6 ETFs That Are All You Need for Retirement In India
6 ETFs That Are All You Need for Retirement In India
In retirement, investors should probably turn to income-focused investments that also have good capital preservation characteristics. While drawdowns in riskier investments won’t hurt you badly if you’re young and have a lifetime to make up losses, retirees don’t have that luxury.
Hopefully, by retirement, your savings are large enough that a prudent allocation between dividend stocks and fixed-income securities is enough to cover your living expenses when combined with Social Security payments.
2022 has been a very unique year in which just about every type of income security has lost value, as interest rates have rapidly risen. However, now is a much better time than a year ago to invest in these types of instruments.
For those looking to create a low-cost, diversified portfolio of stocks and bonds, the following six exchange-traded funds (ETFs) should be on your list. Depending on your income growth needs, risk tolerance, and tax bracket, retirees should weigh these six funds according to their unique circumstances.
Retirement means the end of earning period for many unless one chooses to work as a consultant. For retirees, making the best use of their retirement corpus that would help keep tax liability at bay and provide a regular stream of income is of prime importance. Building a retirement portfolio with a mix of fixed-income and market-linked investments remains a big challenge for many retirees. The challenge is not to outlive the retirement funds — one retires at 58 or 60, while the life expectancy is.
Senior Citizens’ Saving Scheme (SCSS)
Probably the first choice of most retirees, the Senior Citizens’ Saving Scheme (SCSS) is a must-have in their investment portfolios. As the name suggests, the scheme is available only to senior citizens Currently, the interest rate in SCSS is 8.6 percent per annum, payable quarterly and fully taxable. The rates are set each quarter and linked to the G-sec rates with a spread of 100 basis points. Once invested, the rates remain fixed for the entire tenure. Currently, SCSS offers the highest post-tax returns among all comparable fixed-income taxable products. The upper investment limit is Rs 15 lakh and one may open more than one account. The capital invested and the interest payout, which is assured, have a sovereign guarantee. What’s more, investment in SCSS is eligible for tax benefits under Section 80C and the scheme also allows premature withdrawals.
Post Office Monthly Income Scheme (POMIS) Account
POMIS is a five-year investment with a maximum cap of Rs 9 lakh under joint ownership and Rs 4.5 lakh under single ownership. The interest rate is set each quarter and is currently at 7.8 percent per annum, payable monthly. The investment in POMIS doesn’t qualify for any tax benefit and the interest is fully taxable.
Instead of going to the post office each month, the interest can be directly credited to the savings account of the same post office. Also, one may provide the mandate to automatically transfer the interest from the savings account into a recurring deposit in the same post office.
Bank fixed deposits (FDs)
A bank fixed deposit (FD) is another popular choice with retirees. The safety and fixed returns go well with the retirees, and the ease of operation makes it a reliable avenue. However, interest rate over the last few years has been falling. Currently, it stands at around 7.25 percent per annum for tenures ranging from 1–10 years. Senior citizens get an extra 0.25–0.5 percent per annum, depending on the bank. Few banks offer around 7.75 percent to seniors on deposits with longer tenure.
Mutual funds (MFs)
When one retires and there is a likelihood of the non-earning period extending for another two decades or more, then investing a portion of the retirement funds in equity-backed products assumes importance. Remember, retirement income (through interest, dividends, etc.) will be subject to inflation even during the retirement years. Studies have shown that equities deliver higher inflation-adjusted returns than other assets
Depending on the risk profile, one may allocate a certain percentage into equity mutual funds (MFs) with further diversification across large-cap and balanced funds with some exposure even in monthly income plans (MIPs). Retirees would be advised to stay away from thematic and sectoral funds, including mid- and small-caps. The idea is to generate stable returns rather than focus on high but volatile returns.
Tax-free bonds
Tax-free bonds, although not currently available in the primary market, can also feature in a retiree’s portfolio. They are issued primarily by government-backed institutions such as Indian Railway Finance Corporation Ltd (IRFC), Power Finance Corporation Ltd (PFC), National Highways Authority of India (NHAI), Housing and Urban Development Corporation Ltd (HUDCO), Rural Electrification Corporation Ltd (REC), NTPC Ltd and Indian Renewable Energy Development.
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