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Yes Retirement Planning is Possible Through Mutual Fund SIP

Yes Retirement Planning is Possible Through Mutual Fund SIP

Last Updated : June 4, 2016, 8:24 a.m.

Retirement planning is a complex, but it would not be wrong to say that a very important topic, especially in today’s life as India is going through a process of economic as well as social transformation. Moreover, some of these changes are:

• Shifting from joint families to nuclear
• Children are migrating for employment
• Higher inflation levels
• Increased life expectancy
• Increasing healthcare cost

In addition to, these changes and probably others in the near future makes it imperative for you to start planning for your retirement in the early working lives. It is highly important to understand the fundamental goal of the retirement planning i.e. in order to achieve the financial independence in the retired years of life.

Moreover, one thing that needs to be mentioned here is the fact that one of the fundamental tenets of finance is actually the principle of time value for money. In simple terms, money starts losing its value over the time, well the credit goes to this ugly nine letter word-Inflation. Thus, it would not be wrong to say that the first step towards retirement planning is capital needs analysis. In fact, there are plethora of factors involved in this process including inflation, life expectancy, lifestyle and investment returns.

It is important to take the expert advice, and involve a financial planner in order to make sure that you are having the robust financial plan. Moreover, after determining the amount of retirement corpus, you can focus on building the corpus. When it comes to retirement, there are plenty of products available in the market such as Public Provident Fund PPF, New Pension Scheme and pension plans offered by numerous insurance companies. However, one thing that needs to be mentioned here is the fact that each of these retirement schemes and plans have their own merits. If experts are to be believed, mutual funds are no doubt very effective instruments for retirement planning.

Read this article further to know the key benefits of retirement planning via mutual funds Systematic Investment Plans (SIP):

• There is no doubt on the fact that mutual funds are more tax efficient than any other product i.e. pension plan. More to the point the long- term capital gains for equity mutual funds are tax exempt. In addition to, for debt funds the capital gains are taxed at 10% without the indexation and 20% with indexation.
• With high levels of inflation capital gains, it would not be wrong to say that tax with indexation is usually nil. While on the other hand, the income from pension plans are taxable.
• Being a very flexible instrument, there are no restrictions as well as penalties on doing the SIP payments and withdrawals regularly, unlike in the pension plan premiums or PPF.
• For the smart investor, the mutual funds provide more choices as well as transparency. You can easily select the product based on the risk profile, track record and fund objectives of yours.

More to the point, when it comes to retirement planning, it is very long term in nature, and investors can select the diversified equity funds, balanced funds or in fact the long-term debt funds, as per the risk involved in their profile along with the time horizon. In addition to, following are the few success factors in retirement planning:

• Starting as early as possible to receive the benefits.
• Investing in the right asset class
• Staying disciplined on retirement planning

Let’s try to understand this thing through this way-For example-if you started investing through SIP at the age of 30, you would be able to generate a corpus of somewhere around Rs. 11 crore at your retirement, while assuming the expected returns of 20% by investing only Rs.5000 per month. However, if you began this at the age of 45 to generate the same corpus, you will need to invest Rs. 1 Lakh every month.

As you reach close to retirement, you should re-balance the portfolio mix in order to have a greater allocation so as to fixed the income instruments such as fixed maturity plans or monthly income plans, when it comes to protecting the capital. More to the point, so as to meet your monthly income needs after the retirement,you can opt for the Systematic Withdrawal option. It is true that money can’t buy the happiness, but lack of financial security can create a lot of stress in your personal life.Moreover, with the help of proper planning along with rigorous discipline, the mutual funds SIP is surely a best investment option for a fulfilling retirement.

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