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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  1. Simple and lucid. Agree to this .However, for majority of the people, simplicity in investment process is difficult to fathom 🙂

  2. I have a question regarding PPF option.

    I am right now 33 year old and have a PPF a/c since last 5 years. Which i have been (just as you said) keeping alive by putting a very small amount every year.

    By the time i turn 48+, the account will be roughly 20 years old.

    Does that mean whatever amount i’ll have in the account then will be liquid (free to withdraw any amount ?). Of course the question is more important assuming i chose to increase my contribution gradually as i get close to 45+ range and want to treat this portion of my savings as liquid source which i can withdraw as and when i require.

    Regards

  3. What is constrution problem with sensex? What would be the right constituents of the sensex? Would you like to delete some and add some or just change the weights of the existing constituents?
    Do you think Nifty is better representation of the stock market?
    I am investor in nifty ETF. So wanted to know if there is some issue in it.

  4. Hi Subra,
    Nice article. But the problem with EPF is dealing with the government people. I have been waiting for my PF to get transfered from old employer to new employer for over a year now. The PF website works but the people dont…My biggest concern with PF office is the quality of staff, poor record keeping and the fact that there are severe delays in processing transfers/ withdrawals. In such an instance, would you say that withdrawing PF money everytime one shifts a job and putting it in PPF would make sense? I guess taxability will become a moot point but from a liquidity perspective, is it worth it?

  5. Sanjay,

    any index which is market cap weighted may not get the most profitable companies, but the biggest. That is a big issue. Also this itself makes our indices too heavily weighted in favor of the commodities esp oil. And oil price is controlled. This makes it easier for Prashant Jain and Naren Sankaran to lick the index by a mile. Why Index? the gap is too high.

    Samarth – delay is not so much of a worry, fraud is. Government will pay you your cont + app interest rate, so do not worry.

    taxability -we will worry when it comes to that…

  6. Subra,

    I agree, best pension plan is a SWP from your own equity linked mutual funds. You can always balance the debt portion by keeping on investing in PPF. PPF gives tax free return of 8.5% (at least for now). I have less that 10 years for retirement and have substantial funds in my and wifes PPF account. I intend to keep on investing in these accounts the full allowable 70k each even after retirement. Where else will you get tax free returns like this in a debt instrument? Funds are partially liquid.

    I do not trust the new pension scheme. Any investment where the returns are guaranteed will always be designed to give ultra low returns. All the risk is provided for by the promoter in the returns they assure.
    The only other pension like scheme I can think of is senior citizens savings scheme where you get 9% returns each quarter. Here the max you can invest is 1.5 million.

    You have put all your money in equity linked instruments? Is this not risky? Why not balance it in debt / equity / real estate / gold ?

    What would be a good ratio for debt /equity after 60?
    Regards, Rajeev

  7. Are Index funds better than Top 5 funds listed on Mutualfundsofindia.com site and why? For child needs and retirement corpus does index fund hold good or top funds from good fundhouses?
    Please comment.

  8. subra,

    you have not factored in the tax savings for some of these instruments like PPF.

    i am sure after factoring in the tax savings you can beat inflation comfortably. also, the investments are relatively risk free.

  9. hi subra,
    i like your writing skills very much i,m doctor by profession but like to read your blog word by word.
    this is indeed an eye opener though i started watching markets from last 5 years or so but one big question keeps banging my mind will indian top equity funds will deliver 12 to 15 returns for next 15 to 20 years. i mean i cant imagine sensex going past 22k so easily.
    may be i am seeing just tail of elephant or 5 years is too low of period to watch stock market .please reply i m awaiting your candid comments

  10. hai
    am 25year old male.i need a pension plan .right now i can invest 6000-8000rupees per year.ihave 4 options
    1,nps
    2,lic jeevan nidhi or hdfc personal pension plan
    3,mf plans(uti retirement plan,temptaion india pension plan)
    i think uti better than temptation but the past performance is not good
    4,mf balanced funds(hdfc prudence or balanced fund)

    sir pls tell me which is the good plan for me
    regards

  11. Sir

    My husband is 29 years of age & we have not done any investments till now. Infact every year my husband pays INR 10000 – INR 11000 to income tax. We don’t have any idea about investments, some colleagues in my office suggest us to buy LIC & NSC. Kindly suggest how should we start & where we should invest. We are planning to invest 1 Lac rupees in a year so that we can save tax.

    Kindly reply asap.

    Awaiting for your reply

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