Are retirement mutual funds better than SCSS for long-term investing?

“In contrast, a senior citizen's investment of Rs 15 lakh in the SCSS programme five years prior would have increased to around Rs 21.5 lakh at the 8.7 percent interest rate offered between January 1, 2018, and December 31, 2018, (Rs 15 lakh principal+ Rs 6.5 lakh interest)," Angirish told CNBC-TV18.com.

The fact that SCSS interest is paid on a quarterly basis must be emphasised at this point.

Angirish pointed out that objectives of retirement mutual funds and SCSS are different. Only senior citizens may invest in the SCSS, which provides guaranteed income to support post-retirement life. On the other hand, retirement funds carry market risks and are designed to assist investors in building up a corpus for retirement planning.

Aniruddha Bose, Chief Business Officer at FinEdge, further stressed that any comparison between SCSS and retirement mutual funds would be an apples-to-oranges one.

"The retirement planning problem can be divided into two parts — aggressive pre-retirement wealth accumulation and effective post-retirement income generation while striking a balance between capital preservation and achieving inflation beating returns. Since the SCSS is available only to those above the age of 60, it is geared to solve the second problem — while retirement-focused solution-oriented mutual funds are aimed at solving the first problem of pre-retirement wealth creation," Bose said while talking to CNBC-TV18.com.

Retirement solution mutual funds are essentially aggressive equity-oriented funds and carry a high degree of risk. SCSS, on the other hand, is a fixed deposit (FD) alternative. Hence, experts believe that retirement solution mutual funds are not a viable alternative to the SCSS as they are structurally very different and solve two very different purposes.

Vinayak Magotra – Founding Member, Investment Product at Centricity, said that it's crucial to consider a variety of options when it comes to retirement planning. The journey should be started early in life so that individuals can invest aggressively and benefit from the power of compounding.

"It is important to assess individual needs and risk tolerance. Mutual funds provide diversification and the potential for long-term growth through exposure to various asset classes. They are managed by professionals who aim to optimise returns. On the other hand, SCSS offers guaranteed returns and stability, making it a reliable choice for risk-averse investors seeking regular income," Magotra told CNBC-TV18.com.

Also, investors should start early, understand risk/reward and remain disciplined with the investments. This way they can accumulate a very sizeable corpus over 20-30 years. Remember — the later one starts, the fewer the options by the time one retire.

To solve the problem of post-retirement income generation, Bose said one should ideally work with a qualified advisor and set up an systematic withdrawal plan (SWP) oriented action plan that combines equity-oriented funds with conservative funds such as target maturity funds, arbitrage funds and fixed maturity plans.

"The degree of aggressiveness would depend on several factors, such as other sources of post-retirement income, overall size of the accumulated corpus and the estimated duration of the post-retirement drawings phase. Unfortunately, there is no one size fits all solution to this problem, as the solution needs to be highly customised to the client’s specific life situation and needs," Bose told CNBC-TV18.com.