Hyderabad : When talking about retirement, many people think that it is still a long time away. But, it is imperative to plan for this while earning income from the early years itself. There are many schemes like Employment Provident Fund (EPF), Public Provident Fund (PPF), Life Insurance Policies, Mutual Funds and National Pension Scheme (NPS). Our aim should be to use any of these to set up a future fund that is equal to our current earnings, taking inflation into account.
Start early
Investment schemes provide good benefits only when continued for a long period of time. Suppose you invest for 20 years at the rate of Rs 50,000 per year, a fund can be set up to around Rs 40 lakh with an average return of at least 8 percent. Suppose it is five years late. Then your fund will be limited to Rs 15 lakh. Hence, investments should always be started as early as possible.
To get high income
It is important to invest in schemes that have the potential to outperform inflation in the long run. If you opt for equity based schemes (Mutual Funds, NPS) for long term investment, you can earn double digit returns. Let's say you have invested in Nifty 50 shares since 1995. Since then till now it has given double digit returns every year many times. There was no loss of their long-term investment. This must be kept in mind while investing in equities.
Also Read : Filing your IT return for 2022-23? Avoid these mistakes
Low charges
Some fees are charged while investing in market based schemes. So, it is better to invest in a scheme with low percentage charges. Even if your money management cost is 1 percent over 25 years, your fund will make a difference of 10-15 percent. In other words, if you pay less fund management expenses, you can accumulate 12-15 percent more fund.
Without tax burden
Tax benefits at various stages of the investment journey should also be carefully considered. The investment, the income and the maturity amount should not be taxed. Depending on the scheme, the tax benefits vary. Schemes like NPS and EPF provide tax benefits (to the extent permitted by the rules) at all stages. Therefore, the tax burden is less compared to other schemes.
Keeping all these in mind, if you want all the benefits in a single scheme, you can opt for NPS. Equities, corporate bonds, government securities etc. are all included in NPS. The selection of investment schemes varies with increasing age. So, the risk is limited. Investments can be made at a lower cost of about 1/15 compared to the management costs of other funds. By continuing to invest for a long period of time, the compounding benefit of various schemes is achieved.
Some organizations offer corporate NPS to their employees. 10 percent of basic salary (including DA) can be invested in corporate NPS. It gets tax benefit under Section 80CCD (2). Those who are continuing under the old taxation system can invest up to Rs. 50,000 under Section 80CCD (1B). This is in addition to the Section 80C limit of Rs 1,50,000. Hence, it also helps in reducing the tax burden.
NPS is monitored by PFRDA. Fund managers have clear guidelines on how to manage these funds. So, the risk of investment is not that much.
