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Retirement planning is key to ensuring that your golden years are comfortable and as enjoyable as possible. For this, you need to invest, and thankfully, there are many options to choose from. Among these, mutual funds (MFs) are a convenient and easy way to build a healthy retirement corpus.
With MFs, you can invest per your capacity and requirements, without feeling overwhelmed. You also enjoy tax benefits, and can choose from a diverse range of options based on your risk appetite. Read on to learn how mutual funds can help you grow your retirement corpus.
Why Choose Mutual Funds for Retirement Planning?
Financial institutions offer mutual fund schemes based on several factors. As such, you will find those that cater to an individual’s retirement needs and current finances. This, coupled with the fact that MFs have the potential to outperform the inflation rate[ , gives them a leg up over many retirement schemes.
This becomes all the more important for non-government employees, who often receive the short end of the stick in retirement schemes. Further, you aren’t restricted to just one investment mode. You can invest in mutual funds via a lumpsum or systematic[EWW2] methods.
The latter is the more convenient of the two, and there are many options here as well. These include the Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP). You can choose one based on your needs and investing strategy, but the simplest of them all is the SIP.
With the SIP, you invest a fixed amount every month in a fund of your choosing. You can start an SIP with as little as ₹500, and invest for years, without restriction. For young earners and first-jobbers, an SIP is a great way to work toward a retirement fund without overburdening the monthly income.
Additionally, starting an SIP at a young age can help you leverage the power of compounding. This is key to accumulating a substantial retirement corpus. Besides these factors, here are some other reasons to choose mutual funds for retirement planning:
- Tax benefits to further increase savings
- Options to diversify and balance risk
- Highly regulated with easy tracking and monitoring tools
How to Select the Right Mutual Funds Scheme
Here are a few tips for choosing the ideal mutual fund scheme for yourself:
Research Before Choosing
Investing for retirement means investing for the long term, so research is key. Learning about different funds and their performance is key to choosing a fund. Thankfully, there are several online platforms that allow you to compare funds and their performance. You can even view historical trend data to assess if it has a proven track record.
Assess Your Needs and Risk Tolerance
When investing in mutual funds, you must assess and know your risk appetite. MFs are subject to market volatility and being clear about the risk you can handle is crucial. This not only helps you identify the funds that work, but also the asset classes you can consider.
You should also assess your current finances to know your risk tolerance. Being overly aggressive with growth could require you to take on more risks, and this isn’t possible for everyone. For instance, equity mutual funds can more risky but offer higher returns over time while debt funds are less risky but may offer returns that are not as high. Choose the right scheme based on your needs.
Diversify Investment to Balance Risk
As explained, mutual funds carry different levels of risk, and diversifying your investment helps you lower your risk. Diversification allows you to choose different asset classes, and this has its benefits. You can leverage one instrument’s gains against another’s loss, and maintain stable financial growth.
Choose the Right Fund House and Manager
The fund house and manager you choose play a vital role in the wealth you accumulate at the end. This is because, in mutual funds, the fund house’s policies and the fund manager’s strategies influence the scheme’s performance.
So, review the fund house’s reputation and policies. Check the fund manager’s strategy and whether it aligns with your goals and risk tolerance. Use online tools like the SIP calculator to understand the impact of your investment. This online tool is free to use and provides accurate results, allowing you to invest optimally.
Consider these points before you invest and build a mutual fund portfolio that works in your favour. One way to access a wide range of mutual funds options is through the Bajaj Markets App. On the app, you can start investing and track your portfolio effortlessly, and you can download it on Google Play or App Store. So, get started and work towards your retirement today!