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How Mutual Funds Can Be the Perfect Assets For Your Retirement Planning

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Retirement planning remains one of the most complicated aspects of financial planning for most urban Indians. Unlike a couple of decades back when there were limited investment instruments available, today Indians have access to a host of investment opportunities, including mutual funds, to fund their retirement years. However, understanding the various options available can be daunting, especially when we consider the increasing gap between the average retirement age and the average lifespan. This comprehensive guide offers a clear explains why it makes sense to invest in mutual funds when considering the perfect asset class for retirement planning.

Mutual Funds Offer Potential for Good Returns

Increasingly, mutual funds are becoming a popular choice for retirement planning among those who understand the impact of inflation on retirement portfolio goals. With debt instruments typically offering single digit returns on an annual basis and interest rates falling every year, there are chances they assets such as Fixed Deposits may not even offer adequate returns to cover up for inflation.

On the other hand, depending on the type of mutual fund, the number of years you stay invested, and factors related to market risk, mutual fund investments hold the potential to offer good returns on your retirement-related investments.

Additionally, mutual funds offer you choice to invest based on a range of parameters, such as market cap, type of industry, and so on. This lets you build a varied portfolio, helping you get a good average and even out any volatilities.

Investing In Mutual Funds Is Less Risky Than Direct Equity

Risk mitigation is the first rule of sound retirement planning. Unlike stocks, which are exposed to high market volatility, mutual funds offer you the choice to invest in mutual fund products basis your appetite of risk. Hence, depending on the number of years you are away from your retirement, you can choose to invest in relevant mutual funds to minimize the potential of any risk to your portfolio.

For instance, when you are 30 years away from your retirement, depending on your overall portfolio, you can choose to invest in mutual funds with potential for high or medium-growth. Gradually, as you get closer to your retirement age, you can opt to invest in mutual funds that offer higher risk mitigation and limited exposure to the markets.

Further, investing in mutual funds can be less risky than lumpsum investments directly in equity. This is because you can opt to invest in mutual funds via SIPs, and benefit from the law of averages.   

Opportunity For Goal-Based Investing

When it comes to retirement planning, every person’s goals are unique. Hence, the ideal retirement planning instrument is that offers opportunity for goal-based investing. This is another reason why mutual funds serve as a valuable asset class.

There are a number of mutual funds that are specifically designed for retirement planning and investment. On the other hand, neither stocks nor debt products specifically factor in retirement stage needs such as substantial risk mitigation etc.

If you have other additional goals that coincide with your retirement, you can also opt to invest in mutual funds related to those goals. For instance, if your child’s higher education or their marriage is likely to happen around or after your retirement, you can choose to invest in mutual funds dedicated to retirement planning as well as those tailored for education and marriage-related corpus.  

Additionally, most platforms that facilitate mutual funds come with a dynamic tracker as to how much you need to invest to arrive at your retirement corpus goals. This ensure you recalibrate in good time and are able to reverse the impact of external trends or the markets and meet your goals.

Flexibility In Investment Style

The biggest factor that impacts your retirement corpus is how you invest – regularly or in a lumpsum manner. Both the styles have their benefits. Unlike several other instruments, mutual funds allow you to invest leveraging both investment styles.

You can opt to regularly invest via mutual fund SIPs to ensure you benefit from investing discipline as well as law of averages. This is especially convenient to salaried class who want to put aside a fixed sum every month towards their retirement as well as benefit from market trends.

On the other hand, you can also invest a lumpsum amount in mutual funds. This lets you time your investments and also gives you the convenience of investing even though you may not be comfortable with making monthly commitments. This makes investing lumpsum in mutual funds ideal for non-salaried or business professionals.

Additionally, salaried professionals too can invest a lumpsum amount in mutual funds apart from their regular SIP-based mutual funds investments when they have some additional amount or are looking to benefit from a market trend.

Such flexibility makes mutual funds a viable asset class for investors looking are retirement planning.

Getting Started

To benefit from the various advantages that mutual funds offer as an asset class, it is best to start as early as you can. This is especially true for retirement planning since it requires you to arrive at a big corpus at the end of your investment journey. The sooner you start, the smaller the amount you need to start with to arrive at your retirement corpus goal.

But before you start, make sure you spend a good amount of time understanding all the mutual fund basics and make an informed investment decision. This is because mutual funds are subject to market risks and require you to read the offer document carefully before investing.

However, once you start investing in mutual funds after equipping yourself with all the basics, it is only a matter of time before you discover how mutual funds can be the perfect assets for your retirement planning; they offer you great flexibility basis your risk appetite, income and investment flow, and several other factors.

Disclaimer: No Deccan Chronicle journalist was involved in creating this content. The group also takes no responsibility for this content.