Post-retirement planning is vital as people require a decent corpus of money to lead respectable life after they hang up their boots. The goal of the smart investment is to create a bigger corpus with limited income.
Retirement planning is no different. Sound financial planning can ensure a steady flow of income in post-retirement years. There are multiple avenues available in the market that can help in generating wealth for a successful retired life. Products that involve minimum risk must be chosen, as at the age of retirement, people want an assured income, according to experts.
As building a robust corpus is essential, one must start from a young age. Lakshmi Iyer, chief investment officer, (debt) and head – products, Kotak Mutual Fund, said it is essential to plan investments in advance to get to a steady flow of income in post-retirement years.
To develop a comprehensive retirement roadmap, one should analyse the financial objectives, current financial position and expected future cash flow.
Here are some of the investment options that can be considered for leading a tension-free life post-retirement:
Fixed Deposits (FDs)
Fixed deposits, also known as term deposits, are one of the best options for people looking for an assured income after retirement. FDs are offered by commercial banks, small finance banks as well as non-banking financial companies (NBFCs).
“Bank FDs are a good form of investments. It provides regular income, is safe and in case of emergency it can be immediately encashed,” said Ashok Shah, Partner, NA Shah Associates. “Though the return is slightly low, it makes up by liquidity,” he said.
One can even invest in PPF, which offers an EEE (Exempt-Exempt-Exempt) tax status. It has a lock-in period of 15 years. The maturity amount and the overall interest earned during the period of investment are tax-free.
“Periodic investment in (PPF) for a long-term can do the trick with the power of compounding. One can only invest Rs 1.5 lakh in PPF in a year. It gives one of the highest returns among the safest fixed income products,” said Suren Kochhar, senior president, head of sales & marketing, YES Asset Management (India) Limited.
National Saving Certificates (NSCs)
NSC is another post-office-based savings scheme that offers good returns and are a safe form of investment. NSC gives an interest of 8.1 percent currently. Investment is eligible for 80C benefit but interest is taxable.
Senior Citizen Savings Scheme (SCSS)
An investor can park money in SCSS after attaining the age of 60 years. Also, an individual who has opted for the Voluntary Retirement Scheme (VRS) is eligible to invest in the scheme from the age of 55 years. SCSS offers tax benefits under section 80C of the Income-Tax (I-T) Act.
National Pension System (NPS)
In NPS, a government employee contributes towards pension from monthly salary along with matching contribution from the employer. The funds are then invested in earmarked investment schemes through Pension Fund Managers. A subscriber can also continue to contribute to NPS account beyond retirement (up to 70 years) and avail additional tax benefit on the contribution.
According to Kochhar, NPS is a highly beneficial scheme as it allows one to develop a significant fund for the second innings of life. “One can claim any additional self-contribution (up to Rs 50,000) under section 80CCD(1B) as NPS tax benefit,” he explains.
Taxable and Tax-Free Bonds Issued by Institutions
According to Shah of NA Shah Associates, taxable and tax-free bonds provide liquidity as they are quoted on the stock exchange. “If you are in high taxable income bracket, tax-free bonds are a good option. However, if the rate of interest goes up, there could be some capital loss,” he explains.
Equity Linked Savings Schemes (ELSS)
According to Kochhar, ELSS funds score over their traditional counterparts in terms of the superior tax efficiency of their returns. ELSS comparatively has a shorter lock-in period and their better odds of helping create long-term wealth.
Monthly Income Plan Mutual funds
Monthly Income Plan (MIP) mutual funds invest primarily in debt and equity securities with an aim to provide a steady stream of income in the form of dividend and interest payments, making them attractive for retired people or senior citizens who do not have sources of monthly income.
Sebi registered investment advisor Jitendra Solanki said MIP mutual funds are good options to invest by retired people, as they give steady monthly income flow.
According to Solanki: “Systematic Withdrawal Plans in mutual funds can be a great investment option for senior citizen. One who has created a good sum of money by investing in equity mutual funds can invest that money in MIPs which give them a steady monthly income. Risk is also moderate.”
If an investor stays invested for over three years, then they have to pay long-term capital gains tax at the rate of 20 percent with the indexation benefit, he adds.