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What are the Instruments Available for Building a Retirement Corpus?

Know about the different financial instruments you can use to build your retirement corpus for a cash-rich post-work life and have a substantial pension fund.

  • 4,336 Views | Updated on: Jan 15, 2024

With hyperinflation and the living costs rising, it is more important than ever to save more and invest over time to live a financially comfortable retired life. To guarantee that you can continue your lifestyle after retirement, you must plan ahead of time and begin saving for the second innings of life 25-30 years before that time comes. This will enable you to build a big corpus by the time you retire.

Time and perseverance are required for this and you must carefully invest in reliable long-term instruments. If you understand this right compounding will work for you to help you attain the objective of building a sizeable retirement fund for a comfortable post-retirement life. In this article, we shall look into five popular investment tools that can help you establish a substantial corpus.

Conservative Funds

You could look at conservative funds that include an investment portfolio of 85-90% debt and 5-10% equity. These are majorly focused on capital preservation. Low-risk investors can receive greater returns than what they invested in a pure debt fund since they are exposed to high-quality equities. Furthermore, these funds are appropriate for individuals who want consistent returns and have long-term financial objectives with a low-risk tolerance.

Public Provident Fund (PPF)

The Public Provident Fund, or PPF, is known for providing one of the best returns among government-supported investing options. The interest rate on a PPF can change from every single quarter and is set by a commission reflecting changes in government bond costs. The current PPF rate of interest is 7.1% for the quarter that ended on March 31, 2021. While it is a good choice because it is guaranteed by the government, there is no liquidity.

Equity Investment

Equity investments are long-term growth tools. In short to medium term, equity values fluctuate as a result of both company and market variables. In the long run, they have the capability to provide big returns and help you develop a substantial portfolio. In your twenties or early thirties, you probably have minimal responsibilities with a long-term investment view. Both of these features indicate that you have a larger tolerance for risk than the average person. As a result, a reasonable equity exposure may be considered.

SIPs/Mutual Funds

A mutual fund systematic investing strategy is one of the best ways to save for retirement and develop a corpus (SIP). Depending on your financial needs and risk level, you can invest in a mutual fund plan of your choice via SIP, through the auto-debit option from your savings account. SIPs are a disciplined way to invest since they require you to keep track of your spending on a regular basis. SIPs in equities mutual fund schemes aggregate the cost of your purchase by taking advantage of stock market volatility (Rupee Cost Averaging). However, they also carry potential risks dependent on market forces.

National Pension System (NPS)

It’s a voluntary contribution retirement plan that’s connected to the market. You can develop a retirement corpus and get a pension amount throughout your retirement years by investing in NPS, and any Indian national between the ages of 18 and 65 can participate. Because it is a retirement plan, an investor cannot withdraw funds until they reach the age of 60. A long-term lock-in period guarantees that the funds are only spent after retirement. Alongside, investments under the National Pension System can be claimed for Section 80C deduction of the Income Tax Act, 1961.

To summarize, investing is a time-consuming process that demands dedication from the beginning of your work life. Further, it is advisable that you do comprehensive research and invest in any of the five instruments described above or whatever others you can find, to get the most out of your money!

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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