Skip to main content

Avenues to plan retirement corpus

Retirement planning need not hinge on a single option. A basket of instruments can do the job


   As you read reports of surging inflation, you begin to wonder if you have enough in your kitty. With many people not used to the habit of retirement planning, the concept is still the last item in the list of things to do. So, if someone gets worried and starts thinking about postretirement life, it is not completely out of place.


   Technically, post-retirement life begins any time after the age of 50 and it is also reflected in the vesting period fixed by many insurance companies. In recent years, however, many individuals have begun to advance this figure by a couple of years due to a number of factors. It could be the dream to start an enterprise or the comfort of a kitty at disposal. While the former may still provide some regular source of income, the latter is technically a zero income period and hence requires greater planning.


   The retirement planning in itself can be divided into a number of components as the general assumption is that an individual has at least a couple of decades to plan for this eventually. While the sum needed for the rest of life is not an easy figure to arrive at, one can take up the process as early as possible. Since income levels too change over a period of time, the allocation can vary for the better over a period of time. Hence, a plan or scheme signed up at the age of 30 need not be the end of all when the investor turns 50.


   One of the good things about retirement planning is that it lets you do the investment over a long period of time. For instance, a parent does not have the luxury of building a corpus for a car purchase beyond 3-5 years and so is the case with planning for a child's future. For instance, a parent cannot think of setting aside a sum for a child's education beyond 20 years. On the contrary, an investor can build a corpus over a period of 30-35 years for his retirement kitty if he thinks about it early.


   There are plenty of options for retirement planning and some may not carry the tag too. For instance, an investment in land or property can take care of retirement needs through their sale. On the other hand, there are also flexible products like stocks, systematic investment plans (SIPs) and pension plans which can come in handy after retirement. The choice of products and allocation has to be according to the comfort of the investor and his financial position. More importantly, one has to keep in mind the flexibility and tax implications of each product as they can have a greater impact over a period of time.


   Among some of the options mentioned, the pension plan has lost flexibility because of restrictions imposed by the regulator, Insurance Regulatory and Development Authority. Now, pension plans come with guaranteed returns. This is a big plus but they have lost flexibility. More importantly, they also carry life cover and hence may not be suitable for all. Earlier, even a 50-year-old could think of a pension plan with a high premium paying term of five years. Now it is not the case as they have a minimum paying period of 10 years and because of life cover, can prove expensive. In a number of products, the premium is directly correlated to the life cover and hence an investor cannot call the shots.


   But the positive aspect of the new pension plan is that it forces the investor to think long-term and is particularly advantageous for young investors. For instance, a 30-year-old gets the advantage of life cover and pension with a single product and because of his age, the mortality rates too aren't high.


   While no single product can do the job of pension planning, a combination of products can definitely do the job. Investors can have a basket of products for their retirement portfolio by opting for equity, debt, pension plan and property among others. More importantly, they have to monitor the performances and shuffle the portfolio at regular intervals.

 

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now