What is a Retirement Plan?
Retirement plans are types of investment vehicles that allow you to accumulate a portion of your savings over the long term so that you can use these funds post retirement. These plans help you effectively manage financial uncertainties to ensure a steady flow of income. While investing in a retirement plan in India, you have to contribute a certain sum regularly until you retire.
Why is a Retirement Plan Important?
Retirement period is often considered a golden period for individuals. It is that period of your life where you will have ample time to enjoy life. However, it is only possible if you plan your retirement well in advance and have enough funds to support you throughout your retirement.
How to Plan Your Retirement as an NRI in India?
As an NRI, choosing your retirement location, whether in India or abroad, is the first step in planning your retirement, as it helps determine your cost of living. Consider factors such as current living expenses, inflation rates, and life expectancy in your chosen country.
Your retirement fund should cover your desired lifestyle, your dependents' financial needs, healthcare, and emergency expenses.
Retirement planning has two key phases:
- Contribution Phase – This phase involves regularly contributing to investment schemes till you retire.
- Distribution Phase – This phase involves tapping into those savings and using them to live a comfortable lifestyle.
Why Choose NRI Retirement Plans in India?
There are various benefits of NRI retirement plans in India. Given below are some of them -
- Portfolio Diversification - Investing in India can help investors build a diverse and global portfolio. Spreading their investments across global markets can reduce the risk and also provide them with an opportunity to hedge for exchange risks.
- Build a Retirement Corpus - Many NRIs plan to retire in India as they want to stay connected with their roots. Investing in India can help them build a retirement corpus, helping them spend their golden years here.
- Tax Benefits - Most NRI retirement plans provide tax benefits in both India and the Country of Residence.
- Flexible Contributions and Withdrawal Options - NRI retirement plans in India have flexible contribution and withdrawal options. These plans can be chosen to align with individual saving strategies and to accommodate retirement goals and financial circumstances.
NRI Investment Options for Retirement in India
NRI retirement can be divided into two phases - the Contribution phase and the Distribution phase. There are various investment options that NRIs can choose to invest in during the contribution phase. Let’s have a look at the investment options available for NRIs in India -
Contribution Phase
- Equity-based Investments - Depending on your risk appetite and investment horizon, you can invest in stocks/shares or mutual funds. To invest in equity instruments, you need a Portfolio Investment NRI Scheme (PINS) based Non-resident external account or Non-resident ordinary (NRO) account linked to your NRI Demat account. Also, as per the RBI guidelines, NRO accounts are redesignated as regular NRO bank accounts. NRIs are not permitted to conduct intraday trading on equity shares. However, they can invest and trade in F&O but not in currency derivatives and commodities.
- Fixed Income and Debt-based Investments - If you want stable returns, you can invest in term deposits such as NRE/NRO/FCNR/Fixed deposits/Government Securities.
- Gold - You can invest in gold through various options like physical gold, gold Exchange-Traded Funds (ETFs), gold mutual funds, and digital gold. However, NRIs are not allowed to invest in Sovereign Gold Bonds (SGBs).
- National Pension Scheme - The National Pension System (NPS), also known as the National Pension Scheme, is open to both Resident Indians (RIs) and Non-Resident Indians (NRIs). However, Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs) are not eligible to invest in NPS.
NRIs can invest only in NPS Tier-I accounts and are not permitted to invest in NPS Tier-II accounts, which are exclusively available to resident Indians with active Tier-I accounts.
NRIs aged 18 to 60 years can join NPS, provided they meet Know Your Customer (KYC) requirements. They must have a valid Indian passport, Aadhaar, or PAN card, and their mobile number should be linked to Aadhaar/PAN.
- Alternative Investment Funds - Alternative Investment Funds (AIFs) enable investors to invest in hedge funds, private equity, venture capital, and other asset classes. You can invest in Category I, Category II, and Category III AIFs.
- Real Estate - As an NRI, you can invest in residential and commercial properties in India. However, you are not permitted to buy agricultural land, plantation property, or farmhouses.
You can also consider investing in Real Estate Investment Trusts (REITs). It is a great way to invest in the real estate market without directly owning property. NRIs can gain exposure to a diversified portfolio of real-estate income-generating assets by investing in REITs.
Distribution Phase
The distribution phase is when you start accessing your retirement savings. The focus shifts to ensuring safety, liquidity, and returns (SLR) while minimizing risk and maintaining easy access to funds for ongoing expenses. However, it’s essential to invest your retirement corpus wisely to beat inflation and generate a steady income.
Investment Options for the Distribution Phase:
- Annuity Plans – Insurance-based retirement products that provide regular income either immediately (immediate annuity) or at a later date (deferred annuity).
- Pension Plans – Annuity plans that offer regular income along with life cover for your family in case of an unfortunate event.
- Fixed-Income & Debt Instruments – Options like NRE/NRO/FCNR(B) Fixed Deposits, Government Securities (G-Secs), Corporate Bonds, and Debt Mutual Funds can help ensure stable returns with lower risk.
Things You Must Know as an NRI Retiring in India
If you retire in India, your residential status will initially change to Resident but Not-Ordinarily Resident (RNOR). After two to three financial years, you will transition to Resident but Ordinarily Resident (ROR).
Additional Investment Options for RORs:
As an ROR, you can invest in instruments that were not available to you as an NRI, including:
- Fresh contributions to a PPF account
- Tier II NPS investments
- Sovereign Gold Bonds (SGBs)
- Agricultural land, plantation property, and farmhouses
- Intraday trading in stocks/shares
- Trading in currency derivatives and commodities
Are you an NRI planning to enjoy your retirement in India? If yes, then investing in India can be a great option for you. However, with so many investment options, choosing the best one for your needs can be challenging. If you are also unsure of which investment option to choose, Tax2win’s experts can help you find the most suitable investment for your needs. Book an online CA now!
