From Real Estate To PPF: Top Investment Options To Help Millennials Retire Early

Gone are the days when people used to solely dedicate the prime years of their life towards an uncertain future and begin a stress free ¡®enjoyable¡¯ life only after retiring at the age of 60. Nowadays, not only are the millennials all in towards the motto of YOLO (You only live once), they are equally aware of the financial responsibilities and what it takes to realize the goal of retiring early.

And amongst the tons of inspiring stories which most of you might have heard about people retiring in the age bracket of as early as 35-45 years, have you wondered how they did get? One key element that they all paid attention to, was investments. So if you too are eager to retire early, do not miss out on these investment vehicles that can help you in creating sufficient wealth for your second innings:

Equity Mutual Funds

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Often termed as an investor¡¯s best friend for achieving long term goals, equity mutual funds should be an unmissable part of your portfolio when planning to retire early. Typically, equity mutual funds are known to have historically been generating higher returns than other investment vehicles like fixed deposits, debt funds, PPF, NPS etc. And the professional management of equity funds by the fund managers, coupled with spreading of investments across various companies from different sectors or with varying market capitalizations, such as large cap or small cap, is what contributes in giving this instrument an edge over others.

Moreover, remember that the volatility associated with equity mutual funds tends to be higher during the short term, but for long term of 5 years and above, this investment vehicle holds immense potential to generate high returns, which it has historically proven as well, by beating both inflation as well as other asset classes by a wide margin numerous times.

Real Estate Investment Trust (REITs)

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A relatively new but promising investment vehicle to invest in real estate without purchasing property, is REITs. It is an entity that is created with the main purpose of channelising the funds that could be invested in operational functioning or ownership of the real estate to further generate income for the investors.

Similar to how mutual funds invest in a wide array of securities like equity, debt, money market instruments etc, REITs invest in real estate. Listed on stock exchanges, REITs can be a great way of investing in the real estate sector, which in itself has been one of the most popular investment avenues in our country since several decades.

Simply put, a unit of REIT represents partial ownership of that real estate asset held by the Trust, thus entitling you, the unit holder, to a share of the income generated by the REIT. While the governing rules surrounding REITs are time to time being tweaked in order to make them more investor friendly and increase the scope of these investment instruments in India, currently a company can qualify for being REIT if 90% of the income is distributed to the investors in the form of dividends; 80% of the investment must be made in properties that are capable of generating revenues; only 10% of the total investment must be made in real estate under-construction properties; the company must have an asset base of at least Rs 500 crores and its NAVs and capital portfolio must be disclosed and updated twice in every financial year.

National Pension Scheme (NPS)

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Aimed to provide post retirement financial security to investors, NPS is a market-linked investment product that comes under the purview of the Pension Fund Regulatory and Development Authority (PFRDA). NPS encourages people to invest in a pension account at regular intervals during the course of their employment, post which they can take out a certain percentage of the corpus upon retirement at the age of 60, and the remaining amount you will receive as pension income or taken as lumpsum. Remember that you are compulsorily required to keep aside at least 40% of the corpus towards purchasing the post-retirement annuity,

NPS subscribers can choose between auto choice and active choice option for the purpose of asset allocation. In case of active choice, they can decide their own asset mix by mentioning the ratio of their investments across corporate, gilt and equity funds. However, remember that the maximum exposure to equity fund is capped at 75%. Whereas in case of choosing the auto choice option, subscribers¡¯ contribution will be spread across the corporate, gilt and equity funds on the basis of the life-cycle matrix, which is based upon the subscribers¡¯ age.

Also Read: ELSS vs PPF ¡ª Comparing Two Tax Saving, Wealth Creation Options

NPS also offers tax benefit of upto Rs 1.5 lakh under Section 80C and another additional deduction of Rs 50,000 under sub section 80CCD(1B) for any additional self contribution.

As far as taxation is concerned, post Budget 2019¡¯s announcements, the lump sum withdrawal of the entire NPS maturity corpus is fully tax exempt, which therefore brings in tax parity with other retirement options such like PPF.

Public provident fund (PPF)

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Backed by the Government of India¡¯s sovereign guarantee, PPF is one of the safest and popular investment options in which many investors put in their hard earned money for long term wealth creation. Currently, PPF is paying an interest rate of 7.1% p.a. compounded annually, which is reviewed every quarter by the Ministry of Finance. It falls into EEE category (principal, interest and maturity amount being exempt from tax) and offers tax benefits upto Rs 1.5 per year under Section 80C.

While PPF¡¯s lock-in period of 15 years is often regarded as its biggest drawback, we tend to forget that the purpose behind this lock-in period is to make the investor remain invested in it for the long term. Moreover, for those in need of funds, PPF does offer some degree of liquidity in the form of facilities such as partial withdrawals and premature closure, subject to certain conditions put forth towards the same.

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