Start Your Retirement Plan Now. Do Not Forget Mutual Funds!

18 January 2023
4 min read

When preparing for Retirement, the savings tools that come to mind are Insurance Company Pension Plans, National Savings Certificates (NSC), Employee Provident Funds (EPF), and Public Provident Funds (PPF). Unfortunately, many of us even neglect to make adequate retirement plans, forcing us to rely on our children.

However, Mutual Funds are a fantastic investment for your retirement if you do not mind taking a little risk with your money. The more corpus you have when the time comes will depend on how early you begin saving for your superannuation.

Although there are Mutual Funds that are specifically designed for retirement, you can also choose a common equity, debt, or hybrid fund over the long term to build wealth.

In this blog, we have composed a list of the importance of Mutual Funds for Retirement Planning, so read on to know more about the same.

Importance of Mutual Funds in Retirement Planning:

The following are some of the most crucial justifications to take into account why Mutual Funds are important for Retirement Planning-

  • Clarity & Transparency

Since you can conveniently access all the details you need about a Mutual Fund, they are more transparent than pension plans.

To maintain your standard of living after retirement, you need a reliable source of income. Therefore, you can effectively plan for a secure future and stable retirement and reduce associated risks with Mutual Funds.

  • Flexible Features

Mutual Funds are more flexible than traditional pension plans because there is no limitation on making complete or partial transactions or withdrawals at any time. Additionally, you can decide to switch from your current Mutual Fund to another based on your own accord.

  • Tax-Efficiency

Comparing Mutual Funds to generic pension plans, tax-saving tools are better with Mutual Funds. There is no tax except for the income you receive from your pension plan; it is added to your other income.

However, equity Mutual Fund long-term capital gains are exempt up to Rs. 1 lakh. In contrast, the tax is assessed on debt funds after the indexation process, which typically results in zero tax.

  • Potential of Outpacing or Beating Inflation

One of the few investment options that can outperform Inflation, without a doubt, is a Mutual Fund. Therefore, mutual Funds must be the focal point of your retirement planning.

Simply put, a Mutual Fund is a group of investors who pool their money and invest it in various equity stocks, debt, and money market instruments.

  • Excellency in Returns

Investing in mutual funds is to receive better returns than those provided by more conventional investment options. These returns result from the mutual funds' professional management and increased market exposure.

Thus, Mutual Funds also provide excellent returns over the long term and assist in creating a corpus for your post-retirement needs.

  • Comparatively Safer Investment Option

Mutual Funds are designed for retirement solutions and come in various forms, including hybrid, equity-oriented, and debt-oriented. They offer multiple options from which investors can select by their requirements.

Some of these funds invest primarily in riskier investments, such as government security bonds and other debt instruments with fixed interest rates, making them debt-oriented funds. They are regarded as safer than equities because of this. In addition, retirement mutual funds are available in hybrid formats that diversify their investments across different assets, including debt and equity.

  • Huge Variety of Choices

The world of Mutual Funds is enormous. Depending on your needs after retirement, you can invest in various funds.

If you start early, you can choose equity funds to create your retirement corpus. You can switch from equities to debt as you get closer to your goal to prevent your gains from being eroded by market volatility.

  • Diversification

You can diversify your portfolio using Mutual Funds. Your money is invested across various businesses in a range of industries. A fundamental investing tenet is a diversification, which helps balance the risk-reward trade-off, which is a perfect choice while you are planning for retirement.

Conclusion

In conclusion, using Mutual Funds to build your Retirement Fund and Retirement Portfolio is quick and straightforward. Do begin as soon as possible so that you have more time for your money to grow and can make changes if necessary. Maintain no more than three to four funds at a time because more will make it difficult to track the portfolio and will dilute returns.

Additionally, ensure that the underlying holdings of the funds are distinct, as funds with similar holdings may only clog your portfolio. You will not receive proper diversification from them.

On your journey, seek the assistance of a financial planner who can provide you with the appropriate guidance and advice to help you make decisions.

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