Once an employee retires, his or her regular monthly income which they used to get as salary will stop. So, it is necessary and essential to plan for a financially secured life post-retirement. The rising inflation rates, growing uncertainties and diminishing interest rates on deposits have made it difficult for people to choose the best scheme which provides a better financial future for retired people.
To ease the hurdles and difficulties of investors during their retirement age the government of India and some of the public financial institutions have come up with an array of products designed to fulfil and provide a safe and secure retired life for investors.
Let's know the 5 Best Voluntary Retirement Schemes in India.
Public Provident Fund
As the name suggests, the Public Provident Fund or PPF account is one of the investment schemes which are available at most of the banks and post offices across the country. Any Indian citizen who is aged above 18 can apply for this scheme which is for 15 years.
The maturity amount which an individual gets after completion of 15 years is tax-free. Even the principal amount and the interest amount earned is tax-free under the Income Tax Act.
The interest rate offered by PPF is far better when compared to the fixed deposit scheme and the rates are subject to revision every quarter.
The minimum amount of investment is Rs 500 every year and a maximum of up to Rs 1,50,000 can be deposited annually. But anything over and above Rs 1.50 lakh will bot be eligible for tax rebate under Section 80C of the Income Tax Act of 1961.
Voluntary Provident Fund
The Voluntary Provident Fund or VPF is one of the retirement schemes designed for the salaried people so that they can plan for their secured future (post-retirement). In this case, an employee can voluntarily contribute towards the provident fund and this will be in addition to the contribution made towards the provident fund account, over and above the employee provident fund (EPF) contribution.
As per the rules, both the employer and employee have to contribute 12 per cent of their basic salary and dearness allowance towards the EPF. In the case of VPF, an employee can choose to increase his/her contribution up to 100 per cent.
Minimum of 5 years of investment has to be made towards the scheme and if in case, an employee chooses to withdraw it before five years, then taxes will be applicable accordingly. Hence it is better to withdraw the amount from the account after completion of five years.
An investment of up to Rs 1,50,000 per annum made toward VPF account is exempt from Income tax under Section 80C.
National Pension Scheme
The National Pension Scheme or NPS is also one of the prominent voluntary retirement schemes available in India and comes with flexibility. This government-backed saving scheme can be opened by any citizen who is aged between 18 - 60 years.
The NPS account can be opened at entities know as Point of Presence (POP). Most of the nationalized banks, private, public sector banks are enrolled as POPs and even some of the financial institutions also act as POP for opening an NPS account.
Any kind of contributions made towards the NPS account will accumulate till retirement and the fund growth continues via market-linked returns. Depositors will have an option to exit the plan before retiring or can opt for superannuation.
Out of 100% investment, 60% of the funds will be paid to the subscriber in a lump sum and the remaining 40% will be used for procuring lifetime pension through the purchase of an annuity plan.
Contribution of up to Rs 1,50,000 per annum will be eligible for deduction under Section 80C of the Income Tax and the government has provided an additional Rs 50,000 deduction under Section 80CCD(1) towards Tier 1 contribution.
Mutual Funds which is a type of investment vehicle which contains stocks, bonds, securities managed by professionals also offer designated pension plans. An investor can choose investment and receive a regular payout via dividend or redemption as the rest of the funds will continue to grow and remain invested.
One has to select an appropriate plan as it should not only preserve the capital but it should also provide an inflation-indexed return post-retirement.
Mutual funds retirement plans are designed in such a way that it provides lumpsum or annuity payouts and provide an array of products for building a retirement corpus.
Insurance Pension Plans
The term insurance refers to protection from a financial loss. It is a form of risk management used to hedge against an uncertain loss. Most of the insurance companies provide retirement plans for policyholders which are structured as deferred annuity plans wherein the policyholders will contribute premium over the tenure of the policy.
The corpus which is built so will be used to buy an annuity on vesting (the age when the policyholder will start to get the pension amount).