Right Mutual Fund Investments can Improve Retirement Planning

Posted On Friday, Mar 15, 2013


In one of our previous articles we mentioned the importance of planning and how proper planning smoothens the road ahead. You usually plan for your education, career, marriage, buying a home, your children’s education, their marriage and even vacations but always Mutual Funds for Retirement planning ignore to plan for one of the most important phase of your life i.e. your retired life. Planning for retirement often figures last in the priorities for you. You spend a major part of your life thinking about your family, fulfilling their wishes but by the time you start thinking about your retirement, you see yourself standing at the verge of your retirement. You usually do not realize the importance of retirement planning only once you stand upon the brink of your retirement you begin to think: what will be my source of income? How will I manage my expenses? How will I be able to take care of my liabilities etc. once I retire?

To avoid these circumstances and hinder your lifestyle post retirement, it’s better to plan for your retirement at an early stage, so that you will have an adequate corpus to manage your liabilities and maintain the same lifestyle even after your retirement. Creating a sizeable corpus for your twilight years should be a key financial goal. Whatever your age or stage in life may be, it`s never too early to start saving for retirement. The earlier you think and plan for it, the better it will be for you.

Retirement Planning is the process of determining retirement income goals and the actions and decisions necessary to achieve these goals. It includes sources of income, estimating expenses, implementing a savings program and managing assets.

Need for Retirement Planning

Need for Retirement planning

Simplifying Retirement Planning

Firstly, you have to decide how big a retirement corpus you need depending on factors like your current living expenses, inflation, your future liabilities, likely expenses after retirement etc. Then you will have to evaluate how much you need to save every month to reach that corpus. This will depend on how long you wish to continue working. It’s up to you to decide that whether you want to work till 60 or retire at your forties or early fifties. The proportion of your savings will depend on this decision.

Here are some simple steps by which you can build a healthy corpus for your retirement:

Your first step towards building your retirement corpus should be opening a PPF account. It is a government backed, long term retirement savings instrument which gives you tax exemption on the money you invest under section 80C of the Income Tax Act. Furthermore, the interest is also non-taxable and the maturity amount is exempt from tax as well. However, the maximum investment amount under PPF is Rs. 1 lakh p.a.
You can also invest in fixed deposits (FDs) but sometimes they fail the inflation test. The rate of inflation could be higher than the interest earned on the FD.
Beating inflation often involves taking higher risks. Saving through market linked products prevents inflation from eating into your returns. Equities can be one of the recognized asset classes to beat inflation in the long run. It works on the funda of “High risk, High returns”. However, in the past few years, gold too has performed in synchronization with equity. So, rather than following stereotypes to reach a retirement corpus, you should construct a portfolio based on your life-style, time horizon and risk appetite.

You can invest in Mutual Funds which is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities. A mutual fund`s portfolio is structured and maintained to match the investment objectives stated in the scheme. Ideally, one should begin saving it as soon as one begins earning. A Systematic Investment Plan (SIP) in mutual fund is one of the best route to help you to build a good corpus over the course of time.

If you are in your 20s or 30s, generally when you have a larger risk appetite, you can start investing in diversified equity funds, which carry the potential to create long-term wealth. A mix of large-cap and mid-cap funds can be a part of your portfolio. However, you may gradually shift your money to debt funds as you get closer to your retirement.

Retirement planning is still at a very nascent stage in India and clearly, Mutual Funds can co-exist with other retirement products. Our objective of this article is to help you in choosing right investment option to help you allocate your assets wisely and manage your financial needs for your retirement. However, you should consult a professional financial planner and get his/her advice before taking any investment related decisions.

Disclaimer, Statutory Details & Risk Factors:
Mutual fund investments are subject to market risks read all scheme related documents carefully.
Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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