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Aug 07, 2012 05:24 PM IST | Source:

Investing for Retirement - Where to invest?

Retirement is often the most neglected aspect of financial planning. Many of us delay it for making rooms for other goals which we perceive to be more important. It is always wiser to start planning for retirement early in life. Financial advisor Jitendra Solanki lists out various options available to investors today for your retirement planning.

Retirement is often the most neglected aspect of financial planning. Many of us delay it for making rooms for other goals which we perceive to be more important. One of the primary reasons for such negligence is the limited resources we have and emotions attached to other goals. However, risk of longevity is bigger than any other risk you meet in your life. If not planned, you can end up jeopardizing your post retirement years.

One of the wiser options is to start investing early in life. Ideally, when you start your career you should start saving for your retirement too. Remember power of compounding. It can do wonders with your small savings if you have a longer time horizon with you.

Although, there are many investment options through which you can plan your retirement at different stages of life, one have to select wisely to ensure you reach the desired goal.

Here is a list of options available to investors today and which one should be considered while planning for your retirement:

1. Equities: Ideally, this asset class is the most preferred instrument for wealth creation in the long term. But direct equities require time and expertise to find the right stocks which can meet your objectives. Also, the capital required for creating a good diversified portfolio is high. Due to these reasons it is discouraged for most retail investors. However, it can be a viable investment if considered for a very long term horizon and researched wisely.

2. EPF: For salaried individuals, Employee Provident Fund is one of the best tools for retirement planning. This forced investment helps in generating a good amount of wealth if continued for the working career. The instrument enjoys EEE status i.e. exempted at investment, returns and maturity, if some conditions are fulfilled. Although there is liquidity window available to utilize it for various other goals, regular contribution without any withdrawals can be very effective in meeting your retirement goal.

3. PPF- It is one of the best saving scheme available for planning long term goals like retirement. Since this also enjoys EEE status i.e. tax exempted at investment, return and maturity, it is able to generate higher yield to investors. The option of continuing the product indefinitely in block of 5 years after maturity helps in planning at younger age. Although, the returns have now been linked to G-Sec of equivalent maturity, the product benefits make a strong point to add it in your investment portfolio.

4. Mutual Funds: The most viable investment for retail investors. There are various categories of schemes to choose as per one risk appetite and the goal horizon. Also the low amount required for investments helps in building an efficient diversified portfolio through smaller savings.

5. Fixed Deposits: Although it is not considered to be a tax friendly instrument, high interest rates scenarios provides opportunities to earn good returns from this instrument. For investors who are in lower tax bracket and few years away from retirement, high yield from fixed deposits are fairly attractive to add in the investment portfolio.
6. New Pension Scheme: This scheme was launched by the government few years back specifically for government employees. Although it was opened for all categories of investors later on, the scheme did not receive good response due to lack of marketing and product features. Since then PFRDA have been making changes in the product to attract investors from all arena. Now there are tax benefits on contribution made from salary and all mutual funds companies can manage the scheme. With feature of auto rebalancing as per age, the product is a good choice for small investors who are not well conversant with asset allocation. But do track the changes happening in the product as it can impact your future investments.

7Insurance: Was in the limelight when ULIPs came in India. Pension plans were perceived to be the solution for retirement. However, insurance is a tool for family protection and any investment linked option has high cost associated with it. After IRDA regulations, pension plans have become unattractive and other products need see changes to become considerable for long term planning. Wiser to consider it as a protection tool and build retirement portfolio from other products.

Retirement Planning is necessary considering the high inflation and longevity risk. The early stage planning helps in creating mix of the right asset classes which offer wealth accumulation in long term. Ensure that this is in your priority list when you are planning for your financial future.

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