I have joined sbi smart retire plus fund. Paying 6 lakh for 5 years. What should i be doing with the matured amount. I will be 60 years when it gets matured. What do you meanby annuity?
Ans: You are investing Rs. 6 lakh annually for 5 years into the SBI Smart Retire Plus Fund. Upon maturity, you will be 60 years old and may need this corpus to create a stable income during retirement. Let's explore the right approach for managing the maturity proceeds effectively.
Understanding the Investment Objective
Purpose of the Fund
SBI Smart Retire Plus aims to provide a retirement corpus.
You can use this to generate regular income after retirement.
Maturity Corpus
Your total contribution will be Rs. 30 lakh.
Depending on returns, your corpus may grow significantly over time.
Retirement Stage
At age 60, preserving and utilising this amount efficiently is essential.
Post-Maturity Strategy
1. Assess Your Retirement Needs
Monthly Income Requirement
Calculate the income you need post-retirement.
Include living expenses, healthcare costs, and leisure activities.
Existing Retirement Corpus
Consider other savings or investments you may already have.
Evaluate if the matured amount alone can meet your needs.
Emergency Fund Setup
Set aside 6-12 months of expenses in a liquid fund.
This ensures you are financially prepared for unforeseen expenses.
2. Avoid Investing in Annuities
Understanding Annuity Plans
An annuity converts your corpus into a guaranteed income.
Once invested, you lose control over the capital.
Disadvantages of Annuities
Returns are usually low, often below inflation rates.
They lack flexibility and tax efficiency.
Better Alternatives
Consider other options like mutual funds or systematic withdrawal plans.
These provide higher returns and greater control over your funds.
3. Diversify Across Investment Options
A. Equity-Oriented Mutual Funds
Higher Growth Potential
Allocate 40-50% of the corpus to equity mutual funds.
These can generate inflation-adjusted growth over time.
Balanced Portfolio
Include a mix of large-cap, mid-cap, and hybrid funds.
This diversification reduces risk while ensuring growth.
B. Debt Mutual Funds
Stable Returns
Invest 30-40% of the corpus in high-quality debt funds.
These provide regular income with lower market risk.
Tax Efficiency
Gains from debt funds are taxed as per your income slab.
Withdraw amounts based on your tax planning needs.
C. Hybrid Funds
Combination of Equity and Debt
Allocate 10-20% to hybrid funds for a balanced approach.
They ensure stability without compromising growth.
4. Generate Passive Income
Systematic Withdrawal Plan (SWP)
Use SWP from mutual funds to withdraw a fixed monthly income.
This keeps the remaining corpus invested and growing.
Flexible Withdrawals
You can adjust the withdrawal amount based on your needs.
This provides better control compared to fixed annuities.
Tax Benefits
Withdrawals are taxed only on the gains, not the principal.
This reduces your overall tax liability.
Aligning with Retirement Goals
Importance of Financial Planning
Regular Monitoring
Track your investments regularly to ensure they meet your goals.
Rebalance your portfolio as needed to maintain the right allocation.
Minimising Risk
Shift more funds to debt options as you age to protect your corpus.
Avoid overexposure to equity in later years.
Avoid Common Pitfalls
Don’t Pause Investments
If you have other investments, keep contributing even after retirement.
This ensures continued growth and better financial security.
Avoid Direct Funds
Direct funds lack professional guidance, which is crucial at this stage.
Invest through a Certified Financial Planner for better advice and fund selection.
Inflation Awareness
Plan withdrawals keeping inflation in mind.
Your expenses may rise over time, so ensure your income keeps pace.
Final Insights
You have made a commendable start by investing in SBI Smart Retire Plus Fund. After maturity, focus on using the corpus wisely to generate regular income. Avoid annuities due to their limitations and opt for a diversified portfolio of mutual funds. Regularly monitor your investments and align them with your retirement goals. This disciplined approach will ensure financial independence and peace of mind during your golden years.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment