- September 18, 2018
- Posted by: moat_admin
- Category: Blogs
Make the most of your retirement corpus!
Retirement planning is one of the most crucial aspects of getting your finances right.
No one wants any complications in their sunset years. When it comes to money, you
definitely need to be well-prepared to avoid an unwanted shock later.
Planning your finances right so that you get to enjoy the most of those carefree days
isn’t that difficult a task. Before helping you make the most of your retirement corpus,
let’s tell you about some mistakes that you surely need to avoid. Here we go:
- Inflation-The invisible money eater: Take into account that Inflation monster
which eats up your money. Without considering it, saving for retirement would
seem an easy ride!
- NEVER Underestimate expenses: Allocate your expenses first towards
untimely emergencies and health expenses. See to it, that you won’t suffer by
not saving for these. It’s wiser to save first than to regret later.
- Keep sufficient funds separate: While saving for your retirement, you must
ensure to save for an adequate period. It’s always safe to consider all likely
expenses while doing so. This planning will never leave you disappointed and
you’ll always have funds even during any unwanted crisis.
- Don’t solely invest in debt: If you understand the inflation concept, you will
know that Future value of any Current Sum of money will decrease. Hence,
investing only in Debt is quite foolish. You should invest some part of your
retirement corpus in equity for capital appreciation in retirement years. After all,
you do need to fight the inflation, don’t you?
To make the most of that retirement corpus following ways can be adopted:
1.Bank Fixed Deposits:
When it comes to using a conventional way to invest for a long-term, Fixed Deposits
happen to be quite popular. Some of the main features of a Fixed Deposit that make
it one of the top retirement savings plan options are
- Guaranteed returns
Compared to a normal Savings Account or a Recurring Deposit, a Fixed
Deposit comes with better returns. The only thing you need to watch out for is
premature withdrawal as it may affect your returns.
- Super flexible
Although you end up locking your money for a certain duration, Fixed
Deposits give you a variety of duration options to choose from. The lock in
period can vary from seven days to ten years. However, this might vary from
one bank to another.
- Better risk management
There are a lot of other investment options that can get you way better returns
compared to Fixed Deposits. In case you’re looking for a safer way to invest
your money, you must look into Fixed Deposits.
- Emergency exit
In case of a financial emergency, you can take up a loan against your Fixed
Deposit. Most banks will let you borrow 60 to 90% of the value of your Fixed
As the name suggests, this scheme has specially been created for senior
citizens. Features like assured returns, regular pay-outs and safety of capital
make it extremely popular. Additionally, this scheme also comes with tax
benefits under Section 80C and also permits premature withdrawals.
2. Mutual Funds
Investing in mutual funds is one sure way of defeating the inflation and building Retirement
Corpus. There are various Mutual Funds tools like SIP, STP or SWP which can be made use of
towards building wealth.
- Through SIP:
It is always advisable to invest in equity systematically. Systematic Investment Plan
(SIP) is one of the best methods of saving and investing in equity mutual fund. SIPs
help us to benefit from the market volatility and helps in Rupee Cost Averaging. SIP
removes the hurdle of timing the market. You should start monthly investment for
accumulating your inflation adjusted in mix of equity diversified mutual fund and
debt (EPF / PPF / Debt Fund) or even simply investing in a balanced fund; depending
upon time to your retirement. Early you start saving for retirement, lower the
monthly amount required for accumulating the corpus.
- Through Systematic Transfer Plan (STP):
You should always start shifting your investments to debt when your retirement (or
any other financial goal) approaches. It is advisable you start shifting your portfolio
from equity to debt, 2 to 3 years before your retirement. Shifting the corpus is
necessary and important because equity investments are very risky, and you cannot
afford to take high risk till your retirement age. As you should not time the market
for entering into equity, the same is applicable for exit also. You should shift theaccumulated corpus systematically via Systematic Transfer Plan (STP) an option
under mutual fund. With the help of STP, you can systematically transfer specific
amount periodically (monthly / quarterly) from one scheme to another scheme
(equity to debt and vice-versa) of the same AMC (Asset Management Company). So,
with the help of STP, you can shift your portfolio to debt systematically. Withdraw through Systematic Withdrawal Plan (SWP):
Now at the age of retirement, your corpus must have been shifted to debt funds of
mutual funds via SWP. You can now start withdrawing specific amount of money
periodically (Monthly/ Quarterly / Half yearly / Yearly) equal to your household and
other expenses required for your retirement with the help of Systematic Withdrawal
Plan (SWP) option of mutual funds. SWP provides you with regular income during
your retirement through withdrawals, along with growth / appreciation of the
balance corpus in the debt fund.
4. Post Office Monthly Income Scheme (POMIS)
Post office offers POMIS among a host of banking products and services, under the
purview of the Finance Ministry. Hence, it is highly reliable. It is a low-risk MIS and
generates a steady income. You can invest up to Rs. 4.5 lakhs individually or Rs. 9
lakhs jointly, and the investment period is 5 years. Capital protection is its primary
objective5. Tax-free Bonds
Tax-free bonds are types of goods or financial products, which the government
enterprises issue. They offer you a fixed interest rate, and hence is a low-risk
investment avenue. As the name suggests, its most attractive feature absolute
tax exemption. This is as per Section 10 of the Income Tax Act of India,
1961. Tax-free bonds generally have a long-term maturity of typically ten years
or more. Government invests the money collected from these bonds in
infrastructure and housing projects.