Retirement corpus planning is a crucial aspect to continue living with an existing lifestyle, during the those days when a regular income in form of salary stops, while monthly expenses continues.
How to wisely invest the superannuation funds ?
Don't be in a hurry to have a financial plan and you must take your time to identify the financial goals. Avoid making a mistake of jumping too quickly in a product without a proper understanding of potential risks and expected returns.
Cash-in Hand money is the single most preferred and even a best option for sake of liquidity and convenience. There is no alternate to 'Hard' cash in terms of ease and interchangeability. Carrying cash in bigger amounts has a serious limitation while safe-keeping in secure vaults is another issue that can't be ignored. Also, there is no return on accumulated cash. Therefore, any cash over and above monthly expenses has several drawbacks.
Soon after getting retirement funds in your saving account, there is one thing that you must do as early as it can be. It must be a default choice to park retirement funds or any lump sum amount. It is even suitable for an ultra short term duration. It would surely give you better returns than regular saving account.
Retirement corpus planning is a crucial aspect to continue living with an existing lifestyle, during the those days when a regular income in form of salary stops, while monthly expenses continues.
How to wisely invest the superannuation funds ?
Don't be in a hurry to have a financial plan and you must take your time to identify the financial goals. Avoid making a mistake of jumping too quickly in a product without a proper understanding of potential risks and expected returns.
Cash-in Hand money is the single most preferred and even a best option for sake of liquidity and convenience. There is no alternate to 'Hard' cash in terms of ease and interchangeability. Carrying cash in bigger amounts has a serious limitation while safe-keeping in secure vaults is another issue that can't be ignored. Also, there is no return on accumulated cash. Therefore, any cash over and above monthly expenses has several drawbacks.
Soon after getting retirement funds in your saving account, there is one thing that you must do as early as it can be. It must be a default choice to park retirement funds or any lump sum amount. It is even suitable for an ultra short term duration. It would surely give you better returns than regular saving account.
Cash-in Hand money is the single most preferred and even a best option for sake of liquidity and convenience. There is no alternate to 'Hard' cash in terms of ease and interchangeability. Carrying cash in bigger amounts has a serious limitation while safe-keeping in secure vaults is another issue that can't be ignored. Also, there is no return on accumulated cash. Therefore, any cash over and above monthly expenses has several drawbacks.
Soon after getting retirement funds in your saving account, there is one thing that you must do as early as it can be. It must be a default choice to park retirement funds or any lump sum amount. It is even suitable for an ultra short term duration. It would surely give you better returns than regular saving account.
You must consider these important points seriously before charting a custom-built financial plan, otherwise it could adversely affect your returns and eventually financial freedom in a longer term.
- Do not forget to make your Retirement Corpus Inflation proof.
- Pay-off any outstanding loan or mortgaged property
if superannuation funds are parked in a regular saving account for a longer period of time, inflation would eat-up your interest income and would make negative returns on your capital. You must not let it happen at any cost.
- Park at least 3-6 month expenses in an Emergency Corpus
Although its too common to tell, yet you must not ignore to payoff any outstanding loan. If you did not plan for a regular income, any contingency could hamper your liquidity or put you in trouble in those carefree days.
It is must to have a contingency fund either in cash or its equivalent. Careful planning for any health related contingencies is an important aspect. Safety and accessibility without any time delay are the prime factors that must be considered while parking emergency funds .
Risk-free Investment options
Retirement funds can be invested in multiple option based on risk profile and expected rate of returns. Although they are risk-free but considered as safest, reliable and inflation proof options available to investors as given below :
Retirement funds can be invested in multiple option based on risk profile and expected rate of returns. Although they are risk-free but considered as safest, reliable and inflation proof options available to investors as given below :
- Online Multi-Option Deposits or Flexi-Deposit Accounts
It is an awesome product that provides safe, reliable and risk-free regular income I It is a unique combination of Saving and Term deposit account that features a seamless liquidity at par with a saving account as rate of interest, same as applicable to a normal term deposit account. It is suitable for almost any type of investors, irrespective of their risk appetite. These features makes it a default choice for parking funds both for emergency or as a standby avenue, by the time it is deployed as per plan.
