Retirement Planning through Mutual Funds-safest and best

The basic aim of sound retirement plan is to have sufficient funds in future to enable you to remain financially independent to enjoy your current lifestyle even after retirement. Retirement planning is one of the most important aspects of financial planning for everyone. The retirement corpus could be different for each one of you depending upon your lifestyle, income needs, alternative income sources, health, tolerance to risk and other such factors, but each one of you has to make some investments in the present for sufficient funds for your retirement. Traditionally, people have been investing in small saving schemes such as PPF, EPF, NPS, and Bank FDs etc. for the purpose of retirement. But in today’s time when the inflation is high, healthcare costs are steadily increasing, the average age of life expectancy has gone up, increase in the number of nuclear families, investments in the traditional instruments will not help you with the desired wealth accumulation for retirement.

However, investments in mutual funds can help you achieve the desired corpus at the time of requirement. Let us look at the features and benefits which make mutual funds the best option for retirement planning.

Disciplined investment through SIPs

One of the biggest advantages of mutual funds is that you can start investing for retirement at a very early stage of your career through monthly SIPs. Equity markets, though volatile in the short term, deliver high returns in the long term and the power of compounding works wonders over the years on your investments.  SIPs give you the flexibility to invest small amounts and also help to average out the cost of purchase of your funds.

Diversification in various asset classes

Mutual funds help you invest in a wide variety of asset classes such as debt, equity, real estate, etc. which is not possible in any of the traditional savings schemes. Thus, mutual funds allow you to mitigate the risks associated with investing in only one asset class. Mutual funds are the only investment options which provide you the opportunity to invest in different asset classes with limited capital. Thus, depending on your investment horizon and risk appetite you can invest in any of the schemes.

Flexibility to move investments through STPs

Ideally, at the start of your career, you should take higher exposure in the equity markets as you have relatively fewer responsibilities and also you are in growing stage and have the ability to take higher risks in reward for higher returns. But as you start nearing your retirement age, it is advisable to start moving your investments gradually from equity to debt to reduce your risk and eventually shift 100% of your portfolio to debt. Systematic Transfer Plans (STPs) allow you to shift a specific amount periodically from one scheme to another within the same fund house and through STPs you can start moving your portfolio from equity to debt.

Steady income of retirement through SWPs

Systematic Withdrawal Plan allows you to withdraw a fixed amount on a regular basis while the remaining amount stays invested and continues to earn you returns. As per your individual retirement needs, you can withdraw on a monthly, quarterly, half-yearly or yearly basis. SWPs, in essence, are the opposite of SIPs and you reap the benefits of SIPs in the pre-retirement phase through SWPs in the post-retirement phase.

Flexibility for lump sum withdrawal

Unlike most of the savings schemes, mutual funds also provide you the flexibility to withdraw lump sum amount as and when you require in your retirement phase. So if there is an urgent requirement due to a medical emergency or you want to plan a leisure trip, you always have the option to withdraw without having to worry about the penalty or any such thing.

Professional management at low costs

Mutual funds investments are managed professionally by fund managers who make an informed decision based upon research and their own expertise in the market. And all this is available to you at a very low cost which mutual funds charge for fund management.

Thus, following a systematic and disciplined approach to mutual funds will ensure you have adequate wealth creation for your post-retirement needs.