How to Plan Your Retirement with Mutual Funds

Sooner or later in life we all think of what after retirement. Though in the youthful years of working, we might take it lightly, but circumstances of life do put across the question in front of us and get us worried. Definitely, our lifestyles now need a secure tomorrow when the flow of income will see a gradual slowdown and the rising inflation might make it tough to match our expenses then.

To further move ahead on your retirement planning with mutual funds, it is essential that you as an investor have