List of Retirement Investment Options in India in 2024

In the previous chapter, we explored the importance of early retirement planning. We take the process and our understanding further with this chapter about retirement saving options. 

Whether you are planning your retirement or helping friends or family chalk out their goals and figure out their savings, identifying the right channels for growing wealth is crucial. It is also necessary to strike the right balance between your tolerance for risk and the returns you expect from your investment. The need for this balance increases tremendously as you get closer to your golden years.  Thus, you need retirement saving options that don’t compromise your current standard of living and offer you substantial returns. While beginning early is the key to benefiting from the power of compounding, the importance of choosing the right investment vehicle cannot be overstated.

Below are some retirement savings options that can help you build your retirement nest egg:

• Employees’ Provident Fund
• Public Provident Fund
• National Pension System 
• Voluntary Provident Fund
• Senior Citizen Savings Scheme
• Bank Fixed Deposit

However, it is quintessential to identify your retirement goals and calculate the amount you will need in retirement before deciding on the right ideal investment instrument. 

Once you do that, below are the details of retirement savings plans you can choose from:

Employees’ Provident Fund (EPF)

EPF or the employee provident fund is a common savings scheme available to salaried employees from both public and private sectors. 

Eligibility Criteria for EPF

Below are the requirements for you to be enrolled in the EPF scheme: 

• Employment with an organisation that employs over 20 people 
• Age  between 18 and 54 years
• Basic monthly salary of at least ₹15,000

EPF requires both the employer and the employee to contribute 12% of the employee’s basic salary towards the account. The benefits of such accounts include lumpsum payment post-retirement, pension, and insurance. You can also avail loans against EPF savings. 

Advantages of EPF

• It offers a decent return rate and helps build a substantial post-retirement corpus. 
• EPF deductions are made from monthly paychecks, and this eliminates the stress of investing a lump-sum amount.
• The loan facility makes it a great resource at times of emergencies.
• You are allowed to claim tax exemption under Section 80C on your contribution to the account as well as earnings (up to ₹1.5 lakh).
• The possibility of premature withdrawals helps you bank on your savings on a rainy day.
• You can completely withdraw your EPF amount upon retirement or in case you are unemployed for over two months. Partial withdrawals, on the other hand, allow you to fund marriage, higher education, land purchase, house construction, etc. 

Public Provident Fund (PPF) 

PPF is regarded as the holy grail for risk-averse investors. It offers modest and stable returns and doesn’t require you to shell out a huge amount to start investing.  You can enter with as low as ₹500. The annual interest rate on PPF is decided by the Ministry of Finance which reviews and sets the rate periodically, often annually. This is done to align with the broader economic conditions and fiscal policies. 

Eligibility Criteria for PPF

Below are some important points to remember about PPF account eligibility:

• Any Indian citizen, including minors, is eligible to open a PPF account.
• A PPF account can only be opened under the name of an individual and a joint owner is not allowed. You can, however, specify a nominee. 
• The maximum investment limit is ₹1.5 lakh per annum which can be made either in up to 12 instalments or lump-sum.
• A minimum of one deposit per year is mandatory for the 15-year term to keep the account active.

Advantages of PPF

• PPF is regarded as a safe investment option because it offers guaranteed returns backed by the Government of India.
• Investments in PPF make you eligible for tax deductions under Section 80C of the Income Tax Act. Also, the interest earned and the maturity amount are tax-free.
• The interest on PPF is compounded annually, which can significantly increase the investment over the long term.
• Deposits can be made using various methods, including cheques, cash, online transfers, or demand drafts.
• With a maturity period of 15 years, PPF serves as an excellent long-term investment for goals like retirement planning.
• Investors are allowed partial withdrawals from the 7th financial year, adding a layer of liquidity to the investment.
• After the initial 15 years, the account can be extended indefinitely in blocks of 5 years, with or without additional contributions.
• The minimum annual investment requirement is very affordable.
• Loans can be availed against PPF accounts between the third and sixth years.  Below are some points to note regarding these loans.

1. Maximum tenure can be 36 months.
2. The loan amount can be a maximum of 25% of the available amount.
3. You can avail of a second loan before the sixth year after fully repaying the first one.

National Pension System (NPS)

This long-term investment scheme, regulated by the Pension Fund Regulatory and Development Authority (PFRDA), can help you accomplish retirement goals easily. By regularly investing in an NPS account during employment, you can be assured of a monthly pension after retirement. Since NPS invests your contribution in instruments like equities, bonds, and alternative assets, the performance of these investment instruments determines the final amount you will receive as a pension.  

Eligibility Criteria for NPS

To be eligible for NPS, you should:

• Be an Indian citizen (resident/non-resident) or a NRI
• Be between 18 and 70 years of age
• Comply with ‘Know Your Customer’ norms 
• Be lawfully capable of contract execution 

Advantages of enrolling in NPS

• There is a scope for earning higher returns than in the case of traditional investments. 
• The fund’s equity portion decreases every year to stabilise the risk-return equation. 
• Contribution to the fund is allowed anytime during a financial year. 
• The subscription amount and investment options can be changed. 
• The scheme can be ported across locations and jobs. You can thus stay enrolled even if you change your job or move cities.
• The scheme offers tax benefits under Section 80C and Section 80CCD

Rules Regarding Post-Retirement Withdrawal 

• You can withdraw a maximum of 60% of the corpus as a lump sum and the remaining 40% should go to an annuity plan.
• You are allowed to make a  complete withdrawal (without purchasing an annuity plan) if the corpus doesn’t exceed ₹5 lakh
• Withdrawals from NPS are tax-free
• The taxation on annuity will depend on your income bracket 

Voluntary Provident Fund (VPF)

A VPF is similar to an EPF, but enrolment in it is not compulsory. However, for salaried employees, investing in VPF, apart from EPF, can be beneficial. While neither the employer nor the employee is obliged to contribute towards VPF, employees can choose to contribute up to 100% of their basic salary along with the dearness allowance. The rate of return is the same as that of EPF. To apply for a VPF account, you must work for an EPF-recognised organisation.  

