Five Best Investment Options For Retirement :

Retirement is probably the most neglected goal and ironically also the most important one too. It is one goal where you have got rewarded for your hard work put in all those years and waiting to enjoy the fruit. Despite the galaxy of products available in the investment universe, there seems to be sheer confusion with respect to picking products for retirement. EPF probably has been the only saviour in this space. Being a mandatory deduction, there is a common perception that EPF corpus would enough to secure the post retirement life. However, without any other investment, this corpus is unlikely to suffice one's retirement needs. So, what other investment options are available for someone planning for retirement or already into it? What are the steps to be taken while planning for retirement? Let's check out:

Step 1:

• Decide your monthly expenses.
• Decide how much you would be spending on your leisure trips and vacations.
• Decide what corpus is required to support your child's marriage or any other purpose if required.
• Decide if your current insurance is enough or you seek further coverage for Health and Life.
• Decide on the Emergency Fund that you would like to keep aside for unwarranted circumstances

Step 2:

• Although it is advisable to not take risk, for investment it is important to define your risk appetite.
• With risk, you also need to define how much you want to earn on your investment.
• Also define the tenure of investment and requirement of Cash flows in terms of Monthly, Quarterly, Half-Yearly, Annually, or After a specified period (like 3 years or 5 years)

Step 3:

Based on the defined objectives, pick Investment Products that suit you the MOST.

Here are five investment options you can consider for this crucial goal:

1) NPS

• New Pension Scheme or NPS has been the trending product ever since launch.
• It provides you the flexibility to invest as per your risk appetite and also to choose the fund manager.
• You can choose to invest up to 50% into equity.
• 40% of the NPS corpus withdrawal is tax free.
• It is one of the cheapest products available.
• You can avail tax deduction up to Rs. 2,00,000 u/s 80CCD and additional deduction for employer contribution with no upper limit.

2) Fixed Deposits

• Apart from banks, companies also offer FDs of various tenures such as 5,10,15 and so on.
• The rates on offer are generally higher than the rates offered by Banks.
• These instruments can be considered based on their rating, interest rates and the cash flows.
• The corporate fixed deposits are available for various tenures with Interest being paid Monthly, Quarterly, Half Yearly, Annually or at Maturity.
• Investors looking at regular cash flows and interested in fixed rate of interest can invest in these deposits.

3) Tax Free Bonds

• Tax Free bonds are bonds raised by Government entities for realizing certain objectives.
• These are very long term in nature.
• The interest rate offered is benchmarked to the similar tenure government papers.
• The interest earned on these is tax free irrespective of the investment amount.
• Every year Government gives permission to organizations to raise money based on the requirement.

4) PPF

• Public Provident Fund is one of the very few investment options which come with EEE benefit i.e tax deduction on investment, tax exemption on interest and tax exemption on maturity amount as well.
• The tenure is 15 years with option of extending it in blocks of 5 years.
• Currently, the interest rate is 8.8% p.a.
• It gives the flexibility to invest any amount in the year, with maximum limit of Rs. 1.5 lakh per year.
• It is also one of the safest products.

5) Mutual Funds

• A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
• By investing in Mutual Fund one can have benefit of diversification apart from being managed by Professional, thus one need not track markets.
• It is regulated, so the investor interests are protected.
• It also offers flexibility of choosing from various categories like Equity, Gold, Debt and Money Market. Most schemes being open ended, they also offer liquidity.

Final Word

Whatever products you choose from these, make sure you do that as per the investment tenure and your age. When goals are near, equity needs to be avoided and there is a need to shift to debt oriented products.

Information Courtesy : Karvy Value Blogs