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Is it advisable to invest in an annuity plan for generating fixed monthly income?

Dhirendra Kumar explains how to get inflation-linked returns in retirement

I am nearing retirement. Would you suggest investing about Rs 20 lakh in an annuity plan like New Jeevan Shanti to get a fixed monthly income? This will be in addition to the post office, bank, and corporate fixed-income schemes.
- Nitin Manikrao Bhanji

No, it's not a good idea. The kind of annuities available to Indians today is not of reasonable quality. There are different types of annuities.

One is where you get a certain guaranteed amount till the time you live. In the other, you will get a certain predefined amount throughout life and after your demise, your nominee will get the principal amount back, that was invested by you. In the third, the periodic income that you get keeps on revising.

But in all these and any other type of annuity, I find the returns very low. The returns are low because the insurance company issuing the annuity is taking the risk of providing the periodic income until the time the annuity purchaser is alive. No one knows how long he will live. It can even be 100 years.

My suggestion would be, after investing in the post office MIP, Senior Citizen Saving Scheme and any other such fixed-income scheme to derive regular income, invest in something that is market-linked. A small part of it should be in equity because that will make your returns inflation-linked, if not protected completely.

Equity investments are risky if you invest for the short term. But the risk reduces over the long term. And be conservative. Never invest in one go, even if you have the amount ready. Spread it over at least one year to 18 months because getting into the market carefully is important. It helps you stay there.

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