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    Best asset classes for retirement planning

    Retirement planning is a very easy job which is often converted into a herculean task because people often fail to act timely on the planning process. Retirement planning is something often confused with a planning that one needs to start late in life, while the approach should be to start at the earliest. While starting early counts and is very critical for retirement planning, it is equally important to select right asset classes. Right asset classes are not essentially those which beat inflation but are those which help you build a corpus on a sustainable basis. Please remember inflation has a very subjective impact and hence needs to be interpreted by every individual separately. What does this mean? Let us understand this with the help of an example.

    Impact of inflation is inversely proportionate to the level of income, especially food inflation and inflation of other essential commodities. If your income is low, then increase in food inflation will hit you hard while for a person with a high income, food inflation impact is nominal. There is a logical reason for this. As the level of income increases, the share of food items in total expense decreases. So it makes little sense to watch WPI or CPI for inflation planning. It is important to make your own inflation index and watch out how inflation impacts you.

    While factoring inflation in retirement planning counts, it is very important to select the right asset classes. Here is list of asset classes for you that you must consider investing into, if you want your retirement planning to be successful.

    EPF, VPF AND PPF: If you are a salaried person, you can bank on Employee Provident Fund (EPF) scheme to build a corpus for you. But this in itself is not enough; it is recommended that you keep on investing in voluntary provident fund scheme from time to time. Ask your employer for the details of scheme and the investment that you can make into it. If you are not salaried person, then use PPF for retirement corpus creation. Even salaried persons can use it as a top-up, if they are left with money to invest post investment in EPF and VPF.

    Tax Savings Bonds: Tax saving bonds is a good companion of EPF, VPF and PPF. Depending upon the prevailing rate of interest, these bonds offer rates which are sometimes more competitive than rates offered by all other tax free investments. It is always good to buy these bonds for 20 years option if rate of interest offered is enticing.

    Real Estate: In spite of liquidity concerns and the fear that real estate market is often heated, it makes sense to buy real estate for retirement planning. Once you are settled in your life, especially after marriage or possibly before it, you must buy your house. The target should be to pay your home loan before age of 45 so that you get opportunity to save huge amount of money in later period of life. Real estate buys peace of mind for you as well.

    National Pension scheme: NPS offers a good opportunity to invest money in equity and debt as asset classes. Depending upon your risk appetite, select the scheme offered under NPS to build retirement corpus for you.

    Never invest in following for retirement planning:

    1. Directly in equity unless you know the stock very well
    2. Retirement planning products offered by insurance companies such as ULIPs
    3. Insurance products such as annuities and endowments
    4. Mutual funds which invest in equities. There is a huge risk and equity generally does not reward investors barring some exceptions. Go for this only if you high risk appetite and you are not unnerved by volatility.
    5. Fixed deposits of banks
    6. Gold is strict no-no for retirement planning

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