Planning for retirement can feel overwhelming, especially with so many investment options available. From government schemes like Employees’ Provident Fund Organisation (EPFO) and National Pension System (NPS) to mutual funds dedicated to retirement, each comes with its own risks and rewards.
To help make sense of it, CNBC-TV18 spoke with Mrin Agarwal, Financial Educator & Director at Finsafe India.
Why equities matter in your retirement portfolio
According to Agarwal, building a sufficient retirement corpus requires more than just safe instruments like EPFO.
“The retirement corpus is only getting bigger, and that’s really driven by the lifestyle choices that we have,” she said.
For example, a 30-year-old with monthly expenses of ₹1 lakh wanting to retire at 50 would need a corpus of ₹11.5 crore.
“If they want to meet it only through the NPS, then they have to invest around ₹2 lakh per month. But if the person decides to add equities, then the amount to be invested almost halves to about ₹1.15 lakh a month,” she explained.
Choosing between NPS and mutual funds
Agarwal highlighted that the choice between NPS and mutual funds depends on how hands-on you want to be. “Do you want somebody to just do it for you and you get that pension? Or would you like to plan it yourself and remain disciplined?” she said.
NPS offers a more structured approach with a pension at retirement, while mutual funds provide flexibility in choosing fund types, including mid- and small-cap equities.
How much equity should you have in NPS?
Agarwal suggests going for the highest equity allocation in NPS: “I would certainly say the 75% equity option. When you are investing for the long term, one of the reasons you choose equities is because you are getting this compounding line-like return, and that will basically kick in towards the end itself.”
New NPS schemes: Wait and watch
With new multi-asset schemes introduced under NPS, investors now have more choices across asset classes and market caps. However, Agarwal advises caution: “I would have a wait and watch approach on this right now… weigh all the pros and cons, see if you want to get into a higher-risk scheme.”
She also emphasised that even after the 15-year lock-in, the 60:40 rule still applies, meaning not all funds are withdrawable at retirement.
Tax benefits matter, but don’t base your entire decision on them
While NPS offers tax advantages under Section 80CCD(2) for salaried individuals, Agarwal says this shouldn’t be the sole deciding factor: “Take advantage of it, but it should not be the only reason for choosing NPS.”
With multiple retirement investment choices and changing regulations, it’s crucial to weigh the pros and cons, understand your long-term goals, and choose a strategy that aligns with both your risk tolerance and lifestyle expectations.
For the entire discussion, watch the accompanying video
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