Tips to invest your voluntary retirement scheme money

• 26th Aug 2021
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Opting for premature retirement and wondering how to make the most of your Voluntary Retirement Scheme (VRS) compensation? The key is to chalk out a financial plan that is tax-efficient, provides easy liquidity, covers inflation, and ensures a steady income stream. A tall order but with the right investment instruments, it’s possible. Listed below are 5 options that can put early retirees in a sweet spot by helping them attain a financially secure future.

1. Public Provident Fund (PPF): The investment scheme with a lock-in period of 15 years is available for citizens of India above 18 years. It is one of the safest fixed-income products. You can invest up to Rs.1.5 lakh as a lump sum or 12 monthly contributions in a financial year. The maturity amount and the overall interest accrued during the investment period are tax-free. And yes, the interest rates offered by PPF are subject to revision every quarter.

2. National Pension Scheme (NPS): It is a popular voluntary retirement scheme that helps build an impressive corpus for the golden years. Managed by the Pension Fund Regulatory and Development Authority (PFRDA) and Central Government, NPS can be availed by anyone in the age bracket of 18-65 years. Contributions are locked in until 60 years but can be made beyond that. The scheme allows a total tax deduction of up to Rs.2 lakhs. Investors can withdraw up to 60% of their contribution on turning 60 years. The balance amount is returned in the form of annuity payments.

3. Equity Linked Savings Scheme (ELSS): Consider allocating a portion of the VRS package into mutual funds assets that have the potential to beat inflation and generate wealth. ELSS is a special category of mutual funds that offer exposure to equities. It has a 3-year lock-in period and offers market-linked returns along with tax benefits under section 80 C.

4. Senior Citizen Savings Scheme (SCSS): This is an excellent government-sponsored investment plan. The small saving scheme available through post offices and certified banks across the nation offers sizeable returns and a stable income. SCSS has a maturity period of 5 years which can be extended by 3 more. Investors can deposit anything between Rs. 1,000 to Rs. 15,00,000. The scheme qualifies for a tax deduction under Section 80C.

5. Insurance Pension Plans: A well-selected pension plan ensures a comfy and hassle-free life for early retirees. It provides protection, financial support, and tax benefits on premiums paid during the accumulation phase. Insurance companies offer a host of pension policies (deferred annuity plans, immediate annuity plans, life annuity plans, superannuation plans, etc.). Under the plans, the policyholder contributes to the retirement corpus by paying periodic premiums over a specific period. On reaching the vested date, the service provider grants a fixed sum on a monthly basis.

Key Takeaway

Early retirement is not easy. Whether you are seeking voluntary retirement on medical grounds, to pursue an old hobby, or explore your entrepreneurial zeal, the focus should be to manage the VRS package wisely. Spreading the funds across secure investment instruments can help generate a steady cash flow, ensure liquidity, outsmart inflation and minimise tax liability to attain financial well-being during the twilight years.

- A Consumer Education Initiative series by Kotak Life