Best Investment for Retirement Lump Sum
There are several alternatives when it comes to investing lump sum money, especially investment of retirement fund. Understanding and proper planning are required for protecting the savings of whole-life from the hard-earned money, also the scheme should be good enough to make the money work for itself and provide a proper safest return. Here, Building a proper portfolio for retirement corpus is absolutely necessary. One has to choose low risk –fixed guaranteed return. Every instrument has its own pros and cons.
Following are the popular choices among many options available for investment of retirement fund .
Senior Citizen Saving Scheme
Fixed deposits
Mutual funds
Tax-free bond
Annuity
NPS
Senior Citizen Saving Scheme
Senior Citizen Saving Scheme (SCSS) is available in a scheduled commercial bank and in the post offices. One has to invest within one month of receipt of retirement funds. Upper limit is 15L for an individual or for a joint account.
SCSS investment can be done with a five-year tenure, the tenure can be extended further by three more years once the investment matures.
The present rate of interest in SCSS is 8.7% pa, payable which is quarterly. The interest received is part of taxable income. Once invested, the rates of interest remains fixed for the entire tenure.
Post Office Monthly Income Scheme
As the name suggests this scheme is available in the Post Offices. Investment in POMIS can be done for a five-year timeline. The scheme has a maximum limit of Rs 9 lakh for joint ownership and Rs.4.5 lakh under single name account.
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Here the interest rate is set each quarter as per central guidelines and is currently at 7.6% pa. The interest in this scheme is payable monthly. (in case the interest is not withdrawn it lies ideal and does not earn interest on this amount) The investment in POMIS does not attract any tax benefit and the interest has to be treated as a taxable income.
Fix Deposit
One of the hassle-free investment for retirees. It is the easiest to maintain instrument and also very flexible mostly from 1 year to 10-year tenure. However, the rate of interest is not very attractive here. The present rate of interest varies from bank to bank and presently around 7% to 7.3% with an extra 0.25% – 0.50% for senior citizen
It is best to go for a 5-year tax saving plan within the FD. Under this scheme, the investment made in these FDs is covered under section 80C for income tax exemption. However, in the tax saver plan, there is an understandable lock-in of 5 years. The rate of interest is also always a bit lower than its non-tax exempt FD peers.
Fixed deposits schemes are also available in post-offices. The terms including income tax angle are more or less similar to bank FDs. the interest rate is mostly is a little more than bank rates.
Mutual Funds
Mutual fund (MF) is a stock market-linked investment. Even though historically MFs have delivered higher return compared to other funds, it has to be chosen with care and with calculated risk apatite. Retires can always keep a portion of their to be investment of retirement fund in the MF category. There are regular income plans available. One should research properly and take advice from financial expert to invest a portion of their corpus.
There are some tax-friendly MFs also available. e.g a person with highest tax bracket (30%+cess) can choose debt funds which are taxed at 20%. Hence saving 10% tax on return on MF. Debt funds are also popular for their liquidity.
Tax-free bonds
These bonds are the most tax-friendly instrument. The funds are issued by the following government enterprises. Since the bonds are issued by government entities, they are the safest and with a fixed return. The present rate of interest for these bonds are at 6.5%Indian Renewable Energy Agency
- Rural Electrification Corporation
- HUDCO
- Indian Railway Finance Corporation
- NHAI
- NTPC
- Power Finance Corporation
Even though the instrument is most hassle-free as far as income tax is concerned, these bonds are available only in stock exchanges as these are listed instruments.
One has to make a informed decision before doing investment of retirement fund here as these bonds are locked in for a very long period for 10, 15 or 20years.
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Annuities
Annuities are sold by insurance companies. These are to be considered as a fixed income throughout a lifetime. The return can be better named as a pension. There are options to be selected from various choice. Since this is a product from insurance companies, the benefit of return can go beyond life of the annuity holder to the nominee(s). However, there is no return of capital unlike all other retirement friendly investments discussed here so far.
The return in an annuity is normally lower than the present interest of FD etc. but it promises a fixed amount as pension irrespective of fluctuation in the bank/government interest rate. Normally financial advisors mandate against putting the whole corpus in this instrument. As per them, if you have the capability to put your own mind and keep shuffling your corpus with withdrawal and re-investing (of course with long term mindset) that can give better return with principle money in hand.
National Pension System
Investment in the National Pension System (NPS) can be done from 18 to 65 years of age with extendable till the age of 70 years. The NPS regulator invests in equities and debt funds as per guidelines by the government. Hence the return in this scheme is market-linked, which is usually attractive because of its long term nature.
On retirement or reaching the age of 60, NPS member can now withdraw 60% (limit has been increased from 40%) of the total corpus. This one time withdrawn amount is exempt from income tax.
Contribution towards NPS account can be made both online or offline. The popular method of investing in NPS is with standard instruction of a specific amount every month.
How To Invest Retirement Money
Retirement Investment Options
Safest Investments For Retirement
How To Invest For Retirement At Age 50
How To Invest For Retirement At Age 60
Starting Retirement Savings At 55
Please choose an option for investment of retirement fund very wisely so that the money can be safe enough while it earns for you.
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Test Retirement fund comment
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