Getting a stable income after retirement is very important, but where you invest your money also matters significantly. Should you invest in a Systematic Investment Plan (SIP) in mutual funds, or is it more beneficial to invest in government schemes? Let’s explore the options.
If you’re considering investing the funds received from retirement into a government scheme, assessing the interest rate and projecting how much it will yield in 10 to 20 years is essential.
On the other hand, if you’re looking at mutual funds, it’s wise to consider the fund’s average returns to make an informed investment decision. Now, let’s look at the better option under the current circumstances.
SIP Investment: Mutual funds allow you to invest a fixed amount regularly, which can help develop a disciplined saving habit. However, SIP investments are subject to market fluctuations. Historically, they have provided annual returns ranging from 12% to 15%.
National Pension Scheme (NPS): The NPS is a government-run retirement savings initiative with low maintenance costs. It generally offers returns between 8% and 10%. Moreover, investors can benefit from tax deductions of up to Rs. 2 lakh under Section 80C.
Senior Citizens Savings Scheme (SCSS): Explicitly designed for individuals aged 60 and above, the SCSS provides a fixed interest rate of 8.20% per annum. The scheme has a tenure of five years, which can be extended for an additional three years. The interest earned is taxed based on the investor’s income slab.
Public Provident Fund (PPF): The PPF is a long-term investment option with a lock-in period of 15 years. Currently, it offers an interest rate of 7.10% per annum. Investments in PPF qualify for tax deductions under Section 80C, and the returns are entirely tax-free.
Now, let’s compare the benefits of investing Rs. 10,000 per month for 20 years in these schemes:
- Assuming an average annual return of 10% for SIP investments, your total investment could grow to about Rs. 76 lakhs.
- With an average return of 9% in the National Pension Scheme, your investment might grow to about Rs. 66 lakhs.
- The PPF scheme could yield approximately Rs. 52 lakhs at its interest rate of 7.10%.
Based on this information, consider which investment option aligns best with your financial goals.