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Choosing Pension Plans

My wife wants regular pension and some corpus after retirement. Please tell us which pension plans to choose. - Vineet

My wife and I jointly have about Rs 10 lakh to invest. I want to invest this amount in 2 pension plans (Rs 5 lakhs each, single premium) in my wife's name. My wife wants to retire after 10 yrs and wants a regular pension and some corpus after this period. The risk appetite is medium to high. We do not want to invest in a regular annual premium plan. Please advice us on which pension plan to invest in as most of them are new and don't have much of a track record. I gather that some of these plans also guarantee minimum returns.
- Vineet

It is a wise decision to plan your retirement. As you said, most of the pension plans offered in India by various Life Insurance Companies are not very high yielding products and are relatively new. Nowadays, companies are offering the hot selling ULIP (unit linked investment plans) which have high cost associated with them. Plus it's always tough to decode a ULIP because of its complex structure and various associated charges. After the vesting age, the companies propose to buy an annuity for you for the fund value amount.

But, as you still have ten years to retirement, it is advisable to invest in good diversified mutual funds. You can make a well balanced portfolio with a mix of equity and debt by choosing from various five or four star rated funds, from the equity diversified, balanced, debt or MIP category. The debt funds and the MIPs would help balance your portfolio as they invest primarily in debt. This would help you reduce the down side risk. Instead of putting all your amounts in one go, it is better if you spread the investment over 12 months. Once you invest the amount, you can continue to remain invested for 7-8 years. After that, as your retirement age nears, you can start moving your equity investments completely to debt for securing your corpus. This way you can build a huge retirement corpus.

Once you build your corpus in ten years time and wish to start having a monthly income, you can put the whole amount in a Debt Fund. From this fund you can choose a fixed amount that you need every month and enroll for a SWP (Systematic Withdrawal Plan). Alternatively you can put the whole amount in a Fixed Deposit or some post office scheme to get a guaranteed return.

The above given investment approach will help you build a healthy and secure retirement corpus.

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