As much as you want to, it may not be really easy to do retirement planning in India. Inflation shows no signs of receding and keeping pace with that our demands are forever increasing as well. This has also made the national economy grow at a lower rate than before. A lot of people also like to buy gold for their preference for this diminishing natural resource. There are also a lot of financial products available these days and that can make you really confused. The situation has been further complicated by financial institutions such as banks that are not doing their work properly enough.
Planning for retirement
There are two phases in retirement – distribution and accumulation. Accumulation is the phase when we gather the amount needed for our life after we retire. Distribution is the phase when we have to pay up the money we have collected in the accumulation phase. The main aim here is to make sure that we do not face any problem in our lives after retirement. Financial products can be classed into two distinct categories – pre-retirement products and post-retirement products. The New Pension Scheme or NPS is one pre-retirement saving product.
New Pension Scheme
The New Pension Scheme can be availed by any and everyone, and can be defined as the right product for retirement. In the last four years people who have invested in the programme are getting returns of almost 10 per cent. In fact, as far as government employees are concerned, investment in the programme is a mandatory one. Ones who manage this fund can get exposure to equity instruments and other related investment options. This is a good sign for the programme in the long run as far as experts are concerned.
It can provide you tax benefits as well under Section 80C. You also have to buy annuity that is worth 40 per cent of the sum you have accumulated in the said programme. This is mandatory and needs to be done at the time of retirement. You can use pension calculators provided by the Indian Government and find out how much pension you and your family can receive. You can also find out about pension commuted from these calculators.
Employee’s Provident Fund
Also referred to as EPF, the Employee’s Provident Fund happens to be among the most popular retirement saving plans in India. It was started primarily as a product for retirement planning. However, the common consensus in India does not consider it to be one. The rate of return that you get from the Employee’s Provident Fund is pegged at around 8.5 per cent. By investing in the Employee’s Provident Fund you can get tax deduction as per Section 80C. At present the upper limit for tax benefit is INR 1 lakh. The interest that you get from this is tax free.
You can also withdraw from the said programme if you have gone on investing in it for five years at a stretch. It is different from the New Pension Scheme in the sense that there is no restriction or limit with respect to purchasing annuity. Experts would advise you to keep investing in the programme. You can do that even in case you change your job by asking for a transfer of the Employee’s Provident Fund. This would make sure that with the strength of compounding you would also get guaranteed returns. This is a major benefit of these plans.
As far as returns on investment are concerned equities happen to be right there at the top. It is better than any and every financial instrument in India in that particular respect. Mutual funds and stocks are the biggest examples of such investment.