This is really a very brave post that I am attempting, caveat emptor. Buyer Beware.
Clarification No. 1: the past is not a great indicator of the future. What happened in the past may / may not happen in the past, and the growth trajectories could be lower. For example the YTD on Nifty as of today is zero, and we believe we are in a Bull Market.
Clarification No. 2: To buy products today based on the taxation structure that is likely to be when you withdraw is supremely idiotic, but I am going to suggest such strategies, because i have no clue what will happen 30 years hence.
Clarification No. 3: If you see equities being taxed, Estate duty being brought in, etc. this strategy will not hold.
With these 3 caveats let me tell you what products are bad from an accumulation STAGE or from a WITHDRAWAL stage.
- The top of the list is ENDOWMENT INSURANCE: It does not matter whether it is a ULIP or a traditional life insurance product. The structure of the product is such that the amount accumulated at the end of 15-20 years will surely UNDER PERFORM a comparable product like PPF. So if you have 3-4 PPF accounts (self, wife, Huf, minor child) you can contribute about Rs. 6L a year in PPF. Do not touch an endowment plan.
- Pension plan from a Life Insurance company: inefficient while accumulating (very debt oriented and very high charges) and very inefficient while withdrawing (taxable as annuity). See no merits at all.
- Bank fixed deposits: ALWAYS gives a negative real return and is fully taxable. Terrible combination.
- NPS: I am not willing to play the ‘cost’ card nor the extra 50k deduction u/s 80C of the Income tax act, 1961.
- I am not even covering stupid products like chit funds, etc
- Land: if you think a piece of land will appreciate and fund your retirement, it will not.
Can you think of any other assets? I like one Retirement product from a mutual fund – but that my recommendation is to start small when you are young and pump real big time when you are 50+
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