Best Investment Options for Retirement in India

 

Financial freedom is the key to a peaceful retired life. Creating a source of regular income helps manage the expenses post-retirement when the steady source of income ceases. With a range of investment options for retirement, you can create a constant income stream for a stress-free retired life. 

Read on to learn more about some of the top retirement investment options.

What Is The Importance of Retirement Planning?

When regular income stops upon retirement, one relies on savings and investments to meet financial commitments. Considering the scenario, planning for retirement is vital to beat inflation and maintain one’s standard of living through suitable investment plans.

Prudent financial management lies in creating a retirement corpus when you are actively employed. This helps create a regular source of incomeafter retirement, one that helps take care of financial commitments post-retirement, ensuring a stress-free and peaceful retired life.

Best Investment Plans For Retirement

If you are looking for some of the top investment options for retirement, you can consider any of the plans discussed below:

1. Pension Plans

A pension plan is a retirement investment option where you can create a retirement corpus by paying premiums for a period of your choice. With pension plans, you can be assured of a regular income stream to secure your retired life financially. Here’s what makes pension plans one of the Best investments for retirement: 

• You can start investing small amounts while being actively employed.

• Market-linked plans help in growing your money while creating a retirement corpus. 

• The premiums paid get tax benefits under Section 80C.

2. National Pension Scheme (NPS)

The National Pension Scheme (NPS) is an initiative the Government of India took to provide a regular incomesource to the subscribers. The subscribers can invest a defined amount through a pension to secure their post-retirement life.

• Both resident Indians and NRIs are eligible for NPS

• The entry age is between 18 years and 70 years

• Administrative and fund management charges are the lowest.

• NPS offers the choice of an investment portfolio and fund manager.

• There is ease of account operation and accessibility across the country, irrespective of the home POP-SP branch.

• NPS features triple tax benefits

3. Unit Linked Insurance Plans (ULIP)

ULIPs are often considered the best investment options for retirement, especially if you start early. These are savings as well as life cover plans. A part of the premium paid is invested in funds of your choice, and the other goes towards life cover. 

• ULIPs feature the flexibility of tailormade life cover as per individual risk appetite.

• There are lower mortality charges for early investors

• Part-withdrawals are allowed for immediate fund requirements.

• Expect tax benefits on premiums paid under Section 80C

4. Systematic Investment Plan (SIP)

Systematic Investment Plans are the best investments for retirement and all life stages. Through SIPs, investors can systematically direct a certain amount towards mutual fund investments at regular intervals. It could be weekly, monthly or quarterly instead of making a lump sum investment. When you invest in a mutual fund, you buy units at the Net Asset Value (NAV). You get more units when the market is down and fewer units when it is up.

• You can start investing with as low as Rs. 500/- a month

• The option of auto-debit helps avoid payment missouts

• Paves the way for long-term investment

• Early investors stand a better chance of maximising returns

• Switching and redeeming units in SIP investments is seamless, making them one of the easy-to-manage retirement investment options.

5. Health Insurance

Medical emergencies are difficult to predict. It is, therefore, vital to plan for the future to avoid digging into your savings and investments to meet unexpected medical costs. Health insurance plans is one of the most important retirement investment options to cope with medical issues post-retirement. 

• It covers both pre and post-hospitalisation expenses.

• Tax deduction under Section 80D is available as given below

  - Upto Rs. 50000/- total, i.e., Rs. 25000 for the individual and Rs. 25000 for the parents where both are aged below 60 years

  - Where the insurer and the family are less than 60 years and the parents are above 60 years, up to Rs. 25000 for the insurer and family and Rs. 50000/- for parents, i.e., Rs. 75000 together.

  - Where the insurer, family, and parents are all above 60 years, Rs. 50000/- for insurer and family and Rs. 50000/- for parents, i.e., Rs.1.00 lac together.

• Premiums paid are eligible for tax deduction under Section 80D up to Rs. 25000/- and up to Rs. 50000/- for senior citizens. 

