The most vital planning that one needs to design is how to secure his/her retired life. Everybody will undergo this crucial stage of life, but, if you plan for the same in a better manner, your retirement life can be smoother. Especially in India, since the economy is highly dynamic and there are so many products which claim to provide you financial security even after you retire, you have to be well informed about the product/s in which you can invest to build the retirement fund.
Through this post, we intend to share various retirement products available in India for investment. Planning for retirement involves two aspects – Aggregation and Allocation. Aggregation aspect involves amassing sufficient funds for retirement. Allocation is the process through which the aggregated funds are deployed into investment vehicles to enable maximum to the invested amount. Some financial products that can help you plan better for retirement are as follows:
Provident Fund
This is the most renowned investment option in India. This scheme offers the investor to invest while they are earning. Basically, there are two types of provident funds – Public Provident Fund (PPF) and Employee’s Provident Fund (EPF). Investment in PPF can be done by Individuals and HUFs (Hindu Undivided Family) in India, irrespective of salaried or self-employed. The current rate of interest under PPF is 7.80% p.a. (compounded annually) and the amount can be invested in a lump sum or in 12 installments annually up to Rs.1,50,000.
EPF accounts are for salaried individuals who need to contribute a certain portion of their salaries each month towards this scheme. A similar amount of contribution is also made by the employers towards this scheme. A rate of interest in EPF scheme is approximately 8.65% p.a.
Investment in approved provident fund schemes also allows the investor to avail tax deduction benefits under Income Tax Act, 1961 under section 80C up to a maximum of Rs.1,50,000 annually. Besides, interests on provident funds are entirely exempt from tax.
New Pension Scheme
NPS is available to all individuals across the economy. Enrollment in NPS is mandatory for government employees. No specific rate of interest has been set for NPS; this scheme invests the accumulated amount in several investment options like blue-chip securities, g-sec bonds, etc. The funds are managed by professional experts known as fund managers, who manage the funds in favour of the investors to yield maximum returns. Averagely, NPS scheme earned interest rates up to 13%.
Alike PF schemes, NPS also provides tax deduction under section 80C for the amount investment made by the investor.
Equity investments
Most favourite and highly resorted investment channel for earning handsome returns among the new-gen investors are investments in equity through the stock market or mutual funds. Though risky, this sector has shown miraculous performances in the past, including windfall gains and creating millionaires. Stocks and mutual funds demand long-term investments to exploit every scope in the market for multiplying the corpus of the investor. Since the capital market is volatile in nature, the investor needs to understand his risk appetite before investing in this sector. If planned diligently, you can redeem in multiples of what you invest.
Mutual funds offer easy investment options by way of Systematic Investment Plan (SIP), in which the investor can invest stipulated amount each month towards a fund for certain time period, say for 15 years. Depending on the type of fund, a range of returns varies from 12% to 18% per annum. A mix of equity and debt securities provide a secure investment option to an investor.
As stated earlier, this investment channel involves substantial risk; you need to monitor the progress of your investments frequently in order to avail the ample opportunity of switching funds or securities which offer best and secured returns. Returns are provided in form of dividends. Dividends and the long-term capital gains realised on redemption of such funds and equities are allowed an exemption from tax.
Bonds
Bonds are issued by the government or a company for procuring funds from general public to fulfill their financial requirements. The borrowers pay interest on loans to the investors.
Various bonds are available in the economy such as infrastructure bonds, capital gains bonds, tax-saving bonds, inflation bonds and etc. These bonds provide several tax benefits to the investors. Normally, these bonds are for long-term say 12 to 15 years and offer interest rates approximately 9% to 11% compounded annually.
The above stated are the products which provide the means to plan for retirement which one is earning. But in order to establish a regular source of income even after retirement, you still have some backup plan.
There are some schemes of investments which can generate regular income after retirements such as Monthly Income Scheme, Pension Plans, Fixed Deposits and etc. Let’s discuss these in detail.
Monthly Income Schemes (MIS)
MIS facilities are provided by banks, post offices, to provide secured and fixed means of monthly income. Under such scheme, you have to invest a lump sum which will yield monthly interest and the interest can be withdrawn by the investor. The rate of interest is approximately 7% p.a. with a maturity period up to 5 years.
Pension Plans
Mutual Funds and Insurance Companies offer facilities of Pension Plans. The investor needs to invest a certain sum under this scheme, the policy offers semi-annual or annual returns to the proposer or co-proposers of the scheme throughout his/her lifetime and after the demise of the Proposer(s), the sum shall be paid to the nominee of the policy. The rate of return under such pension plans is nearly 7% p.a. The amount of investment is allowed as a deduction for tax purposes to the investor.
Fixed Deposits
FD’s provide more liquidity than any other mode of investment. You can liquidate your fixed deposit in case of financial distress with much ease. The entire sum is redeemable before the maturity of the deposit along with minimum interest amount. FD’s are more flexible in terms of duration. Certain FD’s provide tax benefits. The rates of FD’s are very dynamic. Banks, companies and post offices offer fixed deposit facilities.
The insight is, there are products to secure your rainy days, yet an ideal planning is said to be essential for sustaining the same lifestyle standards. Therefore, healthy advice always consists of words like “start early”. The sooner you start, the lesser you would have to compromise on the amount you set aside by not making it too big.
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