Is Winter Coming?

2023 is poised to be a year filled with ups and downs for the average Indian millennial in terms of income and financial certainty. While recession has not hit home yet, the post pandemic professional does not want to be caught off guard if, and when, the reverberations are felt. It is also the generation that is yet to enter the wealth accumulation phase, unlike Gen X. In such a scenario, it can seem tempting to opt for liquidity in hand and push back on investments that demand long gestation.

The Need for Discipline

Only, the reverse stands true – as the gap between primary retirement and life span keeps increasing, staying consistent can ensure an adequate corpus for future recessions. Continuing to invest rather than holding on to higher cash liquidity is especially important in the case of long-term investment products such as NPS; they offer the option of linkage to equity markets and deliver optimum returns when:

• Investors start small but early to experience the impact of compounding
• One remains invested through multiple cycles
• Investors make regular investments to benefit from the law of averages

The Inflation Factor

For a generation that has witnessed their parents and grandparents find comfort in fixed returns only to see them eroding in the wake of high inflation, making decisions around long-term investments certainly does not come easy. In this context, greater knowledge around instruments such as NPS that offer the flexibility to switch between equity, debt, and government securities can lead to more confident decisions even during economic uncertainty. It can help prioritise products that have a track record of beating inflation, and yet, offer the option for switching to fixed returns, just in case.

The NPS Advantage

Investing in an instrument such as NPS throughout the ups and downs in the economy can be beneficial for the Indian investor in more ways than one - it can offer high flexibility in terms of portfolio diversification, bring down tax liabilities, and help stay on the path of retirement and pension goals; the last is especially critical when we consider future retired selves’ financial security , and the inevitability of future recessions and economic down cycles.

Hence, while cash liquidity or investments with high liquidity can seem important in 2023, distinguishing between a buffer budget and fear-based decision making can be equally critical.

Views are personal: The author – Kurian Jose is the CEO of Tata Pension Management Private Limited.

Disclaimer The views expressed here in this article is for general information and reading purpose only and does not constitute any guidelines and recommendations on any course of action to be followed by the reader.
The views expressed are of the author and are personal. Tata Pension Management Private Limited (TPML) may or may not subscribe to the same. The views expressed in this article are in no way trying to predict the markets or to time them. The views expressed are for information purposes only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and TPML will not be liable in any manner for the consequences of such action taken by you. There are no guaranteed or assured returns under any of the schemes managed by TPML. All investments in Pension Funds and Securities are subject to market risks. NAV of Funds may go up or down depending on factors affecting securities markets.