Dear Dhirendraji , I am a regular follower of your program on ETNOW, recently I have registered myself on your website. I am a 52-year-old PSU employee and I have invested in FT Build India, FT Prima, HDFC Equity, HDFC Balanced, IDFC Premier, ICICI Pru Value Discovery, UTI opportunities and Reliance Vision fund. I have accumulated holding of ₹16 lakh in mutual funds by investing in the past eight years. I will not get any pension from the government. I will retire in eight years and I would like to have a pension of ₹40,000 each month after retirement. In which pension product should I invest? NPS or HDFC Retirement Fund Or HDFC Standard Life Personal Pension Fund? Please help me realise my financial goals.
- MKS
You will need a corpus of ₹96 lakh to generate a monthly income of ₹40,000 for 20 years after your retirement. We have assumed a life expectancy of 80 years and an inflation of 8 per cent for the calculation. If you invest ₹25,500 every month via a Systematic Investment Plan (SIP) for the next eight years and if this investment along with your current corpus of ₹16 lakh earn 12 per cent returns per year, you will be able to achieve your target corpus easily.
You really do not need a tailor-made pension plan to build your retirement corpus. Unless you are looking for some extra tax benefits, you can invest in one or two diversified equity mutual funds to create the corpus. This will offer you a greater control over your investments.
As a rule, it is better to avoid pension plans from life insurance companies as these plans combine insurance and investment. They are costly and they mostly offer modest insurance life cover and returns. As for your other choices, HDFC Retirement Savings Fund is a new scheme that offers three different investment options. It is not wise to invest in a scheme without a long-term performance history. You can opt for National Pension Scheme (NPS) if you want to claim tax deductions on your contributions and want a tailor-made government-backed retirement product. But please remember that NPS have two distinct limitations: One, it has a 50 per cent cap on equity investments, which puts it in a disadvantageous position vis-a-vis equity mutual funds that invests 100 per cent of the corpus in equity. The increased allocation to equity may result in extra returns over a long period. Two, NPS forces you to buy an annuity income on retirement and it allows you to withdraw only 40 per cent of the corpus tax-free.
This article was originally published on March 17, 2016.
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