Category: Investment Management

Retirement Investment Products

Retirement Savings and Accumulation Option- What works best for you?


Whether you are 20, 30, 40, 50, or 60 years of age, are you planning for retirement? If not, you should be. The amount of money that you save for retirement will have a profound impact on how your life is lived. Do you have any dreams or goals? Typically, retirement is the best time to meet your goals and transform your dreams into reality, but you can only do so if you are financially prepared.

Pre Retirement Options

Pre Retirement is an accumulation phase. Your retirement is limited only by your creativity. Forgotten dreams, long ignored values, and passions swept under the carpet to accommodate career responsibilities can now be given new life.

Discover The “What”, “Where”, “When” And “How Much” Of Pre-Retirement Planning So That You Enjoy Happiness As Well As Savings.

“What” & “Where” describes your dream ideal retirement. It helps in calculating the cost which you will incur once you retire. Once you decide on what you want to do in the approx 2000 hours a year which you used to invest at work place, you have already taken the baby steps. The next question which arises is; are you interested in relocating? It’s one of the important question which comes up in helping you budget your expenses.

“When” is the time to retire? It is the retirement date which a person decided. It even hinges on the financial situation, that is, how much. When you retire will effect how many years more can you save.

“How much” offers the question are you financially ready to retire? First thing which you need to do is budget – Dig into your current spending and get real about how your spending will change based on your answers to the “what” and “where” questions. Then, consolidate Now is the time to round up the documents, pension benefit statements, retirement plans, savings accounts, insurance statements, and other financial documents into one pile.

Amongst the options, National Pension Scheme, Employee Provident Fund, Public Provident Fund, Mutual Fund Exchange Traded Fund, Post Office Monthly Income Scheme, National Savings Certificate and Insurance; Mutual fund is subject to market risk and non – guaranteed returns, still as compared to last statistics, it offers the highest returns amongst all,

Post Retirement Options

Post Retirement is the distribution phase. The heavy lifting is already done. They’ve funded their nest eggs, selected health-insurance coverage and determined how much they can safely withdraw from their savings each year without draining their principals.

The end of each calendar brings with it Medicare changes, new tax laws and life events such as a divorce, deaths or new grandchildren which can tweak your planning. Whatever the mission—tax efficiency, maximizing returns or wealth preservation—the following year-end checklist can help ensure the money you saved will continue to work for you.



