When it comes to investments there are some basic rules that need to be adhered to:
- Avoid One-size-fits-all approach
- Allocate assets as per your risk appetite
- Be prepared to alter your plans as per market or lifestyle changes
There are a plethora of investment options available in the market. Saving for retirement is a critical decision and takes a lot of planning. Here are some investment options that you should consider while planning your retirement savings plan:
1. Pension Scheme
In India, the New Pension Scheme (NPS) is a preferred retirement product. Apart from delivering annualised returns, it also provides tax benefit under Section 80C of the Income Tax Act, 1961. Fund managers of NPS are permitted to expose a part of the fund to equity related instruments which are also positive in the long term.
It is important to note that the government has made it mandatory to purchase annuity worth 40 per cent of the corpus at the time of retirement.
2. Employees Provident Fund (EPF)
EPF is one of the retirement saving options in India. The current rate of interest (for the financial year 2015-16) for an EPF account is 8.7% p.a. (Source: Bankbazaar) The rate of interest is subject to change every year, as announced every year by Employees Provident Fund Organization (EPFO). In the case of continuous service of over five years, the interest and withdrawal from EPF are tax-free as well. There are no mandates like purchasing an annuity with EPF. You can transfer the EPF to your new organisation at the time of quitting your job to reap the benefits of compounding.
Stocks or equities can offer good returns like other investment products available in the market. However, picking the right stocks, planning long term and not getting aggressive with your investment are the keys to building wealth using this option. You can also opt for equity funds which allow a SIP for a structured retirement investment plan.
4. Exchange traded funds (ETF)
An ETF is a unique investment tool with features of mutual funds and individual stocks. In India, these are available as Index and Gold funds. Known to be a good option for building wealth, investment in ETFs with Systematic Investment Plan (SIP) benefits from averaging the costs since you purchase units every month. It helps your funds against market fluctuations and mistimed investments.
5. Bank Deposits
Every household in India holds at least one bank deposit. It is a traditionally accepted investment option and while the returns are not high, the risk is negligible.
Apart from the options listed above, an investment advisor would be able to suggest products suited specifically to you by understanding your risk appetite and asset allocation comfort. A successful investment is one which is revisited regularly and updated to stay in sync with the ever-changing market trends. Rising inflation in India and decelerating economic growth require a focused and strategic retirement savings plan. The key to having a good retirement corpus is starting at a younger age. Regardless of the option you choose, start saving early and seek to build wealth.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.