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Should I Invest in an Annuity?

Ramalingam

Ramalingam Kalirajan  |7922 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 23, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Jan 17, 2025Hindi
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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
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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I am 51 single, divorced and have one little sister who is 32. Recently I lost my job, and I am not in the mood to search for a new one. I am in the process of making arrangement to fulfill my monthly needs. I am holding the NPS which has a small corpus of 5 lacs in tier 1 and 45k in tier 2. Now I want to completely exit from the NPS. Now I must compulsorily accept the 20% withdrawal and 80% annuity. I have a few queries below. 1. Should I consider buying 100% annuity. 20% withdrawal does not make sense 2. Should I consider putting 1.5 lacs more to enhance the annuity (The corpus will become 7 lacs approx.). 3. Should I consider taking out the annuity on a yearly basis (Please explain Its pros and cons), since it offers more benefit. 4. Should I consider the Shriram life insurance. 5. Will it be safe to consider Shriram life insurance for life long future annuity. It offers the highest annuity. 6. Should I consider Annuity for Life with ROP - Subscriber will get annuity for lifetime and on death of the Subscriber, payment of annuity ceases & 100% of the purchase price will be returned to the nominee(s). The annual offer is 49,063.00 (7.01%) 7. Should I consider Annuity for Life without ROP - Subscriber will get annuity for lifetime and on death of the Subscriber, payment of annuity ceases, and no further amount will be payable. The annual offer is 58,112.00 (8.30%)
Ans: Hello;

Point wise answers to your queries as given below:

1. Yes.
2. Yes.
3. If you do monthly annuity the rate will be lower but you get monthly payouts. In yearly the rate will higher but only one shot payment per year so it depends on your preference.

4. Cannot comment on suitability of xyz firm.

5. Consider an insurer which has good capital adequacy, growing profitable business, preferably listed, reputation of the owner/group apart from decent annuity rates on offer.

6 & 7. My suggestion would be to opt for annuity for life with ROP to your nominee. Ultimately it is your call.

Please have adequate healthcare insurance cover.

Best wishes;

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I graduated with a BBA in 2022, and since then, I’ve been on a thrilling two-year adventure at an MNC. But guess what? I decided to resign in March 2024 because, you know, who doesn’t love a little drama at work? Now, I’ve managed to burn through all my hard-earned savings like a pro, and here I am, utterly confused about my future. Sometimes I think about leaving India—maybe for studies or just to escape and do some mindless job somewhere. Other times, I dream of retreating to the most remote corner of India and living off the grid. I’ve always been pretty good with technology, snagged a degree, and even racked up some work experience. But now? I’m completely lost on where to start over. I’ve scoured countless articles and advice columns, but they’ve been about as helpful as a chocolate teapot. I’m just looking for that life-changing advice that seems to be in short supply. Turning 24 this year!
Ans: Hello Manan,
My simple advice to you would be to get back to some job while you can continue to ponder over your long term goals/passion/pursuits.
Sitting idle (with no funds) at home won't help & it is not going to do any good to your career/life plans.
Simultaneously you can continue to do introspection & chalk out a proper plan as far your larger life goals are concerned.
Say you earnestly wish to pursue higher studies than you need to get yourself these answers 1) Why you need a higher degree in first place ? 2) Will it help you to get job/career of your choice? 3) If yes, then shortlist some relevant good courses & start exploring admit process etc. 4) Meanwhile do account for funds that will help you to time your break from the job (savings, loans etc.)
Likewise ask yourself questions for each option you have in mind & be honest in responses, that will help you to zero on your real aspiration & then do the proper detailing/planning. This may entail some compromises in short term but will certainly pave your way to achieve long term goals.

Best of Luck!

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Hello dear sir, I gave the 12th state board exam in 2024. I have given jee main three attempts I haven't given jee advanced exam yet . I have got less percentage in 12th , So will I have two more attempts for JEE Advanced? after doing 12th from state board and CBSE board?
Ans: Your question is not clear to me. Yes you can give JEE exam three times.

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Asked by Anonymous - Feb 08, 2025
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Me and my girlfriend we both are in relationship from about last 2 years (almost). After such a long time I got to know that she had 2 relationships before me that too she didn't told I got to know it by third person she was sexually involved too (not intercourse but yes other things with one of them)... When I asked her that why you didn't told anything to me before she said she was scared that if she'll tell it to me so I'll leave her and she really did not wanted that... She was scared to loose me. And she was still in contact with that guy and when I asked her that why you were still in contact with him (it's been around 3 years they got separated) so she says that she is like that only... She can't deny anyone because of her soft hearted nature but she did not had any feelings for him. She also said that once she even went to meet him when he requested to meet and also on the same she claims that her soft hearted nature has done that she wasn't able to deny. I loved her too much but now all these things are hurting me like anything. (She is my first relationship before her i never had anyone)
Ans: Dear Anonymous,
I understand that you are hurt and the complexities of the hearts might be difficult sometimes to grasp. The first reason for your sorrow, her past relationship, and the fact that she was physically intimate with them is not completely justifiable. Though I understand that you feel hurt because she did not disclose it to you, still it should not matter so much as to ruin your present relationship. And whether she will open up about such sensitive details is actually up to her. It has nothing to do with how much she loves you or trusts you. Please understand that.

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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