Retirement is an important life goal that one needs to plan for. Ensuring that you can maintain the same lifestyle as current and also be able to take care of any contingencies in the future should be a long-term plan. When you’re young, you may tend to ignore the need to save for retirement. However, earmarking some part of your salary and investing it for retirement is crucial for you to reap the benefits of compounding. From assuring high growth to good dividends to inflation protection, a good retirement investment portfolio should equip you to live a fulfilling life post-retirement.
As a salaried or business professional, it is imperative that you see the strategies that can be employed to sustain the principal amount – especially if you are nearing your retirement. Having fixed deposits as a part of your retirement investment portfolio ensures that. Fixed deposits also help you to balance the risks against other market-linked investments in your portfolio.
We will look at how fixed deposits can be used creatively to build your investment portfolio–
Know when to invest in fixed deposits
For making smart switches between equity and fixed income, keep a track of Interest rate on FD movements in banks. These will usually move up or down after a repo rate announcement by the Reserve Bank of India usually done bi-monthly. When you know that banks have a possibility of revising interest rates, you can redeem some well-performing investments in equities and invest them into a fixed deposit. You can select a timeline of one year to three-years. Any period longer than that can be again invested in the stock market.
Efficient use of maturing Employee Provident Fund corpus
You will cease to be a contributing member of the EPFO (Employee Provident Fund Organisation) and will get a substantial amount on the closure of your EPF (Employee Provident Fund) account. You can earn further on that amount by investing it in a company FD which will maintain the stability along with higher returns than EPF. EPF would have been fetching you 8.55% p.a. whereas company FDs will give a much higher return.
Laddering of fixed deposits
This is a smart strategy to beat inflation which will work best if you maintain a discipline of investing a certain amount on a particular date each month or keep aside amounts for special occasions where you can create a new fixed deposit. You can start investing with smaller amounts, for e.g., you can invest in Bajaj Finance FD with a nominal investment of INR 25,000. You can choose varied tenors for subsequent deposit(s), and this will ensure that you keep getting some redemptions during intervals.
Utilize cumulative option
This option always re-invests the interest into the FD rather than paying it to you. Always go for the cumulative option in a fixed deposit to benefit from the power of compounding. A payout or non-cumulative option will reduce your investment option by that much amount.
Even in retirement you will keep filing your taxes and will still need to make investments for tax savings if your pension and returns bring you in the taxable bracket of INR 3 lakhs and above. You can utilize tax-saving FDs (with a lock-in period of 5 years), avail higher interest rates per your age bracket and still save tax!
Do not forget to file your taxes on time
If you are retired, it is important to take advantage of exemptions for senior citizens under Section 15G and 15H to avoid a reduction in returns. As a senior citizen, you can avail a tax rebate on TDS of up to INR 50,000 per annum on fixed deposits.
Loan against fixed deposits
During the retirement period, you will not want to spend your saved corpus on unforeseeable emergencies. In case of any financial emergency, you can go for loans against fixed deposits. You can get a high-value loan almost up to the 75% of the maturity amount in a cumulative FD and up to 60% on a non-cumulative FD. Such a loan is affordable too, as you only have to pay 1%-2% more interest rate than the interest you’re earning from your fixed deposit.
Best safe available option post-retirement
Even if you think of investing your EPF corpus into PPF post-retirement, the restrictions do not allow you to withdraw more than 50% of the invested amount before 5 years. This leaves your money unusable in your retirement age when you actually need it. A fixed deposit will have no such restrictions.
Retirement planning need not be complicated. Using such simple and disciplined steps, you can create a robust and safe portfolio for your retirement. Why go for a risky investment plan when you can opt for investments like fixed deposits that offer safe and high returns?
Unless you break it early, bank fixed deposits are insured under Deposit Insurance and Credit Guarantee Corporation up to a limit of INR 1 lakh for each account holder. Also, few company FDs like the one from Bajaj Finance are also accredited for their safety and stability. Bajaj Finance FD has ICRA’s MAAA (stable) rating and CRISIL’s FAAA (stable) rating. These highest ratings in to the industry. This means that your funds are safe and secure when you invest in Bajaj Finance FD. Moreover, you earn higher interest rates with such company FDs in comparison to bank FDs and other fixed-income instruments.
To know the exact returns you can earn by using the above fixed deposit strategies, use the online fixed deposit calculator. You can also use it to compare various fixed deposit schemes and seek out the next timing of investment with any change in interest rates. Keep track of your investments with Experia-your online fixed deposit account.