Rewriting India’s Retirement Playbook With Market-Linked Instruments

By Sriram Iyer, MD & CEO, HDFC Pension Fund Management

As inflation erodes purchasing power, medical advances increase life expectancy, and family support systems evolve, the traditional dependence on guaranteed-return products, including fixed deposits, provident funds and government savings schemes, is proving inadequate. Apart from protection of savings, individuals also need appreciation of the corpus and sustainable income for 25 to 30 years. Though the traditional instruments offer reassurance and stability, depending on them solely may impair the optimum growth of an individual’s financial corpus. Along with the safety of capital, individuals also need to ensure that their savings outgrow inflation.

The Hidden Risk of Guaranteed Returns

Guaranteed returns may prove sub-optimal in the long term, as rising inflation steadily chips away at the real value of investments, reducing one’s purchasing power over time. While small savings schemes and fixed deposits prioritise conservation of financial corpus, they do not compound returns enough to keep pace with the increasing cost of living. Costs of everyday expenses, including healthcare, housing, and basic consumption, rise far faster in the long run than nominal returns offered by vanilla investment products such as savings and fixed deposits. It leads to a widening gap between funds available and real needs. Also, advances in medical sciences and improved living standards have enhanced life expectancy, which means that the geriatric population now lives longer. Consequently, they also need to plan for a longer life span than their earlier generations. Besides, one may have retirement goals, such as undertaking foreign tours, pursuing a hobby, etc. Hence, it is important that retirees ensure that their financial arrangements last through their retirement.

A Structural Shift in Investor Preferences

The realities of inflation, improved life expectancy, and better standards of living put together have brought about a structural transition in India’s investor behaviour. The reliance on high-yield fixed deposits is gradually declining. The share of term deposits offering more than 7 per cent fell to 54 per cent in the quarter ended September 2025, compared to 73 per cent in March of that calendar year, indicating a reduced appetite for the product category.

At the same time, market-linked investments are gaining momentum. This insight reflects growing awareness among investors that disciplined, long-term investing is a keystone for retirement planning strategy. Resultantly, pension strategies revolving around leveraging the capital markets’ wealth maximisation potential are also gaining popularity. These assets use various financial instruments to leverage the compounding effect and deliver more value to the individual.

Modern Financial Instruments for Retirement Planning

The National Pension Scheme (NPS) has emerged as a bankable retirement product for investors in the long run. A flagship market-linked retirement vehicle, it allows its investors to avail of higher returns due to its equity exposure as well as stability due to its bond exposure. Historically, NPS has demonstrated robust performance, with equity funds delivering annualised returns between 12 per cent and 16 per cent since inception, while corporate and government bond allocations have provided between 8 per cent and 10 per cent.

Furthermore, with low costs, regulated fund management and the power of compounding, NPS enables investors, especially younger ones, to accumulate significant retirement income over time. It is a proven instrument not only for the accumulation phase but also supports consistent income during the distribution phase too, both through systematic unit redemption for 80 per cent of accumulated wealth, along with 20 per cent of corpus providing annuity comfort. Likewise, there are many other market-linked instruments that also offer retirement-specific schemes, albeit one needs to be mindful that returns attract capital gains. Guaranteed-return instruments provide important stability. However, lasting financial security in an inflationary environment comes from adding growth investments. A solid retirement plan is not just about protecting savings. It’s also about making sure those savings are enough to support oneself and one's family with confidence and dignity.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)