How mutual funds can help you in retirement planning

August 5, 2021
Mutual fund, MF, mutual fund investment, mutual fund portfolio, large cap fund, mid cap fund, multi cap fund, small cap fund, equity funds, number of funds to holdMutual Funds are another investment option that could be used in providing regular income after retirement.

Most people delay retirement planning, thinking they have ample time to plan for retirement and create a retirement fund. Only when nearing retirement do people realise their mistake of not working earlier on the retirement plans and end up disrupting their financial freedom.

Retirement planning is something that should be started as early as in the late ’20s or at least by the early ’30s. In the case of long-term plans like retirement, the real rate of return depends on multiple financial factors such as inflation, interest rates, rising medical costs, etc.

Industry experts say, one of the most important attributes of wealth creation is the return on investment. This is where mutual funds play a big role, by offering exposure to various classes and subclasses of assets, which enable one to get greater returns on his/her investments.

Get started with SIP

While investing in Mutual fund Systematic Investment Plans (SIP) is the ideal way to go. SIPs in equity mutual fund scheme is known to average the cost of one’s purchase (Rupee Cost Averaging) by taking advantage of the volatility of the stock market. One can easily invest in MF schemes through SIP, completely based on his/her need along with their risk appetite. Ankit Agarwal, MD, Alankit says, “The right way of investing is to diversify some (around 10-15 per cent) portions into highly rated diversified blue-chip funds. This strategy will also help provide a better ‘Tax adjusted real rate of returns’”.

Having said so, experts say it should always be kept in mind to maintain a balance between one’s current expenses and savings. Additionally, when nearing retirement it is highly recommended to get such investments invested and parked into short-term debt funds just to protect them from any financial loss that might be caused due to other external financial factors.

Make SWP work for you

Mutual Funds are another investment option that could be used in providing regular income after retirement.

Experts say the best way to reap the benefits of mutual funds for retirement planning is to use the SWP (Systematic Withdrawal Plan). It allows an investor to withdraw an amount from their investments periodically. With SWP, investors can withdraw a predetermined amount every month at fixed intervals.

For instance, if you have invested Rs 12 lakhs in a mutual fund scheme, you can set up an SWP to withdraw Rs 100,000 every month on a predetermined period of 12 months. The remaining investment corpus, at the same time, keeps getting the returns as per the chosen mutual fund category.

A Systematic Withdrawal Plan is kind of opposite to a Systematic Investment Plan. In SIP, the investor decides the amount and date on which the money is debited from his/her account and transferred to the mutual fund. With SWP, a predetermined amount is debited from the investor mutual fund and transferred to his/her bank account. Hence, experts say, SWP may be considered by anyone who seeks regular income, be it a retired individual or someone who is planning to start his/her own business or simply anyone who seeks regular income through their MF investments.

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