How Should Mutual Funds be Used in Planning for Retirement
Last Updated : Aug. 9, 2017, 1:58 p.m.
The early an individual starts investing for his retirement, the more years he gets to build on the corpus. Now when it comes to retirement planning via investment, Mutual Funds are ideal instruments as they have the potential to generate higher returns with less monthly investment. Yes, you read that right! They are low cost, tax-efficient funds, transparent and liquid. If we look at the current market scenario, it would not be wrong to say that mutual funds are leading the board as other investment options are not giving better returns in the current scenario.
I am sure now you must be wondering how should mutual funds be used in planning for retirement isn’t it? Nothing to worry as here we are to let you know how you can use mutual funds for a better retirement planning. In fact, with the help of many reliable and trustworthy sites such as Wishfin, you can also Apply for Mutual Funds Online.
When is the Right Time to Start Planning for Retirement
The moment your professional career begins , you can start planning for your retirement. Usually the career begins at the age of 23-24 years. Wait for 2-3 years so that you can have enough savings to invest in the mutual funds. With the corpus in-hand, you can easily invest in any top-performing scheme to reap the maximum benefits. At this stage, you may not have higher risk taking capacity so it is advisable to go for debt funds which invest in bonds and money market instruments to generate regular income in the form of dividends and interest.
Retirement Planning When You Attain 30 Years
When you are in your 30s, your risk taking appetite will be higher. Moreover, you would have a wider investment horizon, long-term financial goals, etc. So at this stage which are the funds you should look to invest? Consider investing in Equity Funds, which invest primarily in equity and equity related instruments. However, the higher risks prevail in Equity Funds but can come down in the long-term. So, you need to choose the funds based on the performance history of around 10-15 years. Select the one that has stood the test of time and provided good returns for the investors.
For your reference below is a table showing the best equity funds to invest for a retirement planning. (investor’s age:30-40 years)
| Product Name | NAV(as on 9 Aug,2017) | Return Since Inception | Started On | Minimum Investment (in ₹) | Exit Load | Fund Manager/s |
|---|---|---|---|---|---|---|
| Principal Emerging Bluechip Fund | 98.48 | 29.89% | Nov 12, 2008 | 5,000 | 1% for redemption within 365 day | Bhimant Shah |
| Principal Index Fund-Midcap | 19.58 | 24.44% | May 09, 2014 | 5,000 | 1% for redemption within 365 day | Rajat Jain |
| Nippon India GROWTH FUND | 1048.247 | 23.73% | Oct 08, 1995 | 5,000 | 1% for redemption within 365 day | Sunil B Singhania |
| DSP BlackRock Top 100 Equity Fund | 195.062 | 22.86% | Mar 10, 2003 | 1,000 | 1% for redemption within 364 days | Harish Zaveri with over 20 years of experience in Equity Research |
| Franklin India BLUECHIP FUND | 436.642 | 21.65% | Dec 01, 1993 | 5,000 | 1% for redemption within 365 days | Anand Radhakrishnan / Roshi Jain/Srikesh Nair |
| Franklin India PRIMA FUND | 901.49 | 20.91% | Dec 01, 1993 | 5,000 | 1% for redemption within 365 day | R. Janakiraman / Hari Shyamsunder/Srikesh Nair |
| HDFC Top 200 Fund | 433.955 | 20.91% | Sep 03, 1996 | 5,000 | 1% for redemption within 365 days | Prashant Jain |
| Nippon India VISION FUND | 552.332 | 20.15% | Oct 08, 1995 | 5,000 | 1% for redemption within 365 days | Ashwani Kumar |
| ICICI Prudential MidCap Fund | 90.59 | 18.81% | Oct 28, 2004 | 5,000 | 1% for redemption within 365 day | Mrinal Singh & Mittul Kalawadia |
| HDFC Growth Fund | 172.371 | 18.32% | Sep 11, 2000 | 5,000 | 1% for redemption within 365 days | Srinivas Rao Ravuri |
(source: valueresearchonline & moneycontrol)
Below is the table showing the Returns/Performance of the funds mentioned above.
| Product Name | YTD | 1 Year Return | 3 Year Return | 5 Year Return | 10 Year Return |
|---|---|---|---|---|---|
| ICICI Prudential MidCap Fund | 21.27 | 20.18 | 17.47 | 24.79 | 24.79 |
| Franklin India PRIMA FUND | 23.06 | 17.15 | 22.03 | 27.22 | 14.79 |
| HDFC Top 200 Fund | 23.46 | 20.29 | 12.54 | 17.04 | 13.26 |
| RELIANCE GROWTH FUND | 25.82 | 19.7 | 17.85 | 19.81 | 12.83 |
| HDFC Growth Fund | 22.78 | 19.43 | 13.46 | 15.52 | 11.62 |
| DSP BlackRock Top 100 Equity Fund | 21.89 | 14.42 | 12.29 | 14.8 | 11.48 |
| Franklin India BLUECHIP FUND | 18.96 | 12.08 | 13.79 | 15.6 | 11.41 |
| RELIANCE VISION FUND | 26.01 | 22.1 | 14.72 | 17.37 | 10.02 |
| Principal Emerging Bluechip Fund | 29.32 | 25.61 | 24.88 | 28.6 | - |
| Principal Index Fund-Midcap | 24.31 | 33.62 | 17.5 | - | - |
(source: valueresearchonline & moneycontrol)
Retirement Planning When You Hit 50
When you are in your 50s, consider investing your money in Hybrid Funds to reap the benefits. Talking about hybrid funds, they offer you a combination of both income and growth, allowing you to get the benefit from both the worlds while keeping the risks at bay. However, it is important to choose the best fund after comparing the top-performing funds. So, don’t forget to compare the best hybrid funds available when you hit 50.
Why Are Mutual Funds Better?
Professional Expertise
Investment requires skills and constant study of the market dynamics. And, mutual funds help investors to manage their money professionally well with the qualified and professional fund manager/s. From an investor, they make you to a successful investor by knowing When and Where to invest your money smartly to make most of the earning opportunities available.
Tax Efficient Instrument
The long-term capital gains under equity funds are completely tax-free. The short-term gain, on the other hand, will be taxed at 15%. Whereas, in the case of debt funds, the long-term capital gain tax is 10% without indexation or 20% with indexation. Want to know the criteria for calling long-term and short-term capital gains? Well, for equity funds, the selling of investment after a year is called as a long-term capital gain (LTCG) and before a year will be termed as short-term capital gain (STCG). The LTCG in the case of debt funds arises when you achieve a profit on selling the investment after 3 years. If you sell before 3 years, it will be considered as STCG.
Transparent & Investor Friendly
Depending upon your choice, you can select the mutual fund you want to invest in. There is a lot of transparency in MFs as an investor can easily get the information regarding the Fund Manager, Strategies, Past returns, Investment Objective, Risk Associated, Portfolio, etc. Everything is publicly available for an investor to see and then invest.
Diversification
Mutual Funds are diverse, hence allow you to invest in multiple funds, meeting your needs. You can invest in different types of securities so as to reduce the risk.
Liquidity
MFs also come with liquidity, wherein your money will be available to you anytime you want, unless there is a pre-specified lock-in period. Since mutual funds are well integrated, so you can expect to get your money in a couple of days.
Disclaimer-Mutual Funds are subject to market risks. Please read the scheme related documents carefully before investing.