Lets Plan Your Retirement With Mutual Funds…

By Ashish Kyal – 

With the rapid rate of growth and increasing awareness, young India is demanding a secured future and they want to plan their retirement in the best possible way. How about mutual funds being one of the way….?

Whenever one thinks about saving towards retirement, he starts searching for a pension plan. But if one has a clear understanding on structure of products and also how retirement planning should be planned for, then surely one would opt for a more manageable and flexible option and mutual fund perfectly fits in that category.

Here’s the reason for the same, retirement planning has 3 basic steps- accumulation, preservation and distribution. During the initial stages the money gets accumulated and next 2 steps come at the later part. The lock-in and exit load in mutual funds are blessings in disguise in this situation, which would restrict the investor from withdrawing his money at a pre-matured stage.

As far as investments are concerned, there are variety of funds available through which investors can easily choose as per one’s choice and requirements. The recent launches typically offer different variants of portfolio allocations between equity and debt, allowing investors to choose a suitable option, based on his risk profile and age. As retirement savings are generally of very long term nature so you can select among diversified equity funds which may include a combination of Large and Mid-cap funds, also in case of debt allocation you may go with long term debt funds. For gold allocation there are different gold ETFs or gold savings fund available too. There are various tax saving and retirement plans available as well.

Now, coming on to the important part of distribution i.e. the investor should be able to receive the money after his retirement in a timely and systematic manner. One can opt for systematic withdrawal plan or dividend payout options for regular income. Apart from these benefits mutual funds are handy investments because they are flexible in nature and more transparent as compared to other retirement options like NPS. But there are some thumb rules that need to be taken into consideration while planning your investments.

Rules for retirement investing using mutual funds

The first rule – to follow in mutual fund investing, when you invest for retirement, is to hold reasonable exposure to equities in the early years and gradually reduce them by moving them to debt funds and other traditional saving options such as tax-free bonds and deposits.

Most people burn their fingers simply because they take high exposure to equities just a few years ahead of retiring and expect equities to generate high returns in a short time. A down market, in such instances, can even wipe the capital.

The second rule –  is to rebalance your mutual fund portfolio, preferably every year. This involves bringing your portfolio to the original asset allocation, if the equity, debt, gold proportion in your portfolio moves out of kilter

The third rule –  is that your retirement portfolio can do without any theme or fancied sector funds to pep your portfolio. If you do wish to take such exposure, limit it to 10% and ensure you exit the theme at least a few years ahead of your retirement. The last thing a retirement portfolio needs is volatility from cyclical funds.


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