In the world of financial planning, the pursuit of a comfortable retirement often comes with its share of uncertainties and risks. However, a smart strategy and the right investment instruments can pave the way for a worry-free retirement fund. In this article, we will explore how to build a retirement corpus of nearly Rs 3 crore without taking any risks, all while benefiting from tax-free returns.
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The foundation of a stress-free retirement
For many individuals, the prospect of retiring with a substantial nest egg is a dream they aspire to achieve. To turn this dream into reality, one must adopt a well-structured approach. In this case, we propose a strategy that combines prudent investments with tax-free and risk-free instruments.
Asset allocation: A balancing act
Before delving into the specifics of these instruments, it's crucial to understand the role of asset allocation. While some portion of the investments should indeed be directed toward equities for the potential for higher returns, safeguarding a significant portion of the portfolio in tax-free and risk-free avenues is a wise move to reduce financial anxiety.
The components of success
To embark on this journey, investors will need some critical components like employment and a commitment to invest Rs 5.5 lakh per annum for 21 years.
Tax-free and risk-free trio
Three investment instruments stand out for offering the desired features – tax-free returns, minimal risk, and a secure lock-in period. Let's delve into each of them:
Public Provident Fund (PPF): This offers interest rate of 7.1 percent and has a lock-in period of 15 years.
Here's how PPF account interest rates have changed in the past 10 years to the latest PPF interest rate:
| Financial Year | Interest Rate (in % p.a) |
| 1 July 2023 – 30 September 2023 | 7.10% |
| 1 April 2023 – 30 June 2023 | 7.10% |
| 1 January 2023 – 30 March 2023 | 7.10% |
| 1 October 2022 – 31 December 2022 | 7.10% |
| 1 July 2022 – 30 September 2022 | 7.10% |
| 1 April 2022 – 30 June 2022 | 7.10% |
| 1 January 2022 – 31 March 2022 | 7.10% |
| 1 October 2021 – 31 December 2021 | 7.10% |
| 1 July 2021- 30 September 2021 | 7.10% |
| 1 April 2021 - July 2021 | 7.10% |
| 1 January 2021 - 31 March 2021 | 7.10% |
| 1 October 2020 – 31 December 2020 | 7.10% |
| 1 July 2020 - 30 September 2020 | 7.10% |
| 1 April 2020 - 30 June 2020 | 7.10% |
| 1 January 2020 - 31 March 2020 | 7.90% |
| 1 October 2019 - 31 December 2019 | 7.90% |
| 1 July 2019 - 30 September 2019 | 7.90% |
| 1 April 2019 - 30 June 2019 | 8.00% |
| 1 January 2019 - 31 March 2019 | 8.00% |
| 1 October 2018 - 31 December 2018 | 8.00% |
| 1 July 2018 - 30 September 2018 | 7.60% |
| 1 April 2018 - 30 June 2018 | 7.60% |
| 1 January 2018 - 31 March 2018 | 7.60% |
| 1 October 2017 - 26 December 2017 | 7.80% |
| 1 July 2017 - 30 September 2017 | 7.80% |
| 1 April 2017 - 30 June 2017 | 7.90% |
| 1 January 2017 - 31 March 2017 | 8.00% |
| 1 October 2016 - 31 December 2016 | 8.00% |
| 1 July 2016 - 30 September 2016 | 8.10% |
| 1 April 2016 - 30 June 2016 | 8.10% |
(Source: Groww)
Sukanya Samriddhi Yojana (SSY): This offers interest rate of 8 percent and has a lock-in period of 21 years.
Voluntary Provident Fund (VPF): This offers interest rate of 8.15 percent and has a lock-in period of 5 years.
The tension-free strategy
With the right components in place, here's a breakdown of the strategy:
The payoff
Now, the million-dollar question – what can one expect at the end of this 21-year journey? A retirement fund of nearly Rs 3 crore awaits.
The power of compounding, coupled with the decent interest rates of these instruments, will help investors to accumulate a substantial corpus that is not only tax-free but also risk-free.
Conclusion
In an age of financial volatility, the quest for a secure and substantial retirement fund often seems like a daunting task. However, by following a disciplined investment strategy and capitalising on the tax-free and risk-free options like PPF, SSY, and VPF, investors can build a retirement fund that ensures financial tranquility in the golden years.
First Published: Sept 11, 2023 6:08 PM IST
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