Best Mutual Funds For Retirement Planning

Introduction to best mutual funds for retirement planning: Retirement planning is mainly ignored aspects among the working population as many assume that retirement is far away and current priorities are much essential. Once they are close to the retirement date, many people get worried that they have not saved much for their retirement and are afraid of being financially stable during old age. Retirement is the zenith of the years of hard work you put in during your most of your life. Hence, it must be like a golden phase of your life and you must not get worried about the financial aspects.

A guide to best mutual funds for retirement planning, and portfolio

Best mutual funds for retirement planning
Best mutual funds for retirement planning (Image source: pixabay)

Why is retirement planning important?

Inflation: Inflation decreases the purchasing power of money in the long run. If inflation is 5%, then Rs. 100 will get Rs. 95 worth of goods after a year. After 10 years, it will gain Rs. 60 worth of products and after 20 years, it will get Rs 37 worth of items. Your needs are the same but your money will be worthless. To complete this financial scenario, it is very significant that your money to raised over time so that you could be equipped for the inflation period.

Rising medical costs: With growing age, health-connected problems are common for old people. citizens. However, the expenses of quality private sector healthcare are growing at a very fast pace in India. Some studies predict that inflation towards medical expenses is almost 15% per annum. A serious illness can consume a high portion of your retirement savings and keep you under substantial stress.

Falling interest rates: Senior citizens conventionally depended on bank fixed deposits and government small savings systems to cater to their living expenses. Over the last two decades, it has been evident that the interest rates of the government have decreased significantly. As our economy (GDP) increases, the money supply will also raise and interest rates will decrease significantly as it is happening now. One must keep in mind that the accumulation of a large corpus to get sufficient income is essential in post-retirement life.

No pension: India is majorly an un-pensioned society. Private sector workers in India, unlike western nations such as the United States or the United Kingdom, do have not have safety schemes such as the national pension program. They must develop their post-retirement income strategies by saving and investing analytically while they are earning. As such, retirement planning must be an essential part of your financial objectives during your current period.

How much do you need for retirement?

We have several obligations in our working lives such as taking care of kid’s education, responsibilities associated with aged parents, monthly EMIs towards home, and others. People assume that most expenditure will be reduced when they retire but it is not the case. Financial advisors state that 70 – 80% of expenditure is there remain post-retirement. As an example, when the monthly expense of a family is Rs. 1 lakh and after 10 years the person will get retired. After that period, the expenses will be 1.6 lakhs predicting a 5% inflation rate. When the expenses are only 70% of your pre-retirement expenses, then the monthly requirement post-retirement is around Rs 1.1 lakhs.

This clearly shows that if Rs. 1.7 Crores is there with you it will easily provide a monthly income of Rs. 1.1 lakhs when the ROI is 8%. Here we have not included the inflation and taxes while predicting the corpus. In case you are about to be there for 25 to 30 years in your post-retirement plan and inflation is 5%, you must have a goal for obtaining a corpus of Rs 2.5 – 2.7 Crores to be financially independent. Besides, you must even keep some emergency savings for medical or other necessities. In case you are also planning to give some property for your loved ones as inheritance, then it’s mandatory to plan for high corpus amount than we have stated here.

How much to save and invest?

Suppose you are planning for retirement by investing in SIP for about 10 years, then you could have received around Rs. 2.7 Crores by spending only about Rs. 1.2 lakhs per month. Even though it is a tedious task because there are many financial commitments such as home loan EMIs, medical emergencies, saving for children’s marriage, kids’ education, etc. Mutual funds could aid in meeting the needs and future financial goals at the same time.

Mutual funds for retirement planning

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Investment in mutual funds
Investment in mutual funds (Image source: pixabay)

Return on investment is one of the most significant features of wealth creation. Mutual funds aid you to gain exposure to various asset classes and sub-classes, which will allow you to have abundant returns. Historical data reports that equity has been the best carrying out asset class in the long run and can generate wealth for investors when opted for long periods.

For instance, if a person is planning for retirement by investing in Nifty 50 TRI by monthly SIP during the last 10 years, then he could have received around Rs. 2.7 Crores by depositing only about Rs 1.2 lakhs per month. If the person has invested 5 years earlier, he could have invested only Rs 55,000 per month through SIP and have gathered Rs. 2.7 Crores.

Systematic investment plans

A mutual fund systematic investment plan (SIP) is one of the perfect options to invest in for retirement preparation. Using SIP, you can invest in a mutual fund scheme that is interesting for you, depending on your investment needs and risk that you can afford to, which is transferred from your savings account through auto-debit. SIP is a type of disciplined investment as will aid you to control your spending behaviors and invest repeatedly. SIPs in equity mutual fund schemes also average the cost of your purchase (Rupee Cost Averaging) by taking advantage of stock market volatility.

SIP’s can be started from Rs. 1000 and the period could be monthly or any particular interval. IF the tenure is more the returns will be high because of compounding.

Mutual fund SIPs have some beautiful functionalities while you pay the monthly investments. There are no extra fees or penalties when you miss the SIP instalment missed while there is an insufficient balance in your bank account. The investing will be skipped that’s the only problem during low balance in the account. The SIP will initiate next month in case there is an adequate balance in your account and there is no problem for deduction from your end. However, SIP will stop when one misses the three consecutive SIP instalments due to inadequate balance. So, you have to start with a new application to restart SIP. This way you can find another advantage of resuming or stopping the SIP at your ease.

Summary of best mutual funds for retirement planning

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Profit in Mutual Funds
Profit in Mutual Funds (Image source: pixabay)

Retirement planning is one of the most important financial priorities during our working lives. Many people do not think or sacrifice their retirement plans due to few reasons like children’s higher education or marriage, etc. What they do not realize is that, if they lose their financial independence while they are in retirement, they will indirectly be like a burden on their children financially. Thus, we conclude that any type of investment towards mutual funds is the best choice for retirement planning while catering to other financial responsibilities simultaneously.

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