your retirement date is not the end-point for your financial planning. With
increased life expectancy, Indians are expected to live an average of 20
years beyond retirement.
For self-employed individuals, the biggest challenge that comes to hinder retirement planning is the inconsistent income flow. As the income is not constant, it is more difficult for a self-employed individual to find out how much can he/ she should contribute to the retirement plan on a regular basis. The way out here is to invest either as a lump sum or invest in those plans that give you more flexibility as compared to others.
"Over half (53%) of self-employed men and over two-thirds (67%) of self-employed women have no pension savings. Don’t rely on the state to fund your retirement."
Tips for Retirement planning
- Save and invest early so you have more time to allow your money to grow
- Save and invest regularly to ensure your investments grow at a steady rate
- Invest in assets or investments that create value and beat inflation
Some of the examples of plans are:
1.Monthly Income Scheme (MIS):
It is a one-time investment scheme, offered by various banks and post-office to attract investors with the lucrative interest rate.
Return :- The interest rate generally ranges from 7.5-9 per cent for up to 15 lakh, for a period of five years. The banks' MIS are available for various maturity periods – from 7 days to 10 years, at different interest rates. Interest is being credited directly into the investors' savings account directly on monthly basis.
Tax Benefit : However, the flip side is that the interest earned from MIS is not exempted from tax. This is to be clubbed into other sources of income. For retirement planning, it is advisable to continue investing in such schemes till the time of retirement.
2.Public Provident Fund (PPF) Scheme:
Return : Public Provident scheme offers its investors at attractive interest rate of 8.8 per cent per annum. The deposits under PPF scheme is locked for 15 years, with a minimum cap of Rs. 500 and maximum Rs. 1 lakh per annum. Interest is compounded annually and payable on maturity.
Tax Benefit :Contribution is Exempt u/s 80 C upto Rs 100000
3.National Savings Certificates:
National Savings Certificate are available in two variants NSC VIII Issue (5 years) and NSC IX issue. Return : The 5-year scheme yield returns at the interest rate of 8.6 per cent per annum, whereas the 10-year scheme yield interest at the rate of 8.9 per cent. The advantage for self-employed individuals here is that they can buy the certificate at one go, whenever they have surplus, so that there will be no need to think of the regular monthly or quarterly payment structure.
Tax Benefit :Contribution is Exempt u/s 80 C upto Rs 100000
4.Mutual Funds (MF):
Non-Banking financial companies are offering varieties of funds to meet the distinct needs of investors. MF investments make more sense if used along with the above-mentioned safe investment options. Mutual funds invests our contributed amount directly into debts and equities. Many mutual funds give an option for an investor to switch their allocation of funds from debt to equity and vice-versa and to redefine the percentage of allocation between the two from time-to-time.
Tax Benefit :Furthermore, each company will offer two types of tax savings mutual funds, one is growth-oriented and other is dividend-driven. The dividend will be considered under tax liability, under income from other sources. These have a lock in period of 3 years. You can either redeem after completion of 3 years or continue for much longer term for better returns. Redemption amount will be exempted from tax.
5.Investing in Stocks:
There are many blue-chip companies like Infosys, SBI, ITC, BHEL, Tata Power, etc. You can choose these companies for a long-term investment.
Return: The blue-chip companies generally give nice returns over a longer period of time, say 10 years or so.
Tax Benefit : No Tax benefit is available for investment
6.Infrastructure Bonds:
Non-Banking financial institutions offer infrastructure bonds every financial year.
Return: The collected funds are being utilized for the infrastructure projects in India and also offer competitive interest rates in the range of 8 per cent to 9 per cent. Though, the interest rates of infrastructure bonds have dropped in the recent past, but the long-term scenario looks good.
Tax Benefit : No Tax benefit is available for investment
7.Gold Funds:
Over the period of time, gold is also one of the investment option for anyone with minimum guaranteed returns.
Return: One can expect average returns of around 10-12 per cent per annum from gold funds.
8.Retirement or Pension Funds:
Many insurance companies offer long-term retirement or pension policies.
Return: These come along with the life insurance cover and the main purpose of these funds is to create a huge retirement corpus fund for your retirement benefits. These are basically of two types, one is purely traditional, i.e., the returns specified by the financial executive are more or less the same. Other type of policy is unit-linked, i.e., total money will be invested both in equity and debt funds. So, the returns of this kind of policy are not assured over the period of time.
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