Last fortnight, I concluded my last column by suggesting about the urgent need for retirees to avoid the Chinese Curse of outliving their money.
In this column, let us look at some options available to retirees to avoid that ignominy.
The Government’s National Pension Scheme (NPS) is emerging as a popular avenue for Retirement planning though it may still undergo a few more iterations before settling down. It is also capped in terms of providing an additional Tax break.
Mutual Funds too offer multiple Retirement Plan options and one of the popular options is a Hybrid Aggressive Retirement Fund. These funds have a lock-in period of 5 years or 58 years of age, whichever is earlier. Let us now proceed to glance at a few funds from this category.
HDFC Retirement Savings Fund Hybrid Equity Plan has an AUM of R1,140 crore. The Current Asset-allocation is 71%in Equity, 17%in Debt and 12%in Cash and Cash equivalents. The equity investments are spread across sectors like Banks and Capital Goods. The debt investments are in Government Securities and Corporate Securities.
This fund has recorded returns of 20% over three-years and 16%over five-years. ICICI Prudential Retirement Fund Hybrid Aggressive Plan has an AUM of R218 crore. The Asset-allocation mix is 84% in Equity and 16% in Debt. The equity investments are in primarily Metals and Automobiles industry. The debt allocation comprises of Government Securities, Corporate Securities and Deposits. This fund has recorded returns of 19.4%over three-years.
Nippon India Retirement Fund Wealth Creation Scheme has an AUM of R 2,554 crore. Its current asset allocation mix is 98% in Equity and 2%in Cash and Cash equivalents. The Equity portion primarily includes investments in Banks and Software. This fund has recorded returns of 20.5%over three-years and 11.5%over five-years.
A Reverse Mortgage is yet another option that involves the Bank or Financial institution paying the house owner (usually a Retiree) a fixed monthly amount during their lifetime. Post the house owner’s lifetime, the entity offers the Legal Heirs the option of repaying the sum issued under reverse mortgage with interest and taking ownership.
Another popular Option used by several investors is to invest in an Insurance Company’s Unit Linked Investment Plan (ULIP) in their late forties and allowing it at least a dozen years to mature even though the lock in period is usually of 5 years. Even with the new marginal tax levy, it remains a feasible Retirement option if your financial advisor performs the balancing act between debt and equity adroitly.
Yet another option which has not really taken off in India is the Reverse Mortgage option. A Reverse Mortgage involves the Bank or Financial institution paying the house owner (usually a Retiree) a fixed monthly amount during their lifetime. Post the house owner’s lifetime, the entity offers the Legal Heirs the option of repaying the sum issued under reverse mortgage with interest and taking ownership. To sum up, multiple options are available to choose from, provided Retirees plan well ahead of Retirement.
Ashok Kumar
Head of LKW-India
He can be reached at ceolotus@hotmail.com
(Views expressed here are personal)