Invest in Long-term Plans to Build a Retirement Corpus

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How to Build a Retirement Corpus

To help you accumulate a large amount of money for a better tomorrow, you can use the facility of Investment Plans. Life insurance is one of the best options to invest as it gives covers life and also helps you to accumulate wealth for your better future.

Unit Linked Insurance Plans and Endowment plans are two main types of Investment Plans. The returns on ULIP investment plans are on the basis of the performance of the market. Endowment plans are traditional form of investment plans. In this form of investment plans the returns are a lump sum amount or you can opt for annuity payout at the maturity of the life insurance policy. 

The returns of endowment plans are less but safe. You will not know where your money is being invested. ULIPs are transparent as you can find out where your money is being invested from the investment status. Both ULIPs and endowment plans have their own advantages. If ULIPs are flexible and transparent, then endowment plans give you guaranteed and a definite amount of profits.

Basically, there are four forms of Investment Plans. They are:          

  1. Life Insurance Investment Plans
  2. Unit Linked Investment Plans
  3. Endowment Plan
  4. Guaranteed Return Plan 

Life Insurance Investment Plans: 

Life insurance investment plans help you to insure your life as well as save enough money to fulfill your future dreams, for example, education of your children, their marriage or purchase of a car or house. These investment plans can also be used to accumulate enough wealth for any unforeseen circumstances in the future. 

Unit Linked Insurance Plans (ULIPs):

These plans are life insurance plans, and the money you invest is reinvested in the stock market. These plans are considered to be one of the best options as they help to increase your savings and also give life cover. ULIPs can be withdrawn any time you need your money back.

Endowment Plans: 

These are a traditional type of insurance plans with very less but guaranteed gain. These plans are best suited for people who want to keep their savings secure and still get some amount of gain on their savings.

Guaranteed Return Plan: 

At the end of the policy period, the policyholder gets a guaranteed amount under this plan.

Important characteristics and benefits of Investment Plans

Protection of your loved ones

These investment plans give life cover as well as the benefit of savings. In case of unforeseen circumstances, the family of the insured person gets the insured money and also the maturity value in the form of single payment or every month or every three months or ever six months. 

Goal-based planning 

This option is a good method to save money for achieving different goals like purchasing a car or a house, children’s educational cost, marriage expenses or retirement fund. If you do not want to risk your money with market-linked plans, then Endowment policies are safe and secure to accumulate your retirement fund. ULIP investment plans also give you good returns if you invest for a long term so that you can achieve your goals. 

Building reservoir of fund 

If you want to achieve financial goals, then life insurance plus deposits with lock-in period investment plans will help you to save money. This saving plan can help you to buy a car in five years or buy your house in seven years. 

Tax Benefits 

The money you invest as premiums is not taxable up to an applicable limit. The maturity fund which you receive is also not taxable. 

Secure Loan my mortgaging your investment 

You can get bank loans by offering these plans as security for the loan. For these secured loans you will have to pay a lesser rate of interest whereas if you take an unsecured loan, then the interest rate you will pay will be more.

Investment Plans for Retirement 

It is always better to plan in advance for your future needs. So you need to think in your young age to accumulate enough savings before your retirement time. You can choose a good option for retirement which gives you a large amount of payout when you retire. You also get payments regularly which can be taken as your monthly income. Depending on your necessities you can choose from the annuity of periodic payments.

Due to their high-risk factor equity-linked ULIPs although they give the best returns are not good for individuals of more than a specific age. If your age is between 20 and 30, then you can choose the investment plan keeping your focus on equities. If your age is between 40 and 50, then it is better that you transfer your funds gradually from equities and settle down with conservative debt funds.

If you begin your investment plans at an early age, then you can accumulate a good amount of wealth at the time of your retirement. So it is better to start investing in the stock market in between the age of 20 and 30 and then slowly shift towards debt funds as you are moving towards your 40s and 50s.

A few of the insurance companies give you the option to carry out this change automatically with your full awareness. Some others give you the option to manage this allocation yourself. Many insurance companies restrict people beyond a specific age from opting to invest in aggressive funds. However, they offer them with a perfect mix of growth and security of their capital.

Most of the retirement investment plans give you the option to pay a single premium every year make regular payments. You should choose between these two depending on your convenience, your ability to pay and the discount is given if you pay a lump sum amount. The insurance companies also give you the option to change the frequency of payment of premium as per your convenience. You are also given the options of increasing your policy amount, increase the life cover with the help of top-ups or even decrease it, and you can also exchange the mix of your funds.

