a.

Mutual funds

Mutual funds can help you if you don't have time and patience to manage your
investments in stocks directly. They are considered one of best products due to the sheer
variety of schemes that suit every profile, low costs, tax benefits and professional
management. Equity mutual funds, which invests up to 100% money in stocks can easily
give you 12 to 15% returns an years on an average in the long run. This makes them ideal
for those with a high-risk appetite.

Those with slightly lower risk taking ability can go for equity oriented hybrid funds,
which invests up to 65-70% in stocks and the rest in fixed income securities such as
bonds and treasury bills. Long-term capital gains from equity mutual funds (with over
65% equity exposure) are tax free, making them all more attractive. Those with limited
risk taking ability, for instance people close to retirement can go for debt funds, which
invest in corporate and government bonds.

Having said that since it's your money, you need to do few things right as regards mutual
funds are concerned. A systematic investment plan (SIP) in good diversified mutual funds
is a good option for those who wish to build their fund portfolio gradually. It
prompts investors to save in a disciplined manner. It also minimises risks of bad timing of
investments. Mutual funds offer the convenience of investing small amounts at regular
intervals -- daily, monthly or quarterly.

Your portfolio of funds must have an allocation pattern that meets your return objective
and is in line with your risk profile. Young investors can have 70% of amount directed to
large-cap and multi-cap diversified mutual funds, 20% to mid-cap and small cap funds
and rest in gold ETF or sectoral bets. Study the mutual fund closely before deciding to
invest in it. Make sure you don't over-diversify and end up having too many funds in your
portfolio. Look for AMC, fund size, fund manager performance, objective of fund, sector
it invests in and allocation, performance over 10-year, 5-year period, top holdings etc.
Avoid investing in NFOs.

b. Public Provident Fund (PPF) and Employee Provident Fund (EPF)

If you want some portion to go in debt, you can look at Public Provident Fund and
Employee Provident Fund. PPF is a government scheme under which you get an 8.6%
annual return (decided for this year). The minimum investment is 500 per year and
maximum is Rs 1,00,000. The money is locked in for 15 years. One can extend the
account beyond 15 years in a lot of 5 years and withdraw up to 50% of corpus after the
7th year.

In EPF, one contributes 12% pay (basic plus dearness allowance), while the
employer makes a matching contribution. All establishments that employ 20 or
more people have to offer this benefit to employees. The rate of return
keeps changing and is decided by central board of trustees of the fund every year. At
present, it is 9.5%. The money can be withdrawn on retirement or while leaving the
organisation.

In the latter case, there is an option to transfer the amount in the account opened with new
employer. PPF and EPF investments are deductible from the taxable income under
Section 80C. The redemption amount is not taxable.

c. Investing in stocks directly

Besides this you can consider investing in blue-chips stocks, which can give you rich
dividends by the time, you close in your retirement. If you can give some more time to
equities and try to understand few businesses which can grow by leaps and bounds in
coming decade, nothing like that.

Equity SIPs can also be a smart option in volatile stock market conditions such as one
prevailing currently.

d. National Pension Scheme (NPS)

NPS is government initiated pension scheme. Under it, you have to contribute at least Rs
6,000 a year in a Tier-I account and a Tier-II account. The money in the Tier-I account
cannot be withdrawn till retirement. There are no limits on Tier-II withdrawals. You need
an active Tier-I account to open a Tier-II account.

You can choose three asset classes. Asset Class E, where money
is predominantly invested in equity and related instruments; asset class C, where money
is invested in fixed income instruments and other government securities; asset class G,
where the entire portfolio comprise of government securities. Under asset class E, the
maximum equity exposure can be 50%. Except central government employees, others can
choose any asset class.

Investments are eligible for tax benefits under Section 80C. However the maturity
amount is added to income and taxed accordingly.

e. Unit Linked Pension Plans (ULIPs)

Unit linked insurance plans combine features of insurance and investment products. A
part of money gets you a life cover while rest is invested in equity or a mix of equity or
debt. ULIPs as compared to mutual funds have multitude of charges -- allocation charges,
policy administration charges, fund management charges and morality charges. Hence,
they are considered more expensive than mutual funds.

