These plans of life insurance companies aim to give investors good and effective planning for their retirement. This is to achieve a retirement corpus to suit the future needs of an investor. The tax benefits of these plans are limited to Rs.10, 000 and so does not remain a favored investment avenue. The pension plans invest the amounts into the bonds and government securities thus giving very less returns clubbed with high safety.
This is a good investment avenue for the long term. An individual investing for a long term into equities would definitely earn better returns when compared to debt instruments. The investment into equities can be related to the age of the individual. As the age increases the exposure into equities should decrease as the risk appetite of the individual generally reduces with the growing age. The portfolio should be a good mix of large caps and mid caps thus giving good returns with certain amount of safety attached to the investments.
Retirement planning is an exercise that cannot do without equity exposure attached to it. People sometimes are not willing to invest into the equities and so might miss out the growth opportunities in these instruments. The more safer and good way of investing is to take the route of mutual funds. The equity funds are also for the long term and so would ideally suit the retirement needs of an individual. One needs to look for the past track record of these mutual funds before investing into these instruments. In case of a new fund offer the fund manager's past performance and also the AMC's credentials are to be taken into account.
Employee provident fund is a statutory contribution deducted from the employee's salary and the employer also contributes the same amount into the fund. This is a safe investment avenue and gets around 8.5% tax free returns at present. EPF is eligible for deduction under section 80 c. Interest earned is tax free in this fund.
Public Provident Fund is a small savings scheme which is a safe investment option giving around 8% and has tenure of above 15 years. The interest earned is totally tax free.
National Savings Certificate
NSC is another attractive instrument offering a return of 8% pa. Investors are required to make a single deposit and the interest component is returned along with the principal amount on maturity. NSC has an edge over PPF on account of a relatively lower tenure, i.e. 6 years.
Post Office Monthly Income Scheme (POMIS)
This scheme provides monthly income (at 8% pa) to investors. On competition of 6 years, a 10% bonus on the principal sum is provided. It offers investors an exit option after 1 year from the investment date. However the catch lies in penalty clause. An exit after 1 year would also entail a loss of 5% of the amount invested. As a result, while the investor would not suffer any loss in interest earnings, but the loss of principal can be a significant one (especially for investors with high investments). Investors have to wait for a 3 year period if they wish to liquidate their holdings without any loss of principal.
POMIS is best suited for investors like retirees who are looking for regular returns. The combination of assured returns with tax benefits makes POMIS an attractive proposition.
Senior Citizens Savings Scheme (SCSS)
This scheme has been reserved for citizens above 60 years of age, albeit citizens above 55 years can invest in the same subject to certain conditions being fulfilled. SCSS offers a return of 9% pa, making it a must have proposition for the target audience. The minimum investment amount is Rs. 1,000 while the upper limit has been capped at Rs. 1,500,000. The SCSS along with the POMIS can prove to be a very good option for senior citizens who need regular income without taking on any risk. The main objective of the scheme is to provide a relief to the senior citizens and to check the further decline in their interest income. With a Government of India-backing, your principal is as assured as it is in any other post office account. With backing from the Government of India, your interest income from scheme is assured.
The scheme can be extended up to 3 yrs after maturity. The account can be opened by single individual who has attained the age of 55 years or above and the joint account can be opened in the name of spouse only. The NRI and HUF accounts are not permissible in this scheme.