Classification of the Investment Plans 

The frequency of payment of premiums, the type of schemes offered and life stage of the person investing or being insured classify the best Investment Plans.

Guaranteed or Non-Guaranteed 

You get less but secure gains if you invest in guaranteed insurance plans. These plans not also protect your wealth but also help in the steady growth of your investment. Your deposits are invested in safe and secure financial instruments which produce definite necessary benefits by many of the guaranteed investment plans. The market-linked non-guarantee investment plans give better gains but may not promise to give a definite amount of gains. The investment you make in non-guaranteed investment plans can be invested in different financial instruments like stocks which are linked with growth in equity and give importance to increase your capital. Your investment can also be invested in conservative funds like debt, stocks and shares or deposits in the bank which gives importance to preserve your capital.

Single or Regular Premium 

Since the charges related to paperwork and administration are less single premium, give you premiums at a lesser amount. This option can be availed by you only if you can pay a lump sum amount in one go. For individual who has just started working and cannot save many Regular premiums is the answer.

Life Stage or Non-Life Stage 

According to your age, your assets are distributed in a life stage or non life stage investment plans. If you are between the ages of 20 and 30 you are exposed to the stock market since you can manage the risk involved in a better fashion.

If you are between the ages of 40 and 50, then the distribution of your assets are transferred to stocks with low risk and financial instruments which give you definite and secure profits. If you are between the ages of 40 and 50, then your assets are directed towards a steady growth and protection of the wealth which already exists.

Let us explore some of the long-term investment plans to build your retirement corpus

Fixed deposits in banks:  

Fixed deposits are the most conventional long-term investment plans. These types of investment options are very popular with people who do not want to risk their hard earned money.

These investment plans give you more returns than the normal Savings Account or Recurring deposit. But if you withdraw your investment before the maturity period, then some amount may get deducted. The lock-in period of fixed deposits is from seven days to ten years and varies from bank to bank.

If you want to play safe and do want to risk your investment in the fluctuating market which may give better returns then fixed deposits is where you can secure your money. You can also take a loan by pledging your fixed deposits in case of an emergency. Depending on the bank you can get a loan worth 60 to 90 percent of the amount of your fixed deposit.

This form of the investment plan is very helpful for retired people as they can get an assured amount regularly and their investment is also safe. Section 80C can also get you tax benefits. You can also withdraw your investment partially or completely even before the maturity period.

Mutual Funds                                   

If you want to grow your retirement fund and also combat the rising prices, then mutual fund investment plans are the answer. You can invest in different mutual fund instruments like Systematic Investment Plan (SIP), Systematic Transfer Plan and Systematic Withdrawal Plan to grow your retirement fund.

 Systematic Investment Plan (SIP)  

If you want to save your money as well as invest in equity mutual funds then Systematic Investment Plan is the answer. SIPs help us by protecting us from market volatility. You can make your monthly investment in equity diversified mutual funds, debt funds like EPF, PPF or just in balanced fund considering your retirement time. If you begin to save for your retirement early, then the monthly investment amount is less to accumulate your retirement fund.

Systematic Transfer Plan (STP) 

You can shift your investment plan from equity to debt before two or three years of your retirement. This is necessary because equities are riskier and you will not be able to cope up with this risk when you are nearing your retirement. You can shift your accumulated retirement fund systematically by transferring a certain amount every month or every three months from equity mutual fund to debt fund with the help of Systematic Transfer Plan.           

Systematic Withdrawal Plan (SWP)      

Depending on your household expenses and other expenses you can begin the process of withdrawal of a certain amount every month, every three months, every six months or every year when you retire. This plan not only gives you regular income after your retirement with the help of withdrawals but also gives you the growth benefit on the balance amount in the debt fund.

Post Office Monthly Income Scheme (POMIS)    

This investment plan is very reliable and also a low-risk monthly income scheme which gives you income in a steady manner. An individual can invest an amount up to rupees 4.5 lakhs or rupees 9 lakhs in a joint account. The time of investment is five years. Its main purpose is to safeguard your retirement fund.

Tax-free Bonds 

Tax-free bonds are financial instruments which are issued by the government enterprises. This is a low-risk investment as it gives you a fixed rate of interest. The name says it all – these bonds are exempted from tax. They are a long-term investment plan of ten years or may be even more. The government reinvests the money invested by you in tax-free bonds in the housing projects and infrastructure projects.

You can choose to invest in one or more of the above long-term investment plans to enjoy a happy and healthy retirement life by not only securing your needs but also of your loved ones.