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Retirement planning and the importance of mutual funds

Why should you consider retirement planning? For most individuals, their investments after retirement will be their primary source of income. Only a small portion of Indian retirees have additional income sources, such as pensions or rental money. When you retire, you will need to have enough savings and investments to cover your regular expenditures.

Your retirement preparation should focus on achieving financial independence as its primary goal. It is implied that you are financially independent if your investment money covers all of your expenses. If you become financially dependent on your offspring or other relatives, you will no longer be financially independent.

Retirement life spans are lengthening as a result of improved medical treatment and rising life expectancy. You and your spouse should be able to survive off of your retirement fund for the rest of your lives. Inflation-related costs will increase as you live longer in retirement. Assume you are 30 years old with a monthly budget of Rs. 30,000. Let's presume that you'll stop working when you're 60. At age 60, assuming a 4% annual inflation rate, your monthly expenditure will be Rs. 97,320. Your expenses will continue to rise due to inflation even after you resign. By the time you reach the age of 80, your monthly expenditures will be Rs. 2.13 lakhs.

As more students pursue advanced education and professional training before entering the workforce, working lives are becoming shorter. Prior generations began working when they were 20 to 21 years old; today, individuals continue their education until they are 24 to 25 years old. Additionally, a lot of people are being forced into retirement early due to illness, difficulties with job mobility after a certain age, workplace layoffs as a result of technological change, etc. Retirement planning is now even more crucial than it was in earlier generations due to shorter working lives and increased life expectancy.

How ought one to prepare for retirement?

  • Determine the total amount you'll require when you retire: You should estimate your capital requirement for retirement while accounting for inflation. Twenty to thirty years of retirement should be supported by your corpus's income.

  • Determine the amount you need to save: Figure out how much you'll need to put aside each month in order to achieve your retirement goal.

  • Start as soon as you can because time is the most crucial aspect of financial returns. If you start saving early, you can achieve your retirement goal with much smaller monthly savings. Due to the force of compounding, your returns will increase the longer you keep your investment. If you begin investing early, you can comfortably achieve your retirement objective with relatively less savings.

  • Savings alone are insufficient, you must also invest: To earn returns that aid in achieving your retirement objective, you must invest your savings. Different asset groups have various risk/return profiles. Depending on your requirements for investments and level of risk tolerance, you need to invest in the appropriate asset class. If you require assistance in comprehending your risk tolerance, speak with a financial adviser. Mutual funds can offer options for a variety of investment requirements (capital growth, revenue), investment horizons, and risk tolerances. (low, moderate, high).

Retirement strategy with mutual funds You can achieve your financial objectives at various stages of your life by using mutual funds to get exposure to a variety of asset classes and subclasses. Because your retirement fund should last for 20 to 30 years and be able to beat inflation, wealth creation is crucial for retirement preparation. Equity has the potential to generate wealth for investors over a lengthy investment horizon, according to historical data, and is the asset class with the best long-term performance. The CAGR return for Nifty 50 TRI, the total returns indicator of India's top 50 stocks by market capitalization, over the previous ten years was 16.5%.

Retirement preparation using a systematic investment plan (SIP) One of the best methods to save and invest for retirement planning is through mutual fund systematic investment plans (SIP). Starting your SIPs with very modest monthly (or other interval) investments as low as Rs. 1,000 is a great way to get started. The more money you can accumulate through the power of compounding, the longer your SIP tenure. The development of a Rs. 20,000 monthly SIP in the Nifty 50 TRI over the previous 20 years. Over the past 20 years, you could have amassed a corpus of Rs. 2.2 crores with a total expenditure of just Rs. 48 lakhs.

For young investors planning their retirement, SIP top-ups are perfect An SIP facility known as SIP Top-up or SIP Step-up allows you to raise your SIP instalments at regular intervals, such as half-yearly, annually, etc. The growth of a Rs. 10,000 monthly SIP with a 10% annual top-up in Nifty 50 TRI over the course of the previous 25 years or so. (we have assumed a start date of 30.6.1999, which is the inception date of the Nifty 50 TRI). You could have built up a 3.04 crore corpus with just a total investment of Rs. 60 lakhs. You can see that by utilising the SIP Top-up, you can start with much smaller investments and still achieve your financial objectives over a longer period of time.

Asset allocation for retirement planning with mutual funds

The diversification of your retirement funds and investments across equity, debt, gold, foreign equity, and other asset classes is known as asset allocation. Depending on your age, stage of life, and risk tolerance, you should adjust your asset allocation for retirement preparation. A wide range of asset types and categories are covered by the products (schemes) offered by mutual funds. Young people can expose themselves heavily to the equity market, including comparatively riskier equity categories like midcap and small cap funds, which have the potential to produce higher returns and wealth creation over lengthy investment horizons.

Your asset allocation needs to be more balanced once you are in the middle of your career and retirement and other life-stage objectives, like children's higher education or marriage, are coming closer. In this period of life, it may be wise to invest in large cap funds, hybrid funds, and longer-term debt funds.

You must lower your portfolio's risk as you get closer to retirement. Debt mutual funds or debt-oriented hybrid funds (conservative hybrid funds) should make up a sizable portion of your financial portfolio (more than 50%), as they can provide you with income once you retire. In addition, since inflation will continue to cause your expenditures to rise throughout your retirement, you should maintain your equity exposure. Historical data demonstrates that over a lengthy financial horizon, the equity asset class can outperform inflation.

Should you put money into retirement funds? Retirement funds are goal-oriented mutual fund schemes that can assist you in achieving your retirement objectives. One benefit of retirement funds is that they can offer asset allocation options based on your stage of life and investment requirements. In other words, if you participate in a retirement fund, the asset allocation, rebalancing, etc. are built into the fund itself. Simply choose a plan based on your risk tolerance and life period. There might be lock-in times for retirement funds. Make wise investment choices by thoroughly reading the scheme information document. If you require assistance in comprehending the components of your retirement fund, speak with your financial adviser.


One of our top financial planning goals while we are still employed should be retirement planning. Starting your retirement planning early can help you achieve financial freedom while also allowing you to maintain your standard of living even after you retire. A great way to invest for retirement preparation is through mutual funds. Investments in stock, hybrid, and/or debt funds can be used to create your own retirement savings portfolio. Alternately, you could put money into retirement funds that offer asset allocation plans to suit various financial requirements and risk tolerances. If you need assistance picking investment strategies that are appropriate for your requirements and level of risk tolerance, speak with your financial advisor.

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