Senior citizens get an additional rate of interest over and above applicable rates. Unlike normal deposits, partial withdrawals in multiples of a thousand rupees are allowed. Funds are automatically 'Sweep-out' of linked muti-option account if there is insufficient balance in the saving account as per need, while remaining amount will continue to earn at same rate applicable to initial deposit.
These deposit account are also termed as saving-linked 'Flexi-deposit' account by some banks. It is even more convenient, if you already hold a saving bank account with State bank of India or any other bank with internet banking facility. It just takes a few minutes, using online facility to place a request to create a new MOD account as well as an instant redemption request, at the comfort of your home.
- Fixed Deposits or Tax Saving Term deposits
Fixed Deposit is a safe, reliable and traditional investment avenue suitable for both retirees as well as other investors. Although It has a restricted or limited liquidity due to penalties on premature withdrawals, yet investors can fragment funds across different maturities to manage liquidity as well as associated interest rate risks.
- Senior Citizens’ Saving Scheme (SCSS)
- Pradhan Mantri Vay Vandana Yohana (PMVVY) It is yet another exclusive product for senior citizens by government of india. It provides an immediate pension for senior citizens 60 years and above .It can be purchased by paying a lump sum amount. The plan provides for pension payments of stated amount for the policy term of 10 years, with return of purchase price at the end of 10 years.
Any depositor can open an account, either individual or joint, for a single amount in multiples of one thousand rupees, up to a maximum amount of fifteen lakhs, along with valid age proof. As the name itself indicates it is an exclusive product for retirees with a higher rate of interest, i.e around 8.6% payable at the end of every calendar quarter. No compounding of interest is allowed.
SCSS has a maturity of 5 years subject to a further extension of 3 yrs after maturity. It is available both at banks as well as post offices. Liquidity is highly restricted that is permitted only after one year. Penalties in range of 1 to 1.5 percent, are applicable for premature withdrawal by depositor even after one year.
No medical examination is required. Premature exit is allowed during policy term under exceptional circumstances like Critical/Terminal illness of self or spouse . Surrender Value payable in such cases is 98% of the Purchase Price.
Depositors may opt for a min of 1000 unto a 10000 monthly pension. Maximum purchase price for ant mode of pension is fifteen lakhs rupees.
- Liquid Mutual Fund Schemes It is a borderline option for a risk-averse investor to have a tax efficient investor who are looking for a long term investment avenue. Liquid funds are an ideal option to park emergency funds. They can also be used for temporary deployment of surplus funds, to tide over prevailing market conditions. They are one-step up in the hierarchy of products based on liquidity.
Pros :
Higher returns as compared to normal saving account.
Instant redemption facility upto fifty thousand rupees per day.
Tax benefits for long term investments.
Better returns in a increasing rate cycle.
Cons :
No tax benefits if investment are held for less than three years.
Low risk to moderate Investment options
- Debt Mutual Fund Schemes
- Hybrid or Balanced Mutual Fund Schemes
Debt Mutual Funds mainly invest in a mix of debt or fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons. Generally, debt securities have a fixed maturity date & pay a fixed rate of interest.
There is a wide range of fixed income or Debt Mutual Funds available to suit the needs of different investors, based on their risk profile and Investment horizon.
High risk Investment options
- Equity Mutual Funds
- High Dividend Yield Stocks
Invest in the equity mutual funds either as part of SIP or wait until the stock market corrects itself . On an average, equity market corrects significantly once in 2-3 years. That is the time when investment can be made in equity mutual funds for very handsome returns.
Although equity involvements are not suitable for all investors, yet those who are willing to take some risks or have prior knowledge about equity investments and associated risks may choose to consider investment in high dividend yielding stocks of companies, that are fundamentally sound and available attractive valuations mostly during market corrections.
Here, the sole intent to get tax free dividend income on long term equity investments for capital appreciation as well.
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