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Investment Plan VS Pension Plan

The world today is at a stage where an individual is spoilt for choices. It is revolving at such a speed that development in various areas is taking place in the blink of an eye. One such development that has been happening over the years and will continue to happen is in the field of ‘investment’. One just cannot make a decision pertaining to this as per his or her own whims and fantasies – it requires careful thought and consideration.

An individual while making the investment in a particular sector is always burdened with questions that keep running in his or her mind; should investments be made in order to gain long term returns or fast immediate short money? Should I invest in a mutual fund? Or is pension fund better than mutual fund investments?

Investment plan refers to pure investment in securities which shall range from an equity-based fund to debt-based fund to hybrid funds. Equity funds are those funds wherein the fund manager shall tap the equity share market and invest our money in equity shares. Similarly, debt funds refer to funds which invest in debt market or debt securities. In hybrid funds, investment is in a combination of equity and debt securities.

Pension plans refer to those retirement plans which require the employer and employee to make a fixed amount of contribution over a period of time and then such plan shall provide the employee with a steady income post retirement.

Whether an individual should opt for an investment plan or pension plan depends upon many factors which should be considered by the individual. Some of these factors are:

  • Risk-taking capacity
  • Periodicity of returns
  • Amount of investments
  • Tenure of investments
  • Tax scenario in the country
  • Reason for such investment

Which is Better Investment Plan vs Pension Plan

Pension Plans Investment Plans
Not difficult, easy understandingFlexible at the time of maturity
Creates an investment habit Good control over investments
Tax benefits No costs related to surrender
Death benefits can be claimed No restrictions on exit
Pension plans are easy to understand and one just needs to keep contributing for stable future.These plans provide one with flexibility at the time of maturity.
Due to scheduled contributions, a habit of investing is inculcated.Benefits of taxation can be claimed under ELSS equity oriented mutual fund
Tax benefit under section 80C can be claimedThere are no higher costs when surrendering of mutual funds takes place.

Benefits of Investing in Mutual Fund

Higher Returns: Equity and hybrid fund investments tend to provide one with higher returns. The risk related to these funds is higher than other funds.

  • Possible trail: It is possible to trace the history of the fund and makes decisions depending upon returns and various criteria.
  • Easy availability: Liquidity is possible due to easy invest and exit, at any time during the period.
  • Retirement: Due to high risk and high returns, the compounding effects are greater, thereby creating a secure retirement.
  • Shorter tenure of investment: As compared to lock –in-periods in investments like PPF and NPS, lock-in-period under mutual fund investments are short.

Why Pension Plan?

The benefits of a pension plan are:

  • Provides vital source of income to the retired person
  • The employer also contributes towards the employee pension fund
  • It encourages the employee to contribute for retirement and be financially independent in autumn years of life
  • Pension shall be provided on a monthly basis or lump sum while the employee continues to work

FAQs on Investment Plan VS Pension Plan

Are income funds a good investment?

Income funds shall be a good investment if it is done after considering factors such as risk, return, cost etc. These funds look to provide high returns with high stability. The fund manager allocates the investment amount in money market instruments and debt instruments.

Are pensions paid for life?

Pensions shall be paid for life depending upon the plan and pay out options that we choose and invest. An individual has to choose from plans and options such as a single annuity, lump sum payment, or joint annuity.

How can I invest money to grow?

Investment is not a one-time activity. One needs to be constant and consistent while investing in any market. One of the mantras to grow money through investment is to have a diversified portfolio. It is also important to start investing early in life. Do not fear while investing, it is what the investment gurus claim. However, that does not mean one should be careless about his investments. Taking help from experts will also help the investor to gain some knowledge.

How can I invest with no money?

It is important to start saving money or setting aside a small amount from your strict budget for investments. With limited resources, it is also important to decide the plan that will work in your favour. One can also use the amount from saving bank accounts to invest in money market funds.

How do you earn retirement income?

To generate income during retirement, one must plan carefully. Here are a few points to keep in mind:

  • One must make sure that the money generated or invested should not be outlived.
  • It is important to save oneself from inflation.
  • Investment in securities, funds or plans should be of low risk but high or better returns.
  • A suitable annuity plan for retirement would be of great help to keep up with the livelihood.

How do you generate income?

Earning the first rupee is equally important as multiplying that first rupee. One should keep up with various trends in the investment field so as to continuously generate income. One cannot just park funds in investment instruments and leave it unattended and assume that money invested shall multiply. An individual should keep himself or herself updated about the various changing scenarios in the respective areas so as to make wise decisions. Also, money should not only be generated from one source of income - it is said that money should be invested in a diversified portfolio in the same way money should be generated from various sources.

How does a pension plan work?

The pension plan has two structures- accumulating money and the distribution of the same. Every year an individual contributes a specified premium which shall then be invested in funds or assets as per the individual’s choice. At the time of retirement, one can either opt for a lump sum amount or start an annuity plan.

How does retirement plan work?

Retirement plan and pension plan are two sides of the same coin. While pension plans are funded by the employer, retirement plans may or may not be funded by the employer. Retirement plans are a personal choice of the individual. An investment could be created to coincide with the retirement age.

Is it good to have a pension?

Pensions provide for stability in the future and guaranteed easy retirement. Hence, it is good to have a pension

What are the best jobs for retirees?

A retiree can still earn money through small jobs apart from investments. A retiree can freelance in various fields such as consultancy, teaching or writing. Retirees can keep up with trends such as blogging. They can also provide assistance in book-keeping or preparing tax returns.

What are the safest investments for retirement?

As such there are no safe investments as they come with some sort of risk even though a small one. However, one can easily invest in government securities, bonds or real – estate investments. Investing in savings or fixed deposit shall also be termed as safe investments for retirement.

What is the best investment for monthly income?

The best investment for monthly income shall be monthly income generating mutual funds, investments in a money market or rental real estate. Various schemes such as Senior Citizen Saving scheme, Pradhan Mantri Vaya Vandana Yogana, Monthly Income Scheme, Post Office MIS or bank FDs provide for monthly income and are associated with lower risks.

What should I invest in after retirement?

One can invest in the following options for safe returns post-retirement:

  • Fixed Deposits in Banks and Post Office
  • Pension Plans
  • Senior Citizen Saving Scheme
  • Equity-Linked Savings Scheme (ELSS)
  • National Savings Certificate (NSC)
  • Reverse Mortgage

Which bank is best for pension account?

The banks that provide the best pension account facilities are:

  • State bank of India
  • Axis bank
  • Bank of Baroda
  • IDBI bank
  • HDFC
  • Punjab National Bank
  • Bank of India

Which is the best policy in LIC for a pension?

The best policy in LIC for pension is LIC Jeevan Akshay Plan.

How to know whether one has enough to retire?

In order to know if your savings are enough for your retirement, it is necessary to compare savings and expenditure. It shall provide you with a rough analysis of how much additional savings are required, if need be. Also, consult a financial planner before taking such decisions. Various online calculators are available to find out if contributions made towards retirement shall suffice.