Saving For Retirement Pension Plans Verses Mutual Funds

Things You Need to Know Before Buying Car,House, Health & Life Insurance online.

Insurance Buying Tips #1: Shop smart
When looking for insurance, your No. 1 priority should be to find adequate coverage. Price is important, but you’ll want to determine what kind of coverage you need first. Then you can fit that coverage into your budget and determine which carrier can provide you with the most comprehensive policy for your situation. You may be tempted to choose insurance with the lowest price tag, but if you don’t have enough coverage (or the right kind of coverage), you will see less financial benefit when it comes time to file a claim.
Insurance Buying Tips #2: Look for discounts
Once you evaluate your coverage needs, factor in your budget and find ways to save. Ask your insurance agent if there are any discounts on your coverage. Often, carriers offer discounts for things like paying your policy in full, staying auto accident-free or, if you’re in school, getting good grades. You also can save money by “bundling” multiple policies, such as purchasing a home and auto policy from the same carrier.
Insurance Buying Tips #3: Fill in the gaps
An average policy will cover the basics, but you may need to add extra coverage to meet your unique needs. For instance, you may have items like electronics or a nice piece of jewelry that would be financially difficult to replace, even with the assistance of your average renters or homeowners policy. You may want to add additional coverage for these items.

What are the possible options to build a retirement basket, let's understand:


  • National Saving Schemes.
  • Insurance Pension Plans
  • Mutual fund Pension Plans
  • Financial instruments such as the PPF, NSCs and the FDs. These are debt funds which give returns of almost 8% and help save tax too.
  • Analyzing the features of Mutual funds and Insurance Pension Plans here will help us compare the benefits of buying which ever we do.

    Insurance Pension Plans:

    Popularly known as the Retirement plans, are plans designed by insurance companies to provide a steady income during the retirement phase. Unlike the life insurance plans which work on the concept of covering the financial risk in case of an unfortunate death of the policyholder, the pension plans are devised to provide for or maintain the same standard of living during the retirement phase. Generally, these plans do not provide a life cover.

    The Pension Plans can be classified as:

    1) Deferred Annuity plans: For this plan, the policyholder selects the term after which he would need the pension. And upon paying the required premium for the entire term until the pension is actually wanted, avails the fund either as a lump sum or on regular basis.

    a. The premium paid under this plan is tax exempted under section 80 C up to an amount of 1 lakh.

    b. On attaining the maturity, the policyholder has the option of withdrawing upto 1/3rd of the total maturity benefit as a lump sum which remains tax free whereas the rest would be disbursed as an annuity on a regular bases and which remains taxable.

    c. The return on investment as pension is around 6%.

    2) Immediate Annuity Plans: The annuity can be received immediately on payment of the premium amount which would generally be a single one time premium.

    Pension Plans have two variations:

    1) Traditional Plans: Where the policyholder's money is invested into corporate bonds, debt funds etc, to generate the required benefit and which give a guaranteed return. Such example could be AEGON Religare Guaranteed Income Plan.

    Insurance Buying Tips #4: Purchase life insurance—you aren’t too young
    Life insurance is essential, no matter how young or old you are. And for millennials, buying now may be a smart move because it’s cheaper to buy a life insurance policy when you’re young and healthy. This kind of insurance can help your family cover unexpected costs in your absence, including student loan debt or a mortgage, in addition to end-of-life costs. And if you have kids, a life insurance policy can also support their education or childcare expenses. Additionally, every millennial should consider long-term disability coverage, which helps you stay afloat financially if an accident happens and you become disabled and unable to work.
    Insurance Buying Tips #5: Talk to an independent agent
    An independent insurance agent is an essential resource when purchasing insurance—especially if this is your first time. An independent agent works with multiple different carriers, which is different from captive agents who can only sell insurance from the carrier they work for. Working with an independent agent can help make sure that you are getting the best coverage, for the best price. You’ll also benefit from independent agents’ insurance knowledge; they know how to talk you through your options and actually explain what each policy includes. An independent agent will make sure all of your assets are covered, help you find discounts or other ways to save, and be a valuable resource as your life changes and your insurance needs change, too.
    Insurance Buying Tips #6: Only buy insurance to maintain your existing standard of living
    You don’t need insurance for events that won’t severely strain your finances. Start with your basic needs (home, auto, business), then work your way to include other needs (cyber, liability). You can always obtain coverage later for something if you change your mind. You can minimize your risk and maximize your savings by buying insurance that won’t cause you to break the bank.

    2) Unit linked Plans: The HDFC life Pension plans are the examples of such plans. Since these are market linked plans these plans do not guarantee returns due to volatility of the money market. Also, in cases where the market shows a consistent upward trend the returns would be much higher.

    Mutual Fund Pension Plans:

    The objective of these plans is purely growth of the investor's money in order to provide for a pension at the retirement age through regular annuity. The companies providing such plans are:

    1) Tata Retirement savings funds which offers three variants:

    a. Progressive plan which would be applicable to an investor upto age 45 years. The fund allotment in this case is 25% debt fund and 85% equity.

    b. The moderate plan which accommodated investors within the age of 45 to 58 years has the fund allotment of up to 65% into equity and the rest goes to the debt market. Once, the investor reaches the retirement age i.e. 58 years, the fund automatically shifts to a conservative mode.

    2) Templeton India Pension Plan: Invests almost 60% into debt funds and 40% into large cap stock market. This can be considered a much safer plan.

    3) UTI pension plan: Again a safe plan, which invests 40% into equity and 60% into debt funds.

    Tax Benefit: Other than the UTI and Templeton funds no funds offer tax benefit under section 80C.

    In case the investor wishes to exit the fund before the retirement age, there would be a considerable amount of exit loading, percentage varying from one company to another. However, if the investor completes the term and exits the fund only after the age of 58, there would be no loading.

    Now, comparing the two above schemes, the mutual funds would tend to have a before potential for return on investments since a considerable part of the fund goes into equity market. Whereas, the pension plans also offer of choice of such plan allocation, the fees charged during the early phase to avail these options is quite heavy. At the same time, the financial experts feel, the mutual fund has an edge over the pension plans just through the investment pattern which is exposure to the debt and equity funds which can easily be incorporated into the insurance pension plans by the investors as per their risk taking capacity.

    Insurance Buying Tips #7: Ask your insurance provider what the policy doesn’t cover
    Every insurance policy has perils that are not covered by your policy. These perils are referred to as “exclusions”, and every policy has them. Ask your insurance provider to explain the exclusions in your policy to avoid discovering what they are once you incur damages or a loss.
    Insurance Buying Tips #8: Consider bundling several policies with one insurance carrier
    here may be value in bundling several policies with one insurance carrier. If you’re looking to insure multiple vehicles or obtain multiple types of business coverage (e.g., liability, property, cyber), then you may want to consider obtaining coverages under one insurance provider who carries multiple products, and who may be able to offer you multi-policy discounts or loyalty programs.
    Insurance Buying Tips #9: Review your insurance needs on a yearly basis
    As your needs evolve, so will your insurance policy. Maybe you’ve acquired a new vehicle since obtaining auto insurance for your primary vehicle, or started operating your business out of your home, or experienced a cyber-attack during the year… Whatever the change(s), you’ll want to make sure you’re covered for any new risk exposures. Talk to your insurance provider to stay on top of your insurance needs.
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