Clive Fernandes
Auckland, October 9, 2020
KiwiSaver offers equally good opportunities
Image from IRD Website
Many Indians wonder if we should be investing our savings in New Zealand in a vehicle such as KiwiSaver or sending it back to India.
If you are comparing the interest rates in India and New Zealand, it might be tempting to send your money back to India to be saved or invested. But before making a decision on whether you should be saving in KiwiSaver or back in India, we should look at the pros and cons for both.
Difference in interest rates
The current reserve bank interest rate in New Zealand (right axis) is 0.25%, while in India (left axis) it is much higher at 4%. That means, term deposits rates offered by the major banks in New Zealand are very low ranging from 0.10% to 1.85%, compared to India, where some banks are offering fixed deposit interests from 2.25% to 7.50%.
(Graphics supplied by author)
So, money in your bank account in India could earn much higher interest than the money sitting in your bank account in New Zealand, at least right now.
However, we need to see what is happening with the exchange rate too. If the Indian Rupee weakens against the New Zealand Dollar, this could cause the value of your savings in India to drop when calculated in NZ dollar terms. In the long run, you are taking on additional exchange rate risk if you plan on bringing the money back to New Zealand.
Investing in KiwiSaver
Over three million members have been investing their money into their KiwiSaver accounts since it was launched in 2007.
This long-term saving scheme is intended to help you save for your retirement or to buy your first home. It is considered a very safe investment option as most funds are highly diversified and your money is held in a trust, entirely separate from the KiwiSaver provider.
If you are contributing a regular amount of your pay to KiwiSaver, your employer would normally match your contribution up to 3%.
Growing the Scheme
For example, with a salary of $70,000, your employer could contribute $2100 (before tax) to your KiwiSaver account every year. On top of this, there is a government contribution to boost your savings, where the government will add 50 cents for every dollar you invest in KiwiSaver up to $521.43 per year.
Additionally, first home buyers may be eligible to withdraw their KiwiSaver funds and to receive the First Home Grant of up to $10,000.
This grant is intended to help New Zealanders buy their first home.
Choice of Funds
There is no ‘one size fits all’ when it comes to choosing a KiwiSaver fund.
There are various funds to choose from, ranging from cash to aggressive from many different providers. These different funds have varied levels of volatility and expected return; so, you can choose to invest in one which is suitable for your goals.
If it is important to you, ethical or socially responsible investment options are also available through the KiwiSaver providers. For example, a Fund may choose to not invest in weapons, tobacco, and fossil fuels. You can change your KiwiSaver fund and provider at any time, so ensure that you are in the fund that’s most suitable for you.
Where to invest?
Consider your long-term plans, such as the age you are planning to retire and how much you want to save. An important consideration will be whether you plan on living in New Zealand after your retirement or would you be moving back to India?
KiwiSaver is a locked-in investment, but if you decide to permanently migrate back to India, you can withdraw your savings. In such a situation, you are able to withdraw all the money except for the government contributions.
For many people who intend living in New Zealand, it might be a better idea to invest locally and not have to worry about currency exchange rates moving against them.
Ultimately, remember to take your own personal situation and financial goals into consideration before making a decision. A bit of time and resources spent to ensure you are investing in the correct way now, will bring rich dividends to you in the future.
Clive Fernandes is Director, National Capital based in Auckland. He is an Authorised Financial Advisor. Disclaimer: The above article is not intended to be personalised advice. It is general in nature and may not be relevant to an individual’s circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser. A copy of Clive Fernandes’ disclosure statement is available on request and free of charge.
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