You can further secure yourself financially by opting to add the critical illness benefit to your existing life insurance policy (depending upon your insurer) for an extra premium. You can also buy an integrated policy if you are thinking of buying a life insurance policy as well. 

6. Public Provident Fund

The Public Provident Fund (PPF) is a long-term savings and investment scheme. The Government Of India backs it, making it one of the best investment options for retirement if you are looking for safety, returns, and tax benefits. The interest rate on PPF is compounded annually and is set by the government. 

• PPF requires a minimum deposit of Rs. 500 and allows up to a maximum of Rs.1.50 lacs in a year.

• The parent can open a PPF account on behalf of a minor child, but the combined investment in the individual account and the minor account should not exceed Rs. 1.50 lacs.

• It has a lock-in period of 15 years and is the best investment plan for retirement in India.

• The complete amount can be withdrawn after 15 years

• Partial withdrawal of funds is permitted subject to certain conditions

• PPF investment can be extended for 5 years once the tenure of 15 years is over. 

• Loan against PPF is permitted after three years.

• Investment under PPF is eligible for tax benefits under Section 80C. PPF falls under the EEE category, i.e., the principal, interest, as well as maturity proceeds have tax exemption.

7. Bank Fixed Deposits

Bank fixed deposits are the best investment for retirement to generate a regular source of income. Seniors can choose to invest their retirement benefits in Fixed Deposits (FDs) for a fixed tenure. 

• FDs offer the option of monthly interest payout to create regular income.

• The interest rate is fixed at the time of opening the account. 

• Senior citizens are eligible for an additional interest of 0.50% p.a.

• Loans can be availed against FDs in the case of emergencies.

• Premature withdrawal is permitted on certain FDs with a penalty.

8. Senior Citizen Saving Scheme

The Senior Citizen Saving Scheme is a government-sponsored scheme for senior citizens and early retirees. It is considered one of the safer investment options for retirement to generate regular income. 

• The minimum investment in SCSS is Rs. 1000, and the maximum is Rs. 30.00 lacs 

• The existing interest rate is 8.20% p.a. The interest payout is done quarterly.

• Tax benefits up to Rs.1.50 lacs are available under Section 80C

• Accounts can be in individual or joint names.

• Deposit tenure is five years, extendable in blocks of 3 years any number of times.

• Premature withdrawals are permitted with a penalty.

9. Investment in Mutual Funds/Equity

Investment in Mutual Funds/Equity takes care of the two concerns of investment — generating a regular income and preserving capital to cope with inflation. Mutual funds/equity are one of the preferred investment options for retirement for the following reasons - 

• Equities, with their potential for capital appreciation, can be well-suited for a prolonged investment period. They allow the power of compounding to work in favour of investors.

• Mutual Funds/Equity can outpace inflation over the long term.

• Mutual funds offer diversification by investing in a variety of assets. Therefore, the risk is spread across different sectors and companies. 

• Debt mutual funds are low-risk investment options that protect the capital and help generate regular returns.  

Conclusion

Selecting suitable investment options for retirement is a crucial aspect of financial planning and independence. By carefully considering and assessing individual goals, time horizons, and risk appetite, one can invest in a robust portfolio that paves the way for a secure and comfortable retirement.

FAQs on Investment options for Retirement

Q. Which are the best investments for retirement?

The best investment options for retirement are NPS, Senior Citizen Saving Scheme, Bank Fixed Deposit, PPF, Unit Linked Insurance Plans, SIPs, and Mutual Funds.

Q. What is the most convenient retirement investment?

The most convenient retirement investments are PPF, NPS, and SIPs, where you can invest while you are earning to generate regular income for retired life.

Q. What is the best source of income in retirement?

The interest earned on the retirement corpus and the regular income generated out of the annuity are the best source of income in retirement.

Q. How can I increase my wealth in retirement?

Invest a part of your retirement corpus in market-linked plans like equity and mutual funds to earn good returns. Also, investing in Fixed deposits will earn interest on your corpus.

Q. How can I generate income in retirement?

Senior Citizen Saving Scheme is the best investment plan for retirement in India to generate income. The quarterly interest income will take care of your financial needs.

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