Thanks to being an author of a book on Retirement, this question is something that I HAVE TO TACKLE at least once a day if not more than once a day….
Well here is my take (and it is very different from what everybody else in the business has to say):
1. Employees Provident Fund (EPF): you do not have too much of a choice, do you? If your company has a provident fund scheme and there is a deduction happening at source, well you are in it. This fund normally gives 8.5% p.a. – however this year was a one time bonus and the interest accrued / paid was 9.5% p.a. Well you really cannot do anything – if you have it, keep it, if you do not have, well you do not have!!
2. Public Provident fund: Only if you are 45+ years of age have a super surplus over and above what you can happily put in equity funds, and are still wondering what to do with that 70,000 should you invest in ppf. If you are under 45, completely avoid it. Returns will be sub par – surely a NEGATIVE REAL RETURN even assuming 8% interest rates remain constant. Only logic is it is a good debt instrument paying 8% tax free – not sure how long. If you have already opened it, put in a small amount to keep it going.
3. New Pension Scheme (NPS): It is the cheapest fund management scheme in the world, but I do not drive a Nano! It is an inexpensive way of putting your money away for a long period, but fund management skills is a big issue. A fund with 50% in debt instruments (you are better off in PPF dammit, at least the risk is borne by the government) makes little sense. The debt portion will give you a -VE real return for sure. The equity portion is in the sensex – and for me the sensex has a major construction problem. So over all it is a no no from a fund management point of view also!
Now when you get the money back – we have NO clue how it will come back, who will take the responsibility of managing it, what will be the asset management company, will it come by ECS. I have asked these questions and get a typical ‘ration shop answer’ – look dude at .0009 this is what you will get. I do not buy rations either. So no Nano, no rations for me.
4. Unit Linked Pension Plans: these are pension plans created by life insurance companies. These are perhaps the worst products (under the new format of reduced expenses). The way the costs are structured these will all be debt based products. So a debt product, with poor fund management capability, and not knowing what will be the rate of interest when the money comes back to you – to me is a pot pouri of disaster. Stay away. If you are a policy holder under the older plans (I am and so are many friends) stick to it. However do not put too much money into it.
5. Pension plans from Mutual funds: Well Uti and Templeton have pension plans. I like both the plans – Uti for the costs and Templeton for the competence of fund management :). Again do not like the fact that it has only 30% in equity – however over the last 10 years I have got a return of 12-13% p.a. which is far superior to PPF. I prefer this to ppf for younger people.
Having said negative things about all the pension plans….where is my pension money? In direct equities, Hdfc Top 200, Icici Pru discovery, I Pru dynamic, Hdfc Equity, Franklin India BlueChip, Hdfc Prudence….
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