Top Investment Avenues to Plan Your Retirement Effectively

10 min read • Published 30 October 2022
Written by Krishna Deshmukh
Know the top retirement investment avenues

Most of us consider retirement as a time when we have to make sacrifices because of funds. However, if you invest smartly, this will not be the case. Whether you are self-employed or salaried, you should start planning for your retirement as early as possible. 

When choosing between different retirement investment options, considering inflation is crucial. If you wish to travel, indulge in hobbies or start a venture post retirement, then you need to plan carefully. So, go for investments that will make your future financially stable. Let’s take a look at some of the investment options that will help you secure your retirement.

The retirement investment options can be further divided into two categories. You can either choose to invest in order to build a substantial retirement fund, or you can start your investment journey after reaching your age of retirement. 

Types of investment avenues that can help you build a retirement corpus

Here are the types of investment avenues that can help you build a retirement corpus early in your life:

1. Mutual Funds

Investing in mutual funds is one of the best decisions you can take to build wealth over time. Investment in equity, debt or hybrid mutual funds can help you earn a better corpus than many traditional instruments such as Fixed Deposits. 

  • The returns from mutual funds are dependent on market conditions. Therefore, people who have an idea about how the markets work and have a healthy risk appetite can opt for this option. 
  • You can either invest a lump sum amount or take the Systematic Investment Plan (SIP) approach. 
  • If you have a low-risk appetite, investing in balanced funds or debt-oriented hybrid funds might be safer than equity mutual funds. If you are starting retirement planning early, you can consider investing in equity- mutual funds for the long term and benefit from the power of compounding. 
  • In terms of return, equity funds tend to outperform most assets in the long run. However, if you are close to retiring, you should consider investing in debt mutual funds that are less risky than equity funds.
  • You can also invest in an equity-linked savings and shield tax up to Rs. 1.5 lakh under section 80C. 

Irrespective of the type of mutual fund scheme you choose, it is crucial to do your own research about the fund before going ahead with any investment. 

Also Read: Commodity Mutual Funds – Types, Benefits and Things to Know before Investing

2. National Pension Scheme (NPS)

It is a social security initiative launched by the government of India. This pension program is open to public, private and unorganised sector employees. 

  • NPS lets you invest in a pension account monthly during your service tenure.
  • There are two types of NPS accounts: Tier-1 and Tier-2. Having a Tier 1 is mandatory to open an NPS Tier 2 account.
  • After retirement, you can take out 60% of the corpus from your Tier-1 account while the remaining 40% will be paid as a monthly pension amount. Since Tier II accounts are voluntary accounts, there are no restrictions on NPS tier II withdrawals.
  • This scheme invests in asset classes like equity, corporate debt, government bonds and alternative investments. You can choose any of the asset for your scheme
  • At the point of registration, a subscriber will have to invest a minimum sum of Rs.500 for Tier-1 and Rs.250 for Tier-2.
  • Early withdrawal is possible under certain conditions. 
  • Apart from the usual 1.5 lakh tax shield, You can also claim an additional tax deduction of up to Rs. 50,000 under section 80CCD(1B). Therefore, your total tax deduction can be up to Rs. 2 lakh in case you plan to invest in NPS. 

Read More: Best Retirement Funds – Top Mutual Fund for Retirement in India

3. Tax-free Bonds

These are long-term fixed-income investment vehicles. They are issued by institutions that are backed by the government, such as 

  • Power Finance Corporation Limited (PFC), 
  • Indian Railway Finance Corporation Limited (IRFC), 
  • Housing and Urban Development Corporation Limited (HUDCO), 
  • National Thermal Power Corporation Limited (NTPC),
  • Rural Electrification Corporation Limited (REC),
  • India Renewable Energy Development Agency

Most of these organisations carry the highest credit rating. Typically, the bonds issued have a duration of 10 years, 15 years, or 20 years. The interest you get from these bonds is tax-free, making it a great investment option for retirees. 

You can buy and sell them on the stock exchange as they are listed securities. However, the liquidity of these bonds is quite low. 

Also Read: How to plan for retirement as per your age?

4. Gold Investments

Possessing gold is a very good option if safekeeping is taken care of. So, buying gold coins might still be an option. You can buy gold coins from various banks,digital gold or retailers that offer them. It is easy to convert gold to cash.

Investment in digital gold via gold ETFs might be a cost-effective option. You can also invest in commodity mutual funds that have gold as their underlying asset. 

Another alternative to invest in physical gold are Sovereign Gold Bonds. These are substitutes for holding physical gold. Investors have to pay the issue price to purchase the bonds; SGB offers a fixed interest payable semi-annually for a period of 8 years. 

The risks associated with physical gold are also eliminated as the bonds are issued by the Government of India. The interest you receive through SGBs is taxed as per your existing tax slab. However, one key advantage is that the capital gains component on redemption after 8 years is tax-free. Therefore, by investing in them, you can accumulate substantial wealth over a period of time.

