandchildren and travelling,” says Suresh Sadagopan, a Mumbai-based financial planner.
According to Manish Shah, co-founder and chief executive officer, Big Decisions.com, “Everyone appreciates that you have to start saving early for retirement but the actual investments get relegated to secondary status as other issues such as buying real estate and children’s needs take over.”
Sadagopan says one has to allocate to different kinds of products based on the stage of investment and needs. The stage of investment refers to how far you are from retiring. For example, if you have at least 10-15 years left to retirement, investing in equity-linked products is suitable as these are flexible products that help beat inflation in the long run and are also tax effective. Such products are equity mutual funds, including retirement funds, equity-linked insurance and pension plans, and the National Pension System. You can also allocate to low-risk high-interest options such as Public Provident Fund (PPF).
If you are already close to retirement, a higher orientation to fixed-income investments is preferred. This includes products such as debt mutual funds, tax-free bonds, non-convertible debentures and even fixed deposits. “The choice of products depends on each individual’s need for flexibility, tax effectiveness and risk preference,” says Sadagopan.
According to Himanshu Vyapak, deputy chief executive officer, Reliance Capital Asset Management Co. Ltd, “In our retirement fund (launched in February 2015), around 66% assets have come to the wealth creation option, which predominantly invests in equity. But also 95% of the investors came in this option, which shows that investors are looking at accumulating wealth for retirement.” The scheme has around 50,000 investors, he says.
The Reliance Capital AMC’s research found that 90% of assets are allocated to fixed income. Ideally, if you have time on your side and retirement is at least 10 years away, consider systematic investments in assets that can beat inflation in the long run. This can be done through a partial allocation to equity-linked products. Regardless of the product you choose, the key is to just start the process by planning, saving and investing systematically for retirement.