Planning Your Retirement? Here’s How to…
08 Jun 2017
Nutan Gupta
New Page 1
Prolonging a plan that would determine the way you live the rest of
your life is nothing but your short sightedness. Carpe diem! As a way of living is fine
but considering the need to save for your future is also a part of your present day
living. Youth today do not give in much thought on saving for the future because they have
lived with their parents, grandparents living a life of frugality and have constantly
heard their boring talks throughout on saving in stocks, mutual funds and bonds and are
now done with it. The young today want to live a luxurious life without compromising on
their dreams of flashy cell phones, expensive cars, designer clothes, accessories and
exotic travel ideas. Living in the moment is what they preach and the path to planning
their secured future through savings is a difficult idea for them to process. There are
many options to live your life, likewise there are many options to go on saving without
pushing it to "you know one day on the right time", saying. Instead of
daydreaming about your non-existent hypothetical future, start saving for your future and
taking appropriate actions today.
Retirement Planning in India is not an easy job at all. There are a plethora of options
to opt from but the slow economic growth, rising inflation and RBI’s changing stance
exceeds confusion and makes retirement planning a daunting and overwhelming task.
We make the choosing process easy by defining the different retirement products
available for investment in India. Retirement is divided into two phases –
Accumulation and Distribution. Accumulation period is the phase where an individual
accumulates the amount required for people’s post retirement needs. Distribution
period is the phase where the accumulated amount over the years is distributed well to
ensure your post retirement needs are well looked after. 5 financial products for
investment for your pre-retirement and post retirement period are:
1) NPS: New Pension Scheme or NPS is an ideal retirement product as for the last four
years the pension scheme is providing an annual return of 10% to all individuals across
the country. NPS provides tax relief under the section 80C.
A thing to remember while investing with NPS is that individuals are bound to purchase
annuity 40% of the amount accumulated at the time of retirement. It is advisable to use
the pension calculators from Govt. of India to calculate the basic and family pension
commuted.
2) EPF: Employee’s Provident Fund is definitely the most popular retirement saving
instrument which salaried class just cannot manage to escape. Though EPF was constituted
and brought into action as a retirement product, it does not seem to be so for the
salaried class today.
The Provident Fund allows employees to attain a tax rebate of up to Rs 1 lakh under
section 80C and also gives an interest return of 8.5% p.a. Interest attained from EPF has
been made tax free and withdrawal is also tax free if there is continuous service of 5
years.
For those who invest in EPF, it is advisable to remain invested in this scheme even after
opting out of a job from one company as this would allow you to reap benefits with the
power of compounding interest in the long run.
3) Equities: You can invest in any of the financial products that you want to but none can
guarantee and match the returns of Stocks and Mutual Funds. It is advisable to invest for
a minimum of 10 years while investing with Equities. However, in the long run you can
review the growth of your investment and switch to better performing products if you are
unhappy with your investment’s performance. Mutual funds offer the option SIP-
Systematic Investment Plan to help you get disciplined about saving for your retirement.
Equity products are tax free after 1 year of investment.
4) ETF: Exchange traded funds is a good option for saving for your retirement. You can
invest in ETF through Index or Gold and the units of these can be purchased every month
ensuring the benefit from cost averaging and avoid investing in bulk and entail the risk
of timing the markets.
5) Bonds: Bonds are papers issued by a company or the government on the exchange of loan
money taken from you. They offer you an interest as return on the loan principal taken
from you. There are numerous bonds available for investment such as IIFCL tax free bonds,
HUDCO bonds, inflation bonds, etc.
These bonds are of 10 to 15-year duration and offer an interest rate of up to 10-12%.
Some of these bonds offer interest rates more than 10-12% p.a.
After reading this don’t sit over the plans, take an action and start investing
now.
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New Pension Scheme
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Employer Provident Fund
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Equities
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Exchange Traded Funds
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Bonds
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Interest Return
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10% since the last 4 years
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8.5% pa
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Depends on the Market Price
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Depends on the Market Rate on the Day of Selling
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10-12%
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Tax Rebate
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Relief provided
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Up to 1 lakh
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Tax free after 1 year of investment
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-
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Tax free bonds available
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Time Duration
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Long Term
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Minimum of 5 years to receive benefits
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Minimum 10 years
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No fixed time
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10-15 years
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