BY SUNIL DHAWAN

PENSION plans are exclusively designed for those who would like to have financial discipline imposed on them as they approach retirement. Once you hop on to such a plan and continue saving regularly till retirement, the assurance of getting a pension is largely fixed. This, however, does not mean that you may not resort to a tailor-made investment schedule and take an active role in shaping your retire­ment portfolio. Several other invest­ment products in isolation or a combi­nation of them could help you achieve similar goals. Mayank Bathwal, chief financial officer, Birla Sun Life Insurance, says, “There is no problem with the approach of building one’s own investment nest. This approach is ideal for those who are active investors and have the ability to construct the right portfolio, which enables them to diversify and benefit from the long-term investment strategy.”

First. Ensure that you and your family mem­bers are covered by a health insurance plan. Keep an adequate life cover, preferably through a term insurance plan of at least seven times of your annual income.

Options. For those looking for exposure in equities, your retirement portfolio may comprise direct investment in stocks, equity mutual funds or unit-linked insurance plans (Ulips). The debt portion of your portfolio may largely comprise bank fixed deposits, post office instruments like Public Provident Fund (PPF), National Savings Certificate (NSC) or the Kisan Vikas Patras. You could also invest in gold, preferably through gold ETF (exchange-traded fund), for 5-10 percent of your portfolio. Real estate may also form a part of your portfolio, but should ideally be less than 25 percent of your port­folio without leveraging.

ON RETIREMENT

equities. Stick to large-cap stocks and do not try to time the markets. Buying at regular intervals could be one approach rather than deploying any lump sum in your chosen stock. “Leveraging the capital markets alone for building a retirement corpus is not advised as capital markets are subject to high volatility,” says Pankaj Desai, executive director, Kotak Life Insurance. Those early in their life stage may look at few mid-cap stocks too.

Mutual funds. Initially, you may choose to start with index funds or ETFs. With experience, you can move to diversified equity funds. As you start building up savings, thematic or sector funds may be used as well.

Fixed income products. Fixed income products such as PPF, NSC or even bank deposits, could form a part of your retirement portfolio. Ideally, maximise your savings up to Rs.70,000 in PPF even if you have a voluntary con­tribution towards Employees’ Provident Fund. You may keep saving in NSC over the years and rolling over on each matu­rity without redeeming it till you reach the desired retirement age.

A word of caution though. Says Manik Nangia, corporate vice-president, prod­uct management, Max New York Life Insurance: “The liquid nature of these investment instruments could prove as a deterrent to long-term planning and there might be a tendency to use the corpus for other life-stage needs, com­promising on retirement planning.”

DERISKING

APPROACHING your retirement may find you reversing the asset allocation you had in the initial years of savings. Derisking your portfolio from the volatility of the market should ideally start at least 10 years away from retirement. Slowly, one should keep shifting funds from riskier assets towards less volatile debt assets. However, at no time should you be entirely into debt.

Courtesy: Outlook Money