Schemes Minimum Investment Maximum Investment Lock in Period (yrs) Term (years) Exit Penalty Rate of Return % (per annum) Tax Rate % Tax Benefits Accumulated amount after 20 years (assuming Rs 10000 per  month is inevsted- INR) Tax Deduction Features
PRE RETIREMENT INVESTMENT PRODUCTS (Accumulation Phase)                      
National Pension Scheme (NPS) (Equity) Tier 1: Minimum Contribution of Rs. 500 per contribution.Maximum Contribution Rs. 6000/- p.a.
Tier 2: Minimum Contribution of Rs. 1000 at the time of Account opening.Minimum Contribution of Rs. 250 per month contribution.Minimum Balance of Rs. 2000/- at the end of each Financial Year.
No Limit Till you are of 60 years Invest till you are 60 years old People who leave the scheme before retirement (or age 60, whichever is earlier) to invest 80% of their accumulated savings in a life annuity from a life insurance company approved by Insurance Regulatory and Development Authority (IRDA). The remaining 20% is eligible for withdrawal as a lump sum. 8.38% NA Tier 1 : Additional deduction of Rs. 50,000 is in addition to the deduction allowed under 80C.
Tier 2: No benefits.
6,176,274 Under Section 80C. 1. NPS is open to all citizens of India between the ages of 18 and 60 on a voluntary basis.
2. It is is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.The employee contribution is fixed at 10% per month which is matched by an employer contribution of the same amount.
3. Central and state government employees along with Public Sector employees mandatory contributing in National Pension Scheme are restricted from availing any other form of pension scheme initiated by government of India.
Employee Provident Fund (EPF)  12% of basic salary.  12% of basic salary. 5 You can withdraw your Provident Fund (PF) after 60 days of leaving your organization, subject to completion of 5 years in one organisation. Withdrawal is permissible after 5 years of working. If withdrawn prematurely, Tax would be deducted at the rate of 10% if the subscriber provides the PAN number otherwise it can go upto 34.6%. 8.75% Depends on the income slab. As per section 80C. 6,470,647 Under Section 80C. 1. For those who have a basic salary of up to Rs 6500, contributing to the EPF is mandatory.
2. Contributions are voluntary for those whose basic salary exceeds Rs 6,500.
3. The contribution is made from both employer and employee.
4. The EPF is a retirement benefit applicable only for salaried employees.
5. Minimum 10 employees are needed for EPF contribution.
Public Provident Fund (PPF)  500 PA  2,00,000 PA 7 15 Withdrawal is permissible every year from 7th financial year from the year of opening account. Such withdrawals must not exceed 50% of the balance at the end of the fourth year or 50% of balance at the end of the immediate preceeding year, whichever is lower. Premature closure is permissible only in case of death. 8.70% Depends on the income slab. Interest is completely tax-free. 6,429,920 Under Section 80C. 1. Deposits can be made in lump-sum or in 12 installments.
2. Joint account cannot be opened.
3. Premature closure is not allowed before 15 years.
Mutual Fund (MF)                                                                           5,000  No Limit 3 Not specified upto 2%. 10% (assumed based on 10 years past performance) 100% tax exemption on MF dividends. All dividends you receive on debt-oriented funds (funds with equity exposure of less than 65%) are tax-free. Note that in case of debt-oriented funds a dividend distribution tax of 12.5% (plus surcharge) is payable by your mutual fund company on the dividends declared. 7,593,688 Under Section 80C. 1. A mutual fund pools the money of people with similar investment goals. This money in turn is invested in various securities depending on the objectives of the mutual fund scheme, and the profits (or loss) are shared among investors in proportion to their investments.
2. Mutual fund schemes are open ended (perpetually open for investments and redemptions) or closed ended (with a fixed term).
3. In the case of open-ended schemes, units can be purchased from or sold back to the fund at a Net Asset Value (NAV) based price on all business days.
Exchange Traded Funds (Index ETF)                                                                           5,000  No Limit 3 Not specified upto 2%. 10% Interest earned is 100% Taxable subject to capital gain, i.e., The short term capital gains on these instruments is at 15 per cent, while there is no capital gains tax in the long term. The capital gain tax on an asset in an ETF is only paid when the entire ETF sold, not while you are holding the ETF. 7,593,688 Under Section 80C. 1. Exchange traded funds, popularly known as ETF’s are also a good option for accumulating corpus for retirement.
2. An ETF is a basket of stocks that reflects the composition of an Index, like S&P CNX Nifty or BSE Sensex.
3. The ETFs trading value is based on the net asset value of the underlying stocks that it represents.
Post Office Monthly Income Schemes (POMIS)                                                                           1,500                   450,000 5 5 Premature withdrawal between 1 year and 3 years is 2% discount and after 3 years is 1% discount respectively 8.40% Interest earned is 100% Taxable. TDS is applicable on interest earned. 6,191,778 Under Section 80C. 1. A minor above age 10 years  can open an account on his/her own name directly. There is a limit of 3 lacs for guardian and it would not be clubbed with guardian limit.
