When it comes to planning for your retirement, there are a number of financial instruments that you can invest in to help you build your retirement corpus.
Let us look at a few of these debt as well as equity instruments.
Debt Options: In terms of the rate of return, the Employees’ Provident Fund (EPF) is at the top of the list. The prevailing rate of return is 8.10 per cent per annum, and it qualifies for tax deductions up to Rs 1.5 lakh under Section 80 C of the Income Tax Act, 1961. It also enjoys the EEE tax status, which means the returns are also exempt from tax deduction.
Next is the Public Provident Fund (PPF). It offers the same benefit as EPF. One can invest anything between Rs 500 and Rs 1.5 lakh per annum to keep it operational. The prevailing rate of return is 7.10 per cent, and the rates are announced every quarter.
Equity Options: If you are working towards building your retirement corpus, it is imperative that you start investing in equities early on to give your portfolio the longer time duration it needs to grow to a decent size. No other instrument can match the returns provided by stocks and equity-related instruments, such as mutual funds.
“Building a retirement corpus is a long-term objective, and involves our entire working life. Moreover, in view of inflation, we must invest in a portfolio of assets that compounds over a period of time and creates wealth,” says Ramamurthy.
One could choose between plain-vanilla equity schemes or solution-oriented retirement funds as part of the equity component of retirement corpus.
NPS: The retirement solution provided by the central government offers a combination of both debt and equity depending on one’s choice and age. It provides tax deduction up to Rs 1.5 lakh under Section 80C and an additional deduction of Rs. 50,000 under Section 80CCD (1b).
“NPS is tailor-made for retirement. It also gives additional tax benefit to the investor and the employer. Its compulsory lock-in and stringent withdrawal conditions impose discipline on the investor,” says Col. Sanjeev Govila (retd), an investment advisor registered with the Securities and Exchange Board of India (Sebi), and CEO, Hum Fauji Initiatives.
That said, there some drawbacks too.
