Vikas Madhukar & Rishi Manrai
Retirement planning is a very significant aspect of an individual’s financial investment. There is no fixed formula to calculate post-retirement corpus. It’s a need-based decision that primarily depends on the family responsibilities that also need to be taken care of during the lifetime. Experts suggest that for a comfortable and financially independent retirement life, the retiree should not spend more than 4-5% of the saved corpus on a yearly basis.
Based on the risk class of the individual, there are primarily two categories of investment opportunities — fixed income securities and growing securities. Based on the individual requirements, lifestyle, and inflation one must sit down and chalk out an individual retirement plan.
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Public Provident Fund (PPF)
It is a popular investment option for building a retirement corpus. Though the lock-in period is 15 years, one can opt for a premature withdrawal after five years in special circumstances such as medical expenses or any such financial emergency. PPF investment is also tax deductible under Section 80C.
Equity
Investment in equity is one of the most preferred ways to build a large retirement corpus. Investing in stocks is one of the most effective ways to combat the effects of inflation. Also, with reduction in the interest rates of all public and private fixed income securities, investment in stocks is a good opportunity to create the required post-retirement corpus.
Though equity investments are subject to market risks and income from dividends as well as capital gains attract income tax, equity-based investment is the most recommended way for wealth creation, but with a proper understanding of market risk.
Mutual funds
Investments in a mutual fund (MF) are always a relatively growth-driven but less risky option as compared to direct investments in equity or bullion. The best part of MF investment is that it gives an investor the advantage of investing in all varieties of assets that are difficult to get with small investments. Investment in mutual funds these days also comes with systematic withdrawal plans that can act as a monthly source of income after retirement.
Besides helping cope with a high inflation rate in the retirement years, equity investments can be an additional income source besides ensuring a large corpus of money accumulated for retirement. Investors with lower investment capacity can choose to invest in similar financial options by investing through a systematic Investment plan.
Bullion
Investments in precious metals like gold, silver and platinum have always given good returns and have been a priority investment choice for retirement planning. Investing in precious metals not only helps an investor to take up a risk-aversive trajectory but also helps in fighting market volatility by acting as a hedging tool.
(Madhukar is pro vice-chancellor, Amity University, Gurugram and Manrai is assistant professor, Amity Business School, Gurugram)