You will never get a loan to fund your retirement, says Ajit Menon of PGIM India Mutual Fund

Retirement tops the agenda of ETMutualFunds.com readers. We receive several queries on our official Facebook page everyday on retirement. That is why PGIM Indian Mutual Fund Retirement Readiness Survey 2020 is extremely important to us. We reached out to Ajit Menon, CEO, PGIM India Mutual Fund, to find out his responses to the survey and how he plans to bridge the gap. Edited interview.

What was the reason for commissioning the survey?
The reason why we commissioned the survey is because we as an asset manager believe that the future us going to be dependent on solutions, and not products. Retirement is an area of concern globally and in India as well. We wanted to get an understanding of what people are thinking, what their attitudes and anxieties are, so that it we have a better understanding of the products they need. We also would want the advisors to be informed about the findings, so that they can help the investors and for us to make better policies and products towards retirement.

The findings are a matter of concern for the country. An army of old people ill prepared for retirement can be a challenge for the economy.
There are causes of concern and some things to be happy about as well. Our study shows that 49% of people are thinking and planning for retirement and that is a reasonably high number. On the other hand, 51% of people are doing nothing about it. That is a concern. Among the 49% people who claim to have a plan, our survey also suggests that people are often confused about the number, the corpus they would need after retirement. People don’t know how to compute it and that is one aspect of the problem. Second aspect of our survey was that people like to plan for happy goals, like travel, education etcetera, or unforeseen events like health issues. For some reason, retirement is seen as an unhappy eventuality. That’s why we at PGIM India want to term this goal as financial freedom. You can achieve financial freedom anytime and at any age.

Another aspect is that millennials believe that they are going to work forever. They don’t believe in the old school idea of retiring at 60 and sitting home. They want financial freedom so that they can pursue their passions and interests. They don’t want to be anxious about their primary income.

The confusion about the quantum of corpus, right investment vehicle… it seems, financial players, including mutual funds, have their task cut. How do you plan to address this?

We would want to train as many of our financial advisors as possible for them to focus on this aspect a lot and get people to think about it. The activity that we have already undertaken is that we do a retirement readiness certification for financial planners.

Secondly, we try to reach out to people on social media through our writings and interviews. We communicate to investors that you have to have certain thumb rules for calculating the corpus. To be conservative, investors should take 30 times their annual expenses on your year of retirement. That is one way of doing it.

Some say it can be 20 times. Why do we ask investors to be conservative and take 30 times the expenses as corpus, because India doesn’t have social security like European countries. Our survey suggests that one in five people think of inflation as an impact on their retirement corpus. That is one area people need to really think about.

For example, if inflation is 5% and you use the rule of 72 as a thumb rule, then 72/5 would mean 14.4 years or around 15 years. That means an amount at 5% inflation will double in that much time. In other words, an annual expense of Rs 3 lakh will double to Rs 6 lakh in 15 years and double again to 12 lakhs in 30 years. So, a person at 30 retiring at 60 would have his current annual expense of Rs 3 lakh become 12 lakh. He would need 30 times of his living expense – so his retirement corpus should be around Rs 3.6 crore.

One thing that I want to specifically tell people is that retirement is the only goal of your life that you will never get a loan for. You will get loans for education, travel, personal loan, home loan, car loan but not for retirement. That’s why it becomes important to invest timely.

Mutual funds do not figure in the list of preferred retirement funds avenues. Do you think it can be changed, considering the industry has already run a successful campaign in the last few years?
The percentage of people investing in mutual funds is twice among those who have a retirement plan versus those who don’t have a retirement plan. India has been a ‘guaranteed return’ country for a long time. It is a recent change that investors have started to look at products like mutual funds. I think it will take some more time for investors to fully accept the fact that mutual funds are a better choice with the transparency and return generation. It will take more awareness, but the shift is happening slowly.

Retirement is not on top of mind for regular investors. We have products like retirement funds and NPS etc, but investors don’t plan it properly. Many investors in our survey said that they are investing for a corpus which if not used for another goal will be used for retirement. So, they want to make a corpus first and then decide which goals it will be used for. Most investors only save for retirement only when they have a surplus from other goals. Income is also a crisis in India. Most people spend all their income on necessities.

Many urban investors are already investing via equity mutual funds to achieve long-term goals. However, the survey fails to capture this. Why?
People don’t necessarily think about retirement when they are putting the money in mutual funds. The common trend is that we are building a common corpus for a lot of goals. PGIM India as a global asset manager believes that investors should think about retirement as a goal separately and prioritise it as well. Don’t think that if your children fund their own education then you will use that money as your retirement corpus. That is a wrong way to go about it.

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