Plan your retirement with mutual fund schemes
Retirement planning is crucial. Some may know that retirement planning and financial planning go hand in hand. If you have kickstarted your professional journey, it is better than to start saving a portion of your monthly salary for retirement. You may wonder, you are so young and just started to earn, why should you worry about retirement? That’s because the early you start the more corpus you will be able to accumulate for leading a stress-free post-retirement life. If you haven’t started planning for retirement yet, do remember that mutual funds can form a pillar for your retirement plan. These days no one wants to invest in conventional schemes as they have realized that there isn’t any great potential in traditional investments. The current interest rates offered by conventional schemes like bank FDs are 4% to 5%. It is impossible to build an impeccable retirement corpus with such low interest rates.
This is why one can consider investing in mutual funds for the long run so that they can build a commendable corpus for their post-retirement life.
What are mutual funds?
Mutual funds are a pool of professionally managed funds that invest in equity and equity related instruments to achieve a common investment objective. AMCs collect financial resources from investors sharing a common investment objective and invest the sum accumulated across various money market instruments. Mutual fund investors can buy units depending on the scheme’s current NAV (Net Asset Value). The performance of a mutual fund scheme depends on the performance of its underlying assets and how they fare in their sectors and industries.
How to plan retirement with mutual funds?
Mutual funds may do not guarantee returns but they hold the potential to offer far better returns than conventional investment avenues. Depending on their risk appetite, investors can either invest in debt funds, equity funds, or solution-oriented schemes. Debt funds like long duration funds can be considered by investors who wish to build a retirement corpus but with taking minimum investment risk. These funds invest in government backed securities, corporate bonds, and other money market instruments like treasury bills, commercial papers, etc. Such funds may not have any risks pertaining to equity markets, but they are prone to interest rate risk and credit rate risk.
If you wish to invest for retirement and save tax at the same time you can consider investing in ELSS. Equity Linked Savings Scheme (ELSS) is a tax saving scheme that comes with a three year lock-in period and tax benefit. This tax saver fund predominantly invests in equity and equity related instruments whilst locking the investor’s money for a minimum duration of 36 months from the date of investment. ELSS funds are ideal for long-term income generation as they invest in equity markets that seem volatile in the short term but have always corrected and offered generous returns for long-term investors.
Investors who do not wish to expose their entire investment sum to equity markets and are looking for a scheme that offers the dual asset class benefit may consider investing in retirement mutual funds. A retirement mutual fund scheme comes in a dynamic, aggressive, and conservative plan whose underlying portfolio consists of debt and equity instruments. Retirement mutual funds come with a statutory lock-in period of five years or till the investor attains the age of retirement (whichever is earlier). Since they are going to be remain invested for the long haul, investors cans start a SIP in retirement funds. They can also make use of an online SIP calculator to determine the total returns one can earn at the end of their SIP investment journey.
