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Plan for your retirement now!

Shobhana Subramanian in Mumbai

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March 14, 2005 11:30 IST

It's hard to think about retiring when it seems so far away. But time flies and before you know it you'll be hanging up your boots.

So start putting away something so that you can enjoy your retired life playing with your grandchildren. Especially when the government is encouraging you to do so by giving you a tax-break.

HOW YOUR PREMIA WILL GROW Policy with cover for a 35-year male for a 25-year term
Premium (Rs)	Benefit offered (Rs)	Value of investment (Rs)
Premium (Rs)	Benefit offered (Rs)	@6%	@10%
10,000	2,90,000	3,95,200	7,20,300
15,000	4,35,000	5,92,900	10,80,500
20,000	5,80,000	7,90,500	14,40,700

For instance, you could check out the Kotak Retirement Income Plan (unit-linked). If you invest, say, Rs 10,000 in this scheme, this amount is deducted from your income under section 80C of the Income Tax Act.

You can, of course, put in larger amounts, the ceiling being Rs 1 lakh in a year. If you are paying tax at the rate of 30 per cent, your tax liability will come down by Rs 3,000 on an investment of Rs 10,000. On maturity, the amount you receive is tax-free.

Persons aged between 18 and 45 years can invest in this plan. The scheme combines a term insurance with an investment plan and you can choose from three options: with cover, without cover and single premium.

The first option gives you the protection of a term insurance - it means that in the event of your death, your family will receive either the sum assured or the value of the units (investments) in the main account - whichever is higher - plus the value of units in the supplementary account.

To give you an idea, if you are 35 years old and put in a premium of Rs 10,000 every year for 25 years, the sum assured will be around Rs 2,90,000. This is the minimum that your family will receive. Your family can also choose to purchase an annuity for the amount.

WHAT CHARGES YOU PAY
Age	35
Term	25 years
Sum assured	Rs 2,90,000
Fund	Balanced
Plan	Unit-linked (with cover)
Premium	Rs 10,034
Sales charges	Rs 1,316.96 (13 per cent in the first year, 2.8 per cent in subsequent years)
Offer spread	Rs 21.80 - gilt fund (0.10 per cent), bond (0.22 per cent),FRF* (0.22 per cent), balanced (0.5 per cent), MMF** (0.01 per cent)
Administrative charges	Rs 1,304.40 (13 per cent for premium upto Rs 20,000 per annum; in excess of that it would be 3 per cent for the first year. For subsequent years: 8 per cent upto Rs 20,000 and Rs 2000 in excess of that
Underwriting charge	Rs 580 (depending on the age of the individual)
Mortality	Rs 469.34 (the mortality charge is equal to the basic sum assured less premia due for the balance tenure less investment value of units multiplied by the mortality charge for your age
Fund management charges	Rs 88.37 - gilt fund (1 per cent), bond (1.2 per cent), FRF (1.2 per cent), balanced (1.3 per cent), MMF (0.6 per cent)
Total charges	Rs 3,780.37
As a percentage of the premium, the charges work out to 37.6 per cent in the first year. In the second year, the charges come down to around 17 per cent and further down in subsequent years. * FRF - Floating rate fund ** MMF - Money market fund

When you retire you will receive one third of the total amount (either the sum assured or the value of your units in the main account -- whichever is higher) plus the value of units in the supplementary account as cash.

For the remaining two-thirds you can buy annuities from either Kotak or any other insurer.

For the second option, without cover, there is no benefit to the family in the event of your death. When you retire you receive the value of units in the main unit and in the supplementary units.

This amounts to investing in a mutual fund; so it's a better idea to opt for an equity-linked savings scheme where the charges will be lower.

There is also a single premium option where you pay Rs 50,000. In the event of your death your family gets a sum assured of 102 per cent of the premium amount or the value of units in the main account -- whichever is higher -- plus the value of units in the supplementary account.

The premium that you pay, after deducting all the expenses, is invested in an investment fund. You can choose from one of the following funds based on your risk appetite:

Gilt funds - government securities. These are relatively low risk in nature.

Bond funds - corporate paper usually with AAA rating

Medium risk floating rate fund - short-term corporate paper on which interest rates are reset

Low risk balanced funds - between 30 and 60 per cent is in equities, the rest is in government and government guaranteed security. You can transfer your funds to a money market fund only during the last year of your policy. You can switch in and out of funds at the daily prices, though you may have to pay a charge for this.

PLAN FEATURES
Retirement options
Between 45 and 75 years
Can retire at any age on the grounds of ill-health and withdraw the entire value of units
Can opt for early retirement (other than ill-health) after the first policy year or at 45, whichever is later
You will get the value of units less surrender charges
Premium
Can be paid annually, half-yearly or quarterly.
Can put in lump-sums at any time.
Can pay regular premiums from your supplementary account created from injection of lump-sums.
Value additions
Term death benefit. You can also get cover against accidental death, permanent disability and critical illnesses.
Surrender value
If you surrender the scheme in the second or third year, you lose 50 per cent of the value of your units, between the fourth and 10th year you lose 2.5 per cent and thereafter nothing.

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