Saturday, February 20, 2010

How to build retirement corpus?

Never put all your eggs in one basket. So diversify your investment in three parts - short term, medium term and long term. Pension plans aren't the only way to build a healthy corpus for retirement, notwithstanding the fact that they contain the word 'pension'. In fact, a combination of Public Provident Fund (PPF) and tax-saving mutual funds(ELSS) can work much better in this regard. So today, I take some investment options for retirement -

PPF -

PPF account matures 15 years after the financial year in which the investment was started and can be extended thereafter. When you withdraw the accumulated corpus, it is totally tax-free. The maximum amount that can be invested in PPF every year is limited to Rs 70,000. The remaining can be invested in other investment options.

ELSS -

ELSS come with a lock-in of three years. The main benefit with ELSS is that if the investor sees that his tax-saving mutual fund is not doing well, he can easily switch to another scheme after three years. If you withdraw after three years, it is totally tax free.

Those who are more risk taker can invest more in tax-saving mutual funds and less in PPF.

MFs -

If you have more money left with you after investing 80C’s 1,00,000 limit, than go for mutual funds. The mutual funds are for short term as well as for long term. There is flexibility for investor to opt to switch from one scheme to another without any exit load after 6 months.

Stocks -

Equity is most important investment option, if one wants to create wealth. But at the same time the risk is very high. So always invest in top stocks and that too for long term.

Bank FDs -

Easiest and safest option. Less risk, so less return. But as a to diversify your portfolio, invest some part in FDs. If you invest for 5 years in Bank FD, you would also get tax rebate under section 80C.

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