When it comes to building a retirement corpus, there are many financial instruments one could consider, including the mandatory provident fund.
That said, there are none that matches the returns of equities or equity-related instruments, basically, stocks and mutual funds. But they also carry an inherent risk, as they are market-related investments. Thus, stock selection, if done without proper research, can lead to devastating results, even wiping out your entire corpus that you have painstakingly built over the years. This is the precise reason why it is advisable to invest in equities through mutual funds, rather than through direct stock investment. Mutual funds are professionally managed, and provides immense help to an investor to build his/her corpus over a period of time for a nominal fee.
Nevertheless, it is important to pick the right funds or schemes that are well-suited to your long-term goal of retirement needs.
The Ground Reality
A survey by Nippon India has revealed that the majority of Indians do not save enough for their retirement needs. The mutual fund industry in India is estimated at Rs 38 trillion, and of this, the assets under management (AUM) in retirement funds accounts for only a meagre Rs 15,000 crore.
Tax Benefit Dilemma
One reason for the lower participation in retirement-oriented mutual fund schemes, according to experts, is partly due to the tax structure and the tax benefits that some of these schemes offer. Some retirement schemes are government notified pension plans that offer tax benefits, while others do not. These schemes, which offer tax-saving benefits to investors, have higher AUM than those that don’t.
That said, it must be noted that the tax benefits attached with retirement funds come under Section 80C of the Income Tax Act. This is, anyway, overcrowded with many products. Therefore, it is advisable to consider other attributes, such as long-term growth, rather than tax benefits, while choosing a retirement fund.
It should always be kept in mind that the main purpose of investing for retirement is to create a corpus that will help you in your retirement years, rather than help you save on taxes now, which you are anyway saving by investing in other multiple product, such as Employees’ Provident Fund, Public Provident Fund, home loan repayment, and so on..
Investing for your retirement is important, as India doesn’t have a comprehensive social security system, and the rising numbers of nuclear families would only mean lesser chances of family support later in life.
To read more about retirement funds and how they compare in Outlook Money’s retirement special package, read here: Pointing In The Right Direction
