If you are young, deploy most of investible income in equity instruments
RETIREMENT is not only about taking long walks in the evening, gardening or pursuing your hobbies. Remember that you will be without a job and your children may or may not support you at that time. Therefore, it is very important that you plan for your retirement.
While all of us would like to live a tension-free retirement life, the success of it depends on starting early and investing correctly.
Here is an outline on how to plan for your retirement?
First, decide your retirement age. Then calculate your current monthly expenditure. Now ask yourself if you want to maintain the same lifestyle or are ready to compromise on your current lifestyle during retirement.
This will tell you if you require an equal income or are willing to settle for a lesser income in your retirement days. Adjust the money required with an inflation rate of 4-6 per cent per annum till your retirement life. This will tell you the corpus you need to have to give you the monthly income you require to support you in your retired life. You will need the help of a certified financial planner or can even use the financial calculators available on various financial planning websites to help you do the calculation.
Once you know the corpus you require to provide you with the required income over your retirement period, the next step is to know the investment avenues available to achieve your retirement goal.
Investments should depend on your age, risk profile and the period you have for investments. Balancing the portfolio from time to time is a must. The following are the different investment products you can consider during the investment phase:
Mutual Funds investment through SIP: If you are young and have a long time to reach your retirement age, we suggest you initially deploy most of your investible income in equity instruments and as time proceeds decrease the exposure to them.
Equity investments are the best tools in beating inflation in future. Invest 100 per cent of your corpus in mutual funds through SIP when you are young. Once you reach the age of 50 years, transfer your money from equity investments to debt funds.
PPF and EPF: These are the safest investment instruments and carry a tax free investment rate of 8-8.5 per cent. A PPF account can be opened by any salaried or non-salaried individual in any bank or post offices. You can invest any amount between Rs 500-70,000 to keep a PPF account active.
Remember don't dip into your savings, PPF works best because of its 15 year lock in period. EPF also provides a return of 8.5 per cent and comes with no risk.
New Pension Scheme: This requires a minimum investment of Rs 6,000. It offers two investment options -active choice or auto choice.
In active choice, you can allocate your funds across three fund options equity, fixed income instruments and government securities.
However you can invest a maximum 50 per cent of your portfolio in equities. In auto choice, your funds begin with a maximum equity exposure of 50 per cent.
There are two separate accounts--Tier I is the basic account in which withdrawals are not allowed till the age of 60 years. In Tier II account withdrawals are allowed. You need to have a tier I account to maintain a Tier II account. You can join the NPS by approaching any branch of a bank authorised by the Pension Fund Regulatory & Development Authority as a point of presence.
The list of banks authorised to sell NPS are available on the PFRDA website. NPS has fixed the retirement age at 60 years. Once you are of 60 years, the NPS allows you to withdraw 60 per cent of the accumulated corpus while the remaining 40 per cent is given to you in the form annuities.
Insurance Plans: Not many companies are currently offering Unit Linked Pension plans while the traditional insurance pension plans offer low returns. I would not suggest to look at insurance plans to meet retirement goal as they have poor returns. The best instruments are mutual funds through SIP to maximise returns and minimise risk.
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Also, know how to buy mutual funds online:
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Invest in Edelweiss Mutual Funds Online
