2. Agenda
1. Introduction
2. Requirement and Risk bracket of a person planning for retirement
3. Investment options for retirement planning
4. National Pension Scheme (NPS)
5. Public Provident Fund (PPF)
6. Equity Mutual Funds (EMFs)
7. Better illustration with an example
8. Individual estimation for retirement planning in NPS, PPF & Equity mutual funds (EMFs)
9. Comparison between NPS, PPF & EMF
10. Conclusion
3. Introduction
Retirement can be termed as the most important and sensitive phase of
an individual’s life. People depend not only emotionally and physically,
but also financially as they age. Only those who are employed can avail
financial independency.
Now, this is true even for this day, as we speak (just like it was earlier).
The schemes being the same as before, all that is new for now are the
changes, amendments & up gradations.
Retirement basically deals with: rising medical expenses, personal
expenses (like son/daughter’s marriage), etc.
To take care of all these, there has to be a properly chalked out
“PLANNING”.
As planning always says “Sooner, the Better”.
And we say, “ With a proper planning at hand, war against retirement is
half won!”
4. Requirement and Risk bracket of a
Person Planning for Retirement
Regular stream of income
Variation in risk taking capability being inversely proportional to
that of the investor’s age
Capital protection
5. Investment options for retirement
planning
Various options before an investor planning for retirement are :
EMFs (Equity Mutual Funds)
PPF(Public Provident Fund)
EPF(Employee’s Provident Fund)
NPS(National Pension Scheme)
POMIS(Post Office Monthly Income Scheme), etc.
Of which we have been given, to describe and compare 3 schemes, namely:
NPS, PPF & EMFs
6. National Pension Scheme
(NPS)
Some features and Benefits Of NPS:
It is voluntary -NPS is open to every Indian citizen. You can choose the amount you
want to set aside and save every year. Extending old age security coverage & income
to all citizens
It is flexible -You can choose your own investment option and Pension Fund
Manager and see your money grow
It is portable-You can operate your account from anywhere in the country, even if
you change your city, job or your Pension Fund Manager
It is regulated -NPS is regulated by PFRDA, with transparent investment norms and
regular monitoring and performance review of Fund Managers by NPS Trust
Reasonable market based returns -over the long term
Tax benefits -Contribution towards NPS exempted under Section 80C
Low cost investment - Cost effective mode of planning for one's retirement
The NPS offers you two approaches to invest your money:
Active choice {Individual Funds (Asset Class E, Asset Class C, and Asset Class G)}
Auto Choice
Source: http://www.hdfcpension.com/faq.html
7. Public Provident Fund (PPF)
Some Features and benefits of PPF:
From 1.4.2014, interest rates are as follows:- 8.70% per annum (compounded yearly).
Minimum deposit amount INR. 500/- and Maximum deposit amount INR. 1,50,000/- in a financial year.
Deposits can be made in lump-sum or in 12 installments every year.
An individual can open account with INR 100/- but has to deposit minimum of INR 500/- in a financial year
and maximum INR 1,50,000/-
Maturity period is 15 years but the same can be extended within one year of maturity for further 5 years and
so on.
Premature closure is not allowed before 15 years.
Deposits qualify for deduction from income under Sec. 80C of IT Act.
Withdrawal is permissible every year from 7th financial year from the year of opening account
Loan facility available from 3rd financial year.
Source: http://www.indiapost.gov.in/ppf.aspx
8. Equity Mutual Funds (EMFs)
Some Features and benefits of EMFs:
Equity Mutual Funds invest in the diversified portfolio of large cap, mid cap and small cap companies.
For long term horizon this scheme is always advisable because the return is high if invested in a systematic
manner.
But for short term period, this plan is not advisable as the risk is high and return is very low depending on
the market scenario.
Investment up to 1 year is subject to short term capital gains tax and beyond 1 year is tax free under long
term capital gains tax.
However, ELSS is a better option for investors who want to invest in equity as it gives tax rebate as well as
good returns in the same financial year.
Source: http://www.rediff.com/getahead/2005/sep/01sip.htm
8-yearreturnasonJune30,2003
9-yearreturnasonJune30,2004
10-yearreturnasonJune30,2005
Fund 8 years 9 years 10 years
Franklin India Prima 23.83 30.38 35.78
HDFC Equity 25.17 29.09 33.22
Franklin India Bluechip 23.79 29.66 31.43
Franklin India Prima Plus 21.94 27.26 30.22
Birla Advantage 17.27 21.59 26.16
Prudential ICICI Power 13.14 18.86 23.86
9. Illustration with an example
An Investor, Ravi Acharya, in his 30’s is planning for his retirement. He
has invested in NPS, PPF & EMFs a lump sum of INR. 5,00,000/-
investible surplus.
As risk appetite decreases with increase in age. So dependency on
fixed income(annuity) increases, that is tax-free and more secure.
Take for instance, by the time he reaches 45 years of age, his
portfolio ought to reflect :
I. 40% of his total investment in Equity mutual funds that was 50%
when he was 30 years of age
II. 20% in PPF that was 15% previously &
III. another 40% in NPS that was 35% previously.
10. NPS
Time Horizon
G class
20%
50%
80%
E class
50%
30%
10%
C class
30%
20%
10%
25-35
years
35-45
years
45-55
years
Source: http://ssaravanan-vvu.blogspot.in/2013/07/brief-on-new-pension-scheme-nps.html
Source:http://en.wikipedia.org/wiki/National_Pension_Scheme
13. Comparison between NPS, PPF & EMF
NPS PPF ELSS
Market Linkage Market Linked No market linkage Market Linked
Lock-in Period Up to 60 years 15 years 3 years
Capital Protection No capital
protection
Capital is protected No capital
protection
Professionally
managed
Affirmative Affirmative Affirmative
Tax provision EET EEE EEE
Returns Moderate Minimum Maximum
Fund Management
Cost
0.0102% for
government
employees, 0.25% of
the invested amount
for investor
No fund
management cost
involved
0-1.25%
Schemes
Parameters
14. Conclusion
45-55 years
• PPF (60% or
80%)
• NPS (20%)
• EMF (10%-
20% or nil)
35-45 years
• NPS (30%)
• EMF (40%)
• PPF (30)
25-35 years
• EMF (50%)
• NPS (30%)
• PPF (20%)
For, “Moneywise,
one’s ought to be Wise!”
As retirement is a crucial stage, its planning & implementation in a
diversified portfolio is a given.
As all the schemes have their pros and cons, all we can do is, take the
maximum out of the pros and minimum of the cons, in order to avail the
maximum out of the opportunity at hand.
So, when the time horizon is more, a major portion should be invested in
equity as the yield will be larger than any other fund available.
With the passage of time & age, investment in equity has to be thinned down
and a proper mix of investment in equity mutual fund, NPS & PPF ought to
be considered as stated below :
