Plan For Your Retirement Wisely !

Santosh Tiwari
AU Mutuals Financial Planners





The post-retirement phase is seen as that golden period of life when one can fulfil one’s pending dreams and aspirations. However, the present lifestyle makes it challenging to save enough for those golden days. Considering the absence of a universal social security scheme in India presently, it becomes imperative to have a healthy financial cushion for the retirement period. Here are a few investment options that allow you to accumulate wealth over your working life:

1. Employee Provident Fund – For a majority of the  population, a proper retirement plan has traditionally been limited to provident fund contribution. However, frequent job changes by employees often result in the withdrawal of accumulated PF balances and,consequently, the dilution of the retirement corpus.

2. Public Provident Fund - People working in unorganized  sectors and self-employed professionals have an option to contribute upto Rs. 1.50 lakh every year into the Public Provident Fund (PPF) accounts. To incentivize people to invest in PPF accounts, the interest on such accounts is tax-free. However, the voluntary contribution into PPF is used by rather a small number of subscribers.

3. National Pension System (NPS) – Barring few  exceptions in the country like armed forces, the pension one may get is based on the accumulated corpus in NPS schemes. The investors can purchase annuity schemes post-retirement, out of the accumulated corpus. NPS is open to ordinary citizens as well, but without any contribution by the government.

Besides EPF, PPF, and NPS, other schemes which have formed a part of retirement saving for Indian households are deferred annuity schemes from LIC and other private life insurance companies, post office schemes like term deposits, recurring deposits, bank fixed deposits, bank recurring deposits, bonds, corporate fixed deposits, direct stocks, etc.

Using Mutual Funds for Retirement Planning : Mutual funds offer a wide range of schemes suiting varied risk profiles and financial goals. For retirement planning, equity-oriented schemes can help beat inflation by equipping the investors with a potential of higher returns. Even after 10% long term capital gain tax on equity mutual funds,the historical performance of equity-oriented schemes looks compelling and may be considered for retirement savings. Other funds like hybrid equity schemes and Equity Linked Saving Schemes (ELSS) too have the scope to deliver higher tax-adjusted returns and may fare better.

Systematic Approach to Retirement Planning : The first step towards effective retirement planning is to quantify the retirement corpus required which must be calculated based on remaining years to retirement, monthly expenses at current prices, expected future inflation, expected return from the investments over the period and existing investment portfolio,if any.



Retirement Funds : Fund houses have also launched certain solution-oriented schemes aimed specifically towards retirement. Such funds come with a lock-in period of 5 years and,further, many of these funds have an exit load before the investor attains the age of 60 years to discourage early withdrawals from the scheme. It brings a sense of financial discipline into the investors’ lives, as they continue to invest towards their financial goal and, further, they tend to stay invested for longer periods. However,the investment decision must be made on the product's merits. The historical data for such funds is quite limited, as the category is relatively new for the investors. However, the limited data reflect the following returns from retirement funds: Retirement Funds: 5 years/ 10 years Top Performance: 18.48%/ 11.56% Category Average: 13.73%/ 11.08 As such, the portfolio aimed towards retirement planning must be diversified with different categories of investment and should consider a higher allocation towards diversified schemes with superior performances across different periods. Systematically investing through SIPs with a disciplined approach and periodic review can be an effective way to build a healthy retirement corpus.

The above views are of Ajit Singh & Santosh Tiwari, AU Mutuals Financial Planners