The process of planning finances for the golden years and investing in ways to achieve them is retirement planning. It doesn’t entail merely keeping money aside. One also needs to invest in profitable schemes. Primarily to ensure their money keeps growing and gets accumulated toward their retirement.
The investment scheme of your choice will depend on factors like your investment horizon, daily expenses, and risk appetite.
Why should one plan for retirement?
Retiring from work indicates retiring from earning. While your income will be less stable, your expenses will continue to grow. Besides this, there are factors like inflation. Hence, a well-planned investment strategy will ensure your retirement goals are being met.
But, financial planning for retirement in India needs more than mere planning. And most Indian parents are dependent on their children to provide them with financial aid during retirement. While this is not a wise move, it is better to be economically independent even in your golden years without constantly depending on someone. To avoid this, one must start investing early on.
Investment options for retirement planning?
There are various investment and pension schemes available for retirement planning. Examples include the Public provident fund, life insurance policies, the National Pension Scheme, and tax-saving fixed deposits.
Indians have chosen these methods for years. These are low-risk and steady-return options that don’t offer much. It would be best if you chose an attractive investment tool. One that helps save tax and accumulates wealth.
The Equity Linked Saving Scheme (ELSS) is one such investment tool. It comes under the umbrella of mutual funds. One that invests in equity or equity-related products. ELSS is also known as tax-saving mutual funds.
What are the benefits of ELSS investments?
Firstly, one can secure a tax deduction of up to ₹ 1.5 lakh on ELSS investments per Section 80C of the National Income Tax Act. With a 3-year lock-in period, ELSS has the lowest lock-in period compared to other tax-saving investment tools. For example, PPF has a lock-in period of fifteen years.
ELSS allows you to liquidate your assets and secure your retirement funds quickly.
Secondly, these funds offer higher returns than other tax-saving investment instruments like PPF or fixed deposits. ELSS offers better returns as they are directly linked to the stock market.
ELSS for early retirement planning
ELSS is an easy investment scheme. Once an account linked with a mutual fund house, you must invest a lump sum or periodic amount. You also have the option to lower or increase the investment amount over time. This helps decide the investment as per the early retirement goal.
Moreover, there is no upper limit on monthly investments. You can begin investing in ELSS with as little as ₹500. The absence of an upper limit helps investors increase their retirement corpus and invest systematically.
Investors want to avoid losing their investments due to the unstable nature of the market. But, ELSS funds consist of investing in various stocks and sectors. These offer good portfolio diversification. All cost-effectively and easily.
Fund managers are professionals who manage ELSS funds. They have expertise and experience in the stock market. They control the funds as per their market research. The primary role of fund managers is to give you reasonable returns on investment. Hence, ELSS investments don’t have you worrying about tracking the market regularly.
Is there anything worth considering before investing in ELSS?
Considerations before investing in ELSS
Investors must study the past performance of the ELSS fund to ensure its consistency. They must also check the fund’s performance across different market conditions. However, one must remember that past performance does not indicate future performance. So, one must check other factors as well.
Look for risks
ELSS funds invest directly into equities. So, they are exposed to market risks. Some stocks entail higher risks compared to others. Like, small-cap stocks have a lower risk than blue-chip stocks. Hence, identify your risk appetite and early retirement goals. Based on the following, choose your ELSS fund.
Fund expense ratio
The annual free fund house charges for expenses related to the scheme is called the expense ratio. This fee differs from fund to fund. It is mandated by SEBI that fund management costs cannot exceed 2.25% of the fund’s average assets under management (AUM).
Compare a fund’s expense ratio with similar performing funds. Doing so ensures that your investments stay levelled.
Several certified credit agencies provide period ratings on mutual funds. This also includes ELSS funds. Since these agencies rate mutual funds, they are based on factors like asset management, risk, and returns.
An ELSS fund with higher scores than similar funds is automatically better. Take a look at these fund ratings before investing.
ELSS is the ideal option for early retirement goals. It offers tax benefits and high returns in the long term. If you are scared of taking risks, you can invest only some part of your savings in ELSS and the rest in traditional investment tools. Plan in advance to have a bright future that brings you both good health and financial security.