One should invest in a balanced portfolio under retirement planning.
ULIPs Vs NPS Vs SIP Vs EPF: If there is a slight fluctuation in the return on investment, then there is a big impact on the retirement corpus. In such a situation, to prepare sufficient funds for your retirement, you should choose the right investment option. There are some important factors such as tax efficiency, return prospect, stability, liquidity and risk level, on the basis of which one can select better investment products for themselves to achieve their target of retirement fund. Talking about attractive investment products for retirement funds, Ulips, NPS, equity funds and EPF are some of the best options.
One should invest in a balanced portfolio under retirement planning. One should invest in various options such as NPS, EPF, ULIP, equity funds, debt schemes, FD, gold and real estate by diversifying their capital. Apart from this, changes in policies should also be kept in mind while investing for retirement. If there is any problem then a certified investment advisor should be contacted.
Unit Linked Investment Plans (ULIPs)
ULIPs are such financial instruments in which both insurance and investment features are available, ie investors not only get returns but also get life cover. Under Section 80C of the Income Tax Act, a tax deduction benefit of Rs 1.5 lakh could be taken on ULIPs. Earlier, ULIPs with less than 10% premium of the sum assured were tax free, but this time in the budget of 2021-22, ULIP policy of annual premium of more than 2.5 lakh rupees was brought under tax. There will be tax liability like equity mutual funds at a premium of more than Rs 2.5 lakh. Long-term capital gains (LTCG) of more than Rs 1 lakh on equity mutual funds are taxed at the rate of 10 per cent.
Due to the change in the budget regarding ULIPs, other options should also be looked at so that you can get better returns. However, if the Salan premium is less than Rs 2.5 lakh, then the new offer will not make any difference.
National Pension System (NPS)
While planning for retirement, investing in equity or debt is not a wise decision. Through NPS, investors get the option to invest in equity, corporate debt and government debt, that is, all three are invested. There is also a benefit of tax deduction of up to Rs 1.5 lakh under section 80C and additional tax deduction benefit of Rs 50 thousand under section 80 CCD. After reaching superannuation age, 60% of the amount can be withdrawn from NPS which will be taxfree. The remaining 40 percent is to buy an annuity plan and tax liability is made on this annuity income according to the slab rate of the investor.
NPS is a good option for investment flexibility (equity-debt) and returns, but after retirement there is a tax liability on annuity and there is no liquidity in it.
Equity Mutual Funds SIP
Talk about long-term investments such as retirement planning can be found to have high returns from equity mutual funds. Better returns can be obtained from investment through SIP mode. In a financial year, LTCG of more than Rs 1 lakh on equity mutual funds has to pay tax at the rate of 10 per cent. If you have not met the limit quota of deduction benefits under section 80C, that is, you have invested less than Rs 1.5 lakh then you can invest in Equity Linked Saving Schemes (ELSS). Investments can be made in equity mutual funds based on age, risk appetite and expectation of return and as mutual funds close to retirement, equity mutual funds can reduce exposure to reduce risk.
Equity mutual funds get attractive returns, high liquidity and flexibility. However, there are risks involved in this.
Employees Provident Fund (EPF) and Voluntary Provident Fund (VPF)
EPF is the preferred option among salaried investors due to safe investment and high returns. EPF is currently receiving 8.5 per cent annual return while 7.9 per cent on PPF, 4-6.5 per cent on fixed deposits of less than Rs 1 crore in most government and private banks. Apart from this, there is a benefit of tax deduction under section 80C on the contribution of employees in EPF. Employees can invest in VPF at their will, on which interest is equal to EPF.
Prior to Budget 2021, the interest on EPF and VPF was taxfree. In Budget 2021, the government has made a provision to bring PF contribution of more than 2.5 lakh rupees annually from the next financial year into interest filed. With this proposal, EPF will now be less attractive for high-paid investors who invest more in VPF, such as the contribution of more than 20 thousand rupees to VPF every month. However, whose contribution will be less than 2.5 lakh rupees, this new proposal will not affect them.