Pension Plans. This is a very important aspect of Financial Planning. There is no point in slogging throughout life and retiring like a pauper. You must be prepared to make a few sacrifices during the working years to save as much as you can to create a healthy corpus for retirement. You must also invest it wisely to ensure proper growth and benefits.
Till a few years ago, investment of up to Rs 10,000 made under Section 80CCC could reduce your taxable income by the amount invested. But only one-third of the maturity amount was tax free and the remaining two-third was taxable. It was a good option then; but not now. Section 80CCC has been merged with Section 80C. So if you have already taken any Pension Plan earlier, please see if there is an exit route.
A very interesting development is that you can seek to provide for your retirement pension through a "Reverse Mortgage" of your existing home / flat. You can pledge your property to a Bank and they will give you some money every month. Your children have the option of repaying all the amounts taken by you along with interest to the Bank if they wish to take possession of the property after your demise. If they refuse to do so, the Bank will sell the property to recover their dues. They may give the balance (if any) to your nominee.
A good ULIP may prove to be the best Pension plan for the following reasons:
1. Withdrawals are tax free while we a still in the EEE Regime where all the three phases of the investment cycle (Investment, growth and withdrawals) are exempt from tax.
2. Withdrawals will remain free even when EET is implements with prospective effect. Withdrawals from plans started before the cut off date will remain tax free; but withdrawals from plans started after the cut off date will be taxed. Some good ULIPs run through till age 99. Having started the plan before the cut off date, you can enjoy tax free returns till age 99. Besides, you can benefit from frequent Switching as explained during my presentation by investing in a ULIP. If you try to practice Switching in ELSS or any other investment, you may have to pay the exit load, 15% short term Capital Gains and Entry load. Besides, withdrawal from the new plan will be taxed as investment is being made after the cut off date.
To save tax under Section 80C investment in any of the following qualify:
1. NSC
2. PPF
3. ELSS
4. ULIP
5. Principle repayment of Home loan
You can reduce your taxable income by Rs 1 lakh by investing in any of the above Schemes.
NSC is the worst option as you get 8% return which is taxable. If you are in the 30% tax bracket, the effective post tax return works out to 5.6% which may not even beat inflation.
PPF is slightly better as it offers 8% tax free returns and you may get 1 or 2 % growth net of inflation.
ELSS is a better option as you may get a better return assuming Share Markets grow @ 17% CAGR. But there is a lock in period for 3 years. You cannot sell / switch in the first 3 years. You will remain a silent spectator watching your fund values erode in a falling market.
A Good ULIP is much better
talk to the master for more details at http://fitnessfundas.
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