Investment tips for post-retirement plans

Whoever said variety is good for consumers had no marketing sense.

An experiment with jams showed that when a customer had six options to choose from, the conversions were much higher than when he had 24 options to choose from.

With so many options, the consumer gets paralysed with the burden of selection. Is this what is happening to retirement planning? Is that the reason why sensible people are procrastinating?

There are various reasons why retirement planning has become imperative today: longer life span, increased medical costs, inflation etc. Even so, there are just a few takers.

Why don't you look at the options available?

Equity: Traditionally, discouraged as a retirement planning tool, it could give your investments a boost if you start early.

Insurance: This one is popularly used for retirement planning. Experts say it should only be used as a risk cover, and not as an investment tool.

Provident Fund and Public Provident Fund: The all-time favourite option. Our grandfathers believed in these low-risk schemes implicitly.

Fixed deposits: Safe and secure, but may cower under inflation with their low returns.

Mutual funds: Preferable one, this. There are the professionals whose experience and expertise will come handy.

Property: Ever-appreciating asset in the long run especially with the real estate boom. Small catch: the liquidity concern. Not everyone has money on hand to invest.

So what are your options?

Option 1: Pension plans

They are ideal for retirement because they provide a cushion of debt in your portfolio and help you diversify. The advantages:

1. If you invest up to Rs 1 lakh in these plans, you are eligible for a deduction from your taxable income. What this means is, your taxable income comes down by Rs 1 lakh, and you stand to pay lesser tax.

2. After you retire, you can withdraw one-third of the fund balance as a lumpsum, tax free. The rest of your money will be invested in an annuity plan. You could choose to have a monthly or quarterly income from it. (Note: annuity is taxable.)

Option 2: Unit linked pension plans

These are good if you don't mind a little risk and policy monitoring. Here are some ways you could go about them:

1. You could invest your funds in aggressive equity schemes.

2. You could switch funds across schemes (from debt to equity and vice versa), as and when required. Switches are exempt from capital gains tax and transaction fees (some companies do charge though).

3. Unlike mutual fund investments, you could stay away from entry loads when you re-enter equity funds in your ULIPs.

These are just some of the options. Debt products, bonds, debentures, National Savings Certificates are also available depending on how you want to invest your money and how much risk you are willing to take.

Are the choices overwhelming? Here's a tip: a mix of these could give you the best returns.

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