5. Insurance Plans

Health issues might be very common during old age, so a health insurance plan is a necessary investment avenue. It will help you on rainy days. You can opt for a Mediclaim policy for your family. Besides a healthcare policy, you can also yourself avail a Life Insurance policy. This will protect your family in case of your untimely demise. In that case, the nominee will receive the sum assured or death benefit. 

Also Read: Retirement Bucket Strategy: Meaning, Investment Options & Other Details

Investment Avenues for Your Post-Retirement Portfolio

Most of the investment avenues mentioned above will offer you lucrative returns if you stay invested for the long term. However, for individuals who have reached their retirement age, there are other investment options that might be ideal for you: 

1. Senior Citizen Savings Scheme (SCSS)

This is one of the safest investment options for retirement. This scheme is exclusively designed for investors above the age of 60. However, if you opt for voluntary retirement, 55 is the minimum age to invest in the scheme. Please note that in this case, you will have to avail the scheme within one month of receiving your retirement benefits. 

  • You can opt for this scheme from any recognised bank or post office around India. It takes five years for the deposit to mature, and you can opt for an extension of three years. 
  • This fixed-income investment offers an 7.6% interest rate; however, it is reviewed every quarter.
  • The scheme comes with a lock-in period of five years.
  • The returns are fixed and guaranteed by the government. The interest rate is higher than regular savings and FDs. There is tax benefit of upto INR 1.5 lakh under Section 80C.
  • The minimum amount you can invest is Rs. 1000 and maximum is Rs. 15 lakhs per financial year. You can also select a nominee while opening an SCSS.
  • This scheme allows you to withdraw your money before the completion of the maturity period however charges are applicable.  
  • If you foreclose the account before 2 years, the penalty amount will be 1.5%. If you withdraw your money after 2 years but before the completion of the lock-in period, the charges would be 1%
  • No penalty shall be charged in case of premature closure of an account due to death of a depositor

2. Immediate Annuities

Individuals who are approaching their retirement might consider going for immediate annuity schemes offered by insurance companies. 

  • In this plan, you have to pay your premium in one lump sum and not via periodic instalments. As the name says, the payouts start instantly after making the deposit. There is no accumulation phase in immediate annuity plans. 
  • You can avail either a single life annuity plan or a joint one that covers the finances of your spouse after your death. 
  • This plan will offer you a regular income for the rest of your life or for a specific period of time. 
  • You can also opt for variable annuity plans that invest in a sub-account tied to assets like stocks and bonds. The development of the main fund and the eventual payouts is dependent on the performance of the underlying assets. 
  • The investment is tax shielded upto 1.5 lakh under 80CCC of the IT Act until you withdraw money or begin receiving payment. The annuity payments are considered as salary and taxed accordingly.

Also Read: How to Invest in NPS?

3. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

This scheme is under the supervision of the Life Insurance Corporation of India (LIC). It is a comparatively low-risk investment vehicle. 

  • An individual should be more than 60 years to opt for this scheme. The minimum contribution per month is Rs. 100. Maximum amount that you can invest in this scheme is Rs. 15 lakh.
  • This scheme’s maturity period is 10 years. Your monthly pension will depend on the amount you have invested and might range between Rs. 1000 and Rs. 10,000. 
  • If the beneficiary dies prematurely, the nominee will be eligible for the payouts.
  • Investment towards this scheme does not qualify for tax deduction under section 80C. However, the scheme is exempt from GST. 
  • You get a guaranteed return after maturity with the current interest rate being 7.4%. Early exit is possible in case of critical illness; however, a penalty of 2% will be charged.

Final Words

Opting for any of the retirement investment options mentioned above will help you lead a happy retired life. However, you must understand your financial requirements and select your investment options based on your risk appetite. Make wise calls so that you don’t have to repent. 

FAQs about Investment Avenues to Plan Your Retirement

Which people do not get coverage under NPS?

Individuals associated with the Indian Armed Forces and those who have joined Central Government services before 1st January 2004 are not eligible for NPS. 

Can husband and wife invest in SCSS together?

Yes, one can open an SCSS account along with his/her spouse. For the primary account holder, the age limit should be followed; however, for the second applicant, there is no age limit. 

What is the difference between an immediate annuity plan and a deferred annuity plan? 

For immediate annuity plans, you start receiving a regular income immediately after making the lump sum deposit. However, in the case of a deferred annuity plan, the payouts begin after a certain deferment period.

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Krishna Deshmukh

Investment Principal
Krishna is an investment professional with a demonstrated history of working in Debt Capital Markets. He has completed his B.E. (Hons) in Computer Science Engineering from BITS Pilani and MBA (Finance) from JBIMS, Mumbai. He is currently working as Investments Principal at Wint Wealth. Previously he worked at Kotak Mahindra Bank at their DCM desk and Northern Arc Capital at their Structured Finance desk.

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