However, ULIP pension plans are pure investment vehicles. Since there is no insurance
cover, the investor can save on mortality charges. Since IRDA has issued guidelines as
not to give guaranteed returns in ULIP pension plans, the companies play it safe and
invest more in debt. This make ULIP pension plans less attractive to those seeking high
returns.

Investment in ULIP pension plans is eligible for tax deduction under Section 80 C of the
Income Tax Act. The maturity proceeds are tax-free. The tax benefits are likely to
continue under Direct Tax Code, proposed to be implemented from next year which will
take other ULIPs out of Section 80C.

5. Find out the investment options for different age groups

Make sure as you approach retirement, you should increase exposure to less risky
investments as the number of working years is less and you have to protect your corpus
from the vagaries of the equity markets. Therefore you may need to re-balance your
portfolio as you cross different age groups. There is no strict demarcation, though, as
investment portfolio is a function of one's risk taking ability, existing investments,
income, expenses and financial goals. Still one can evaluate four different portfolios for
four different age groups: 18 to 25 years, 25 to 35 years, 36 to 45 years and 46 to 55
years.

a. Age 18-25 years

This is the time when you start your career and have no liabilities and dependents.
Though your income is less, but so are your expenses. You have time on hand and can
afford high exposure to equities. Ideal portfolio can be close to 85% equity, 10% debt and
5% gold.

Make sure you park adequate money in a savings account or a liquid scheme for any
medical or financial emergency. You can invest in equity mutual funds through SIPs as it
makes you more disciplined. You can have exposure to stocks under proper guidance.
You can defer your goals for buying a car or house for some time as your current income
don't allow you to invest in these. However you can start investing in small amounts for
your retirement.
Make sure you have adequate health insurance so as to take care of any medical
emergency. If you don't have any dependents, you don't need any life insurance currently.
You should focus on acquiring more skills at work so as to increase your
income substantially going forward.

b. Age 26-35 years

Your income increases and so do your liabilities. You are still far from retirement and
can have high exposure to equities. Since you have more liabilities now, make sure you
have exposure to fixed income instruments for a cushion against volatility in equity
markets. Make sure you start contributing to PPF and EPF as part of your debt allocation.

You can have equity: debt: gold in the ratio as 75: 15: 10.

You can go ahead and buy a term life insurance policy with a cover that takes care of
your liabilities, your future income generation potential etc.

Make sure you create a contingency reserve based on your monthly expenses for 3 to 6
months and keep it aside. Besides this continue your investments in SIP and maybe
increase its allocation as your salary increases. See if you need to enhance your health
insurance cover and have a family floater plan in place.

c. Age 36-45 years

Your liabilities increase faster than income. Hence scale up your investments in PPF and
continue with EPF. Equity can still continue to be 65% of your portfolio while debt and
gold accounting for 25% and 10% respectively. This is the time when one's earning graph
moves upwards and the same should hold true with investments.
Also evaluate again your life and health insurance cover and see if you need to enhance
both of them.

d. Age 46-55 years

Continue with your investments in equities though you can scale it down to 50% and
increase debt exposure to 40% (debt instruments such as PPF, EPF, debt mutual funds,
bank and corporate FDs). Keep investing in gold at 10% allocation.

Your priority should now start shifting slowly towards protecting your already built
retirement corpus from equity market volatility. At this stage of your life, you may need
to enhance your medical cover. Focus more on paying off your debt and liabilities for
a peaceful retirement.

Earlier you plan for retirement, better it is as it gives much more time for your money to
grow (power of compounding). In addition in today's age, people want to retire early so
as to pursue one's hobbies. So there is a double challenge for a shorter horizon to save for
retirement and a longer period of withdrawals. Next, improvement in health care facilities
especially in urban areas have pushed life expectancy in India. Since you live longer, you
need to save more....