Advantages of investing in VPF  

• VPF belongs to the EEE category (exempt on contribution, exempt from principal, exempt on interest), which helps save substantial taxes 
• You can open a VPF account any time during a financial year by approaching your finance or HR team
• Yearly contributions up to ₹1.5 lakhs to the VPF account, along with accumulated interest are tax-exempted under Section 80C
• VPF accounts can be transferred at the time of changing jobs 
• The maturity amount is not taxable if you withdraw after 5 years of investment 
• To cover expenses such as medical emergencies, higher education, or home purchases, you can access funds from your VPF (Voluntary Provident Fund) before completing 5 years. However, it's important to note that early withdrawals may be subject to taxation on the maturity amount.

Senior Citizen Savings Scheme (SCSS) 

This scheme provides a regular income stream to senior citizens along with tax benefits. The government backs SCSS and allows senior citizens to invest a lump-sum amount either individually or jointly. If you wish to benefit from this retirement savings option, you may approach an authorised bank or post office branch.  

Eligibility Criteria for SCSS

To be eligible for SCSS, you must be:

• Over 60 years of age, or
• A retired civilian employee between 55 and 60 years of age, or
• A retired defence employee between 50 and 60 years of age

Points to Note About SCSS:

• The tenure of SCSS is 5 years and the government decides the interest rate
• The maturity period can be extended by 3 years
• The minimum investment amount for an SCSS account is ₹1,000, whereas the maximum is ₹30 lakh
• You can avail tax benefits up to ₹1.5 lakh under Section 80C
• Quarterly payouts are made on the first of January, April, July, and October 
• Cash deposits are allowed only for amounts below ₹1 lakh whereas you are required to pay higher amounts through cheque
• There are no charges for prematurely withdrawing funds within 1 year. However, if an account is closed between 1-2 years, a 1.5% charge is deducted from the principal. Similarly, the principal is subject to a 1% deduction, if you withdraw between 2-5 years.  

Bank Fixed Deposit (FD)

The bank fixed deposit is among the most popular retirement saving options. It allows you to invest a lump-sum amount at a predefined interest rate for a specific tenure. On maturity, you receive the principal along with the interest accrued. You can also choose the reinvestment of interest option to benefit from compounding. A primary reason for their popularity is that FDs promise better returns than regular savings accounts. 

Eligibility Criteria for Opening an FD Account

• FD investments are open to Indian residents and NRIs, including minors.
• Companies are also allowed to open FD accounts. This allows corporate entities to secure their funds in a fixed deposit.
• FDs provide an investment option for individual business owners as sole proprietors can also invest in them.
• The availability of FDs for partnership firms makes it possible for business partnerships to invest their surplus funds.
• They are also a safe investment avenue for informal and formal groups, as clubs can invest in them.

Advantages of Investing in FD

• FDs come in various forms, with tenures ranging from short to long.
• Special FDs are available for senior citizens and offer higher interest rates than savings accounts. They also offer tax-saving and cumulative return options.
• The interest rate is influenced by several factors, including the bank, the tenure of the FD, the type of FD, and the age of the investor.
• While premature withdrawal is generally an option, it may attract penalties. This ensures a balance between the liquidity of investment and commitment to saving.
• Cumulative FDs are an effective tool to accumulate a significant retirement corpus as they benefit from the compounding of interest over time.
• FDs can be used as collaterals for loans. Investors can thus benefit from a lower interest rate compared to unsecured loans. The permissible loan amount and the repayment terms are based on the FD's terms. This offers a layer of financial flexibility.

Utilising Retirement Calculators for Effective Planning 

Retirement planning becomes more effective when based on effective numerical analysis. This makes retirement calculators crucial tools as they offer a convenient way to make the necessary calculations. They are freely accessible, user-friendly, and designed to assist even those who might lack confidence in their financial or mathematical skills. For a more detailed understanding, consider using a pension or annuity calculator to determine:

• The yearly financial requirement is post-retirement.
• The additional savings needed to boost your retirement fund.
• The monthly savings requisite to meet your objectives.

To arrive at these figures, a retirement calculator takes into account several variables. They are :

• Your current age.
• The age at which you intend to retire.
• Your anticipated life span.
• The monthly income you'll need once retired.
• The expected rate of inflation.
• The anticipated return on investments before retirement.
• The expected return on investments after retirement.
• Any existing retirement savings you may have.

By inputting various combinations of these factors into a retirement calculator, you can evaluate whether you are prepared for retirement. This way, you can also arrive at the required savings corpus to meet your retirement needs and identify the most appropriate saving strategies to achieve your goals.

Additionally, a retirement calculator offers several benefits, such as:

• Saving time
• Minimising the risk of manual calculation errors
• Facilitating comparison between different investment approaches
• Providing a clearer picture of your financial situation in retirement

Knowing your retirement goals, considering potential saving options, and using the right tools can help you pave the way for an enjoyable life even after you stop working. Also, it’s never too early to start. You can take the necessary steps right after receiving your first pay cheque. 

The next modules will explore more areas in personal finance, including estate planning, risk management, and income tax.