I am 46 years old non-resident Indian (NRI). I have two daughters aged three and two. I have accumulated about Rs 50 lakh in non-resident external (NRE) deposits. I have about Rs 20 lakh in my provident fund (PF). I can save about Rs 20,000 per month. I want to return to India in 10 years. What kind of an investment strategy should I adopt to generate an income of Rs 50,000 per month when I retire.
It is assumed the existing funds of Rs 70 lakh (NRE deposit and PF) as well as the proposed savings of Rs 20,000 per month is dedicated towards retirement planning. This becomes important as there are other prima facie needs, which you have to provide. For example, daughters’ education, marriages and other major expenses.
If you save regularly every month, you will accumulate a principal of Rs 24 lakh. However, it is recommended that you increase your savings every year along with increase in salary. If we assume an increase in savings by 10% per annum, the total accumulated savings will be Rs 38.25 lakh. This with an average interest earnings of 10% year-on-year will take your net worth to Rs 2.38 crore after 10 years and at an average inflation-adjusted withdrawal of Rs 6 lakh per annum. (You have mentioned withdrawal of Rs 50,000 per month every year but you need to factor inflation. The average rate of inflation is taken as 8% and hence in the first year of withdrawal—11th year—the amount will be close to Rs 13 lakh per annum).
However, there will be a point when your withdrawals will outsmart your earnings and it will take another 11 years when your annual drawings would be higher than your earnings and from this critical point your corpus would start reducing. This corpus will then last you till you reach the age of 77 years.
But here’s what you need to be aware of: Can you save more and, more importantly, have you provided for your other financial commitments? How do you meet all your financial needs?
The investment strategy and asset allocation can be based on your risk profile—risk appetite and capacity. Your age, income status and the need of funds is taken into account to assess risk capacity.
You can start with systematic investment plans (SIPs) in balanced funds; HDFC Prudence and HDFC Balanced funds are good options. You can also consider hybrid funds, where Franklin Templeton India Dynamic PE Ratio FOF is a good option. As the name suggests, balanced funds are a combination of equity and debt and have exposure in equity assets of not less than 65%. The remaining is invested in debt securities, giving stability to the portfolio.
Make sure you have adequate life and health insurance.
Surya Bhatia is a certified financial planner and principal consultant, Asset Managers
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