One of the serious issues with retirement goals is that, unlike other financial goals, you are not provided with any loans to finance your post-retirement needs. So, you must ensure to generate an adequate corpus for your retirement days right from the day you begin your journey to earn money. Beginning your retirement investment early allows you to avail the benefit of compounding and generate higher returns with smaller contributions.
So, when it is about retirement planning, you come across numerous financial instruments wherein you can invest to form your post-retirement corpus. Let us look at some equity and debt instruments –
Debt instruments –
In terms of return rate, debt mutual funds are at the top owing to their market-linked nature. Unlike other fixed-income instruments offering assured returns, debt funds have the potential to yield higher returns on investment, high liquidity, and capital preservation features.
Next, for the low-risk appetite investors, EPF (Employee Provident Fund) is at the top list owing to its tax deduction features. The instrument offers a deduction of up to Rs 1.50 lakh as per Section 80 C. The current EPF interest rate offered is 8.15 per cent per annum. Also, this instrument enjoys a EEE (exempt exempt exempt) status, which infers the returns on this product are completely exempt from deductions.
The next debt instrument is PPF (Public Provident Fund). This option offers the same advantages as the EPF instrument. You can invest any amount ranging from Rs 500 to Rs 1.50 lakh per year as per your cash inflow and corpus requirement. The current PPF interest rate is 7.10 per cent.
Other common debt instruments to park your retirement funds are voluntary provident funds, fixed deposits, recurring deposits, savings accounts, etc.
Equity instruments –
In case you want to form a massive retirement corpus over the long term, it is important you begin investing a part of your investible surplus in equities as early as possible. Note that no other financial product can match the overall returns offered by equity-linked instruments. This is because equity has the potential to yield inflation and fixed income beating returns over the long term by a wide margin. Ensure to use the SIP (systematic investment plan) mode to begin with your equity mutual fund investment. With SIP, you can systematically invest a predetermined amount of money at periodic intervals towards a preferred equity mutual fund over the long term to generate an adequate corpus for your retirement. Alongside, allowing you to begin your investment at an early stage of your career with a small investible of as low as Rs 500, SIP investment also provides you with the benefit of rupee cost averaging and compounding effect. Note that under equity fund if you choose to invest in ELSS (Equity Linked Savings Scheme) mutual fund, then you can avail tax benefits too. ELSS allows you to save tax of up to Rs 1.50 lakh as per Section 80 C.
Besides, equity mutual fund, another retirement solution to begin with your corpus creation goal is NPS (National Pension Scheme). This is a financial solution backed by the government, which offers a blend of both equity and debt based on your choice and age. This instrument allows a tax deduction of up to Rs 1.50 lakh as per Section 80 C along with an additional tax deduction of Rs 50,000 as per Section 80 CCD (1b).
Conclusion
Make sure you begin with your retirement investment as early as possible as this not just offers your investments more time to reap the benefits of compounding but even permits you to make the necessary changes midway to get back on track. Ensure to diversify your retirement investment by investing in both instruments i.e., equity and debt.
