Investment query on retirement planning: I’m a 28-year-old event management professional living in Gurugram. I recently started my professional career and am currently earning Rs 30,000 per month. I want to start my investment journey with Rs 4,000 per month and gradually increase it each year. I’m looking for expert guidance on where I should start my journey from and the percentage I should keep expanding my investment each year so that I can have a good amount collected when I’m 50 and wish to take an early retirement.


Response By Vivek Jain, head – Investments, Policybazaar.com


The strategy to invest and plan early for retirement indeed shows your financial prudence. That choice alone takes you ahead of a large majority. There are essentially three main variables that determine the corpus that you accumulate till the time of your retirement: your monthly investment, rate of return and, most importantly, the time frame. By starting early, you have ensured that time is on your side. So, let me focus on the other two variables.


Now, you plan to start your investment journey with Rs 4,000 per month, so you would need to consider market-linked instruments to attain the kind of corpus you are looking for. You can diversify your portfolio with instruments that generate high returns, dive in for the longer term, and plan your investment strategy accordingly. You plan to invest for roughly 30 years, so you must also consider the inflation rate. Adjusted against 4-5 per cent inflation, you would need approximately Rs 80,000 in about 25 years to maintain the same kind of lifestyle as you have now.


Now coming to which investment instruments you should opt for, I would recommend Unit Linked Investment Plans (ULIPs). These are especially useful for you at this stage because you have limited resources to invest and need life insurance, too, along with building a retirement corpus. ULIPs provide you both in a single package. Under favourable market conditions, these plans have been historically known to fetch a 12-14 per cent rate of return. It provides you with a life cover and protects your family from any unforeseen event. And at the same time, it divides your money into a combination of equity and debt funds.


By gaining more knowledge about these plans, you can adjust your investments to maximise your returns over the years. You can also look at purchasing fresh plans with a higher investment amount to speed up your retirement with a higher return. In fact, you can also explore instruments like mutual funds, where you can opt for the step-up SIP option to help accumulate your retirement corpus.


While both these products offer tax benefits under Section 80C, the premium paid for ULIP up to Rs 2.5 lakh is tax-free, and LTCG under the mutual fund is taxed at the rate of 10 per cent over and above Rs 1 lakh. You should consult a financial advisor to understand the nitty-gritty of these instruments and then make an informed choice. 


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