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Is it Risky to Invest in Equity Mutual Funds After Retirement?

Mutual Funds67 views

Highlights

  • Shall you invest in equity mutual funds after retirement?
  • Lump sum investment in equity funds can generate regular income besides earning you good returns
  • Equity fund returns can help you live amidst inflation

Retirement is all but a reality. While some continue to live the privileges that they had at their disposal during the working days, others have to compromise a great deal on their lifestyle after retirement. Those struggling to live the way they used to do in their working days would most likely have fumbled on their investment strategy post retirement. They could have swayed away from equities considering that they are a risky affair. And so, they get stuck with products such as post offices, bank accounts, etc. Those who follow such a thought largely undermines the fact that inflation is going to substantially erode the value of money deposited in such financial products.

And so, there’s a need to expose a significant chunk of money in equities even after retirement so as to keep the inflationary effects in check. Well, do it via mutual fund so that the assets are diversified adequately across a wide range of financial instruments. The risk is there as the returns from this asset class is not definite. But then, the investments have to be there in equity funds to protect you against the adverse the inflationary impacts. See how equity funds can still be the one to go with after retirement.

What Makes Investment in Equity Funds Sensible After Retirement?

What do you actually require after retirement? The money to carry out the usual expenses, right? Well, equity funds come with a lump sum investment mode in addition to the popular Systematic Investment Plan (SIP). The lump sum investment comes with a Systematic Withdrawal Plan (SWP) exactly opposite to the SIP. With SWP option, you can get regular income while also earning returns on the lump sum investment at a potentially high return which normally is the case with equity funds. After retirement, you would most likely find it hard to invest periodically as was the case before retirement. So, a significant chunk of the retirement corpus should go into equity funds with an SWP option. An example below will illustrate the benefits of SWP.

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Example – You have a retirement corpus of say ₹50 lakh. You require ₹40,000 for your monthly spends. So, if you invest ₹40 lakh of the corpus in an equity fund and activate an SWP of ₹40,000 (monthly), you could still have a corpus of approximately ₹21 lakh by the time you would be 80 years, the maximum time one could expect to live.

The remaining ₹10 lakh can be invested across debt mutual funds, fixed deposits and post offices to add cushion to your retirement.

Conclusion

Although it is risky to invest in equity funds after retirement, you should do to escape the adverse effects of inflation that traditional products can’t help you do so. Alternatively, you can expose a substantially high chunk of money in equities via a top-performing hybrid fund if you are not okay with the idea of keeping the money in equities alone. Hybrid fund invests in both equity and debt instruments. Invest in an equity-oriented hybrid fund so that 60%-65% of the corpus goes into the high-return engine of equities.

Disclaimer – “Mutual fund investments are subject to market risks. Please read the scheme document carefully before investing”.