2. Non-Resident Indian / HUF cannot open the Account.
3. Interest not withdrawn does not carry any interest.
4. Your POMIS account can be transferred  from one post office to any Post office in India free of cost.
5. The amount deposited in POMIS is exempt from Wealth Tax.
National Savings Certificate (NSC)                                                                               100  No max limit 5 5 Premature closure is not allowed. 8.50% Interest earned is 100% Taxable. No tax deduction at source. 6,269,990 Under Section 80C of IT Act,1961. 1. Scheme specially designed for Government employees, Businessmen and other salaried classes who are Income Tax assesses.
2. Certificates can be kept as collateral security to get loan from banks.
3. Trust and HUF cannot invest.
Insurance                                                                               500  No limit 5 depends on age of investor. No penalty on premature withdrawal. 7% (assuming past performance) Premium paid is 100% taxable. All benefits under 80C. 5,209,267 ULIP proceeds are tax-free in the hands of investors under Section 10 (10D). 1. Unit linked Insurance Plans or ULIP are popular for its triple benefits of life cover, capital appreciation and income tax benefits.
2. In the case of ULIP the policy holder can redeem units under any of the following situations:
End of the period on the maturity date of the ULIP.
Surrender: If the investor surrenders policy, the surrender value as stated in the policy after the lock-in period of three years will be received by him.
Death: In the event of unfortunate demise of the investor, his nominee receives the sum assured or the value of the units, whichever is higher.
Partial Withdrawals: Some funds allow partial withdrawal at periodic time intervals. Units will stand reduced to that extent for the holder.
POST RETIREMENT INVESTMENT OPTIONS (Distribution Phase)                      
Senior Citizen Saving Scheme (SCSS)                                                                           1,000                1,500,000 5 5 Premature withdrawal before 1 year is 1.50% discount and after 2 years is 1% discount 9.30% Interest earned is 100% Taxable. 10% will be deducted if interest paid during the year is more than 10,000.   Under 80C benefit. 1. An individual of the Age of 60 years or more may open the account.
2. An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under VRS can also open account subject to the condition that the account is opened within one month of receipt of retirement benefits and amount should not exceed the amount of retirement benefits.
3. Account can be opened by cash for the amount below INR 1 lakh and for INR 1 Lakh and above by cheque only.
4. Account can be transferred from one post office to another
5. Any number of accounts can be opened in any post office subject to maximum investment limit by adding balance in all accounts.
6. Joint account can be opened with spouse only and first depositor in Joint account is the investor.
7. Interest can be drawn through auto credit into savings account standing at same post office, through PDCs or Money Order.
8. In case of SCSS accounts, quarterly interest shall be payable on 1st working day of April, July, October and January. It will be applicable at all CBS Post Offices.
9. After maturity, the account can be extended for further three years within one year of the maturity by giving application in prescribed format. In such cases, account can be closed at any time after expiry of one year of extension without any deduction.
Fixed Deposit (FD)                                                                           5,000             10,000,000 same as term 5 to 10 years Interest Rate applicable for actual period of FD as per the rates prevalent at the time of investment – 1% 6.50% (post tax) Interest earned is 100% Taxable. If the investor has not provided his PAN, it is higher at 20%. But the interest earned on RDs and FDs is fully taxable. If the income is below Rs 10,000 and TDS has not been deducted, you have to add the interest to your total taxable income and accordingly pay tax.   FDs with a tenure of 5 years or more qualify for deduction under Section 80C of Income Tax Act. 1. The account which is opened for a particular fixed period (time) by depositing particular amount (money) is known as Fixed (Term) Deposit Account.
2. The amount can be deposited only once. For further such deposits, separate accounts need to be opened.
3. A high interest rate is paid on fixed deposits. The rate of interest may vary as per amount, period and from bank to bank.
SWP Option in Mutual Fund  depends on the return an individual wants  depends on the return an individual wants same as term  depends on the return an individual wants Premature withdrawal not allowed 8% NIL (Equity after 1 year tax free- 20% with indexation after 3 years in debt ) No tax deduction at source.   Dividend distribution tax of 13.50%. 1. An SWP (Systematic Withdrawal Plan) allows an investor to withdraw designated sum of money and units from the fund account at pre-defined regular intervals.
2. The investor can reinvest the redeemed cash in another portfolio or use it as a source of regular income.
3. It is suitable for retirees who are looking for a fixed flow of income.
 * Please note returns on Market linked products are subject to market volatility            
**  Please note returns on fixed income products are as on date (Feb 2016) and subject to change as per governement notification.            
Sr. No. Sources

5 Feb 2016