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Here are the Three Best Reasons to Invest in Mutual Funds for Retirement

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People, these days, are equally concerned about their future as they are about their present. And they want their post retirement life to be free of financial crunches. To ensure this, they start making investment arrangements for the post retirement scenario from the outset of their career itself. For most people, EPF and PPF are the only reliable retirement investment solutions or best pension plans in place. These investment arrangements are, no doubt, less risky, but with other more lucrative options like mutual funds in place, these options don’t really seem to hold water.

Besides, the returns could actually be on the lower side of the value spectrum, considering the upward moving inflation graph.

Now, if you have not saved a good amount of money by the time of your retirement, it’s likely that you will not be able to meet your day-to-day expenses with the interest income alone. Resultantly, you might end up spending the capital also. This could land you in a situation where you won’t have money for further generation of interests. Now, does that look like an impressive deal? Probably not!

So, the solution is to invest in mutual funds. In EPF, the interest gets compounded annually. But in case of mutual funds, the compounding happens on an ongoing basis because the funds stay invested in the markets.

Below, you find three of the most important reasons why you need mutual funds for retirement planning.

  1. You get greater incomes – Is there a reason why more people prefer PPFs and other fixed deposit schemes over mutual funds as their retirement investment solution? Yes, there is. Mutual funds don’t ensure a fixed income in the form of interest. Now, let’s be honest here- why does a working professional save for retirement? For creating an impressive corpus by the time they retire. And this decent corpus can be created with mutual funds and not fixed schemes. If later, you invest this corpus in less risky avenues, it will earn you a decent annual or monthly income. Wouldn’t this income be a great substitute for your lost salary after retirement?

  2. The equity scene – It’s a myth that your exposure to equity markets increases with mutual funds. Not much surprisingly, a lot of people confuse investing in mutual funds with investing in equities. Both the concepts are different and cause different financial outcomes. With mutual funds, you get exposure to a variety of low to medium risk debt instruments. You can even have exposure to gold without actually possessing it physically. Advanced international markets such as the US can also be explored. In reality, it’s not all equity that mutual funds provide, they offer a package of debt and equity to investors, with of course the equity factor being variable- Sometimes it being too low; at other times being too high. Hence, a single scheme called mutual fund can offer you a diversified exposure to different asset classes, and not just high-risk equities.

  3. The risk factor is not as high as you might think - A lot of people refrain from investing for retirement in mutual fund schemes because they think they are risky and investing in one could make them lose their money. In reality, any risks related to mutual funds are likely only when the investment period is too brief. For long term investments, the risks get evened out. Since retirement investment is a long-term planning, the factor of risk shouldn’t bother you much.

But before you start investing in mutual funds for retirement, you should follow these thumb rules -

  • Your exposure to equity should be maximum at the outset of your investment. As years pass by, more of debt funds and tax-free deposits and bonds should be included.

  • The mutual fund portfolio should be rebalanced every year. Take help of retirement plan advisors.

  • There are many retirement planning services that you can opt for but it’s best to keep away from volatile cyclic funds.

Mr. Ajay Kumar Jain, M.Sc, Chairman And Managing Director
Being the Chairman And Managing Director, he focuses on holistic investment planning and wealth management and tries to make investment planning simpler for retail and HNI investors. Investor education is one of the prime things that Mr. Ajay Jain focuses on as he believes financial education is the foundation of successful investing. With over two decades of experience, Mr. Jain has made a mark in the Indian mutual fund industry due to his compassion and sheer hard work.

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