How to plan for your retirement: From how to invest in mutual funds to preferred asset class, what you need to know

Published: October 6, 2017 3:02 AM

It is advisable that an investor starts his retirement planning on the first day of the job. It will add value to your planning.

retirement planning, why invest in mutual funds, how to plan retirementYou may come across various investment vehicles which may help you in financial planning, retirement planning etc.

It is advisable that an investor starts his retirement planning on the first day of the job. It will add value to your planning. You can raise your investments in line with rise in income which will be beneficial for life even after retirement. You may come across various investment vehicles which may help you in financial planning, retirement planning etc.

However, investment in mutual funds is one of the most diversified investment option that gives you the liberty to select investment options best suited for your financial goals. Plan your retirement with mutual funds at an early age and then enjoy the benefits of long term investments after retirement.

Which is the preferred asset class?

The answer depends on your income, age, risk taking capacity and your financial goal. Apart from equity and debt, you have balanced fund where you can avail benefits of asset classes, equity and debt.

Volatility and risk is comparatively higher in equity markets compared to debt funds. In short, prices of stocks and shares are trading with high volatility compared to prices of government bonds where a debt fund manager parks investor’s money.

Generally, young people are willing to take high risks and prefer investing in equity funds, however, investment in debt funds is suitable for the elderly as risk of losing the principal amount is comparatively less. Moreover, gold is looked upon as a diversification tool. One must also have 10 – 15% allocation in gold in their portfolio.

How to invest?

Systematic Investment Plan (SIP) could be your key to a happy retirement life. One of the preferred ways of investing in a mutual fund is through a SIP. In SIP, you can invest every month with a minimum amount of Rs.500. While SIP makes you a disciplined investor, it also gives your money professional fund management skills which helps you achieve your goal of retirement planning.

Following are three advantages of investing in mutual funds especially for retirement planning.

SIP – Systematic Investment Plan (SIP) allows you to invest a minimum amount on a monthly basis which helps to save money for retirement life without disturbing today’s expenditure.

Ability to switch – As a young investor, you might be able to take higher risks for higher returns, hence investment in equity is the best investment model. However, as you near your retirement age, it is advisable to gradually shift your investments into lower risky assets like debt funds. A mutual fund offers you the facility to switch between funds of the same fund house. A Systematic Transfer Plan (STP) allows you to systematically move specific amounts from one scheme to another, in this case from equity to debt.

Regular income – Mutual funds allows you to automatically withdraw specific amounts (or units) on a monthly/quarterly/half yearly/yearly basis. It provides you a regular source of income even after retirement.

To conclude, a key difference in life before and after retirement is source of income which is not available after retirement. Investment in mutual funds will help you avail a regular source of income with benefits of diversification of risk. You can gain tax benefits on investments. You could choose the most suitable fund for a better retirement life.

Quantum Mutual Fund

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