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  • Mutual Funds: Investing For Retirement?

    Published on January 10, 2020

    Planning for your retirement today is akin to having a sound financial plan in place after retirement. To lead a comfortable life after retirement, you must have a significant retirement corpus in addition to a regular source of income.

    A popular and inflation-beating investment avenue – mutual funds, can become the focal point of your retirement planning. Simply put, as a tool towards financial planning for retirement, you can consider mutual funds as an investment opportunity to offer you good returns and build a substantial corpus for your retirement needs.

    This article looks into how you can invest in mutual funds as view mutual funds as part of your financial planning strategy.

    Preferred investment route

    While most investors look at pension plans as investment options for senior citizens, mutual funds could be a superior investment alternative. To know how to plan for retirement through mutual funds, you may want to consider an investment horizon of 20 to 30 years and make mutual funds the basis of your retirement plan.

    Opting for a SIP

    Choosing a Systematic Investment Plan (SIP) as your mutual fund investment route can help you amass and compound money steadily for the long run.

    Better known as a SIP, this mode of investment is a systematic approach to investing in mutual funds. Through a SIP, you can make a mutual fund investment by investing a set amount in a fund of your choice. Besides inculcating financial discipline, systematic planning can also encourage money management skills that can further your retirement strategy.

    Say, you are 30 years old and you begin a monthly SIP of Rs.10,000. If you assume the returns on your mutual fund investment to be around 12% per annum, you could accumulate a corpus of Rs.3.50 crores by the time you reach the age of 16.

    In comparison, very few investment avenues offer such yields with reasonable risk.

    Benefits of investing via a SIP

    Through the SIP mode, you can plan your retirement corpus and avail of additional benefits. These include:

    • No maximum limit or minimum requirement to invest in a SIP. You can invest in a mutual fund with as low as Rs.500 a month through a SIP.
    • Switch between debt and equity instruments through a Systematic Transfer Plan (STP).
    • Save on income tax liabilities each year through the ELSS route. For instance, you can avail a tax deduction under Section 80 C of the Income Tax Act by investing a maximum of Rs.1.5 lakh per year in ELSS Funds.
    • You can make a partial or entire withdrawal of your funds at any point in time. Given this flexibility, you can also choose to cease your investment and switch to another mutual fund that may appear promising to you.

    Conclusion

    To understand where to invest money to plan your retirement, mutual funds can be a safe and reliable option. If you are a new investor, you can read more on what is a mutual fund and the differences between mutual funds and other investment avenues. Mutual funds can offer greater flexibility and enhanced transparency that can make it a preferred investment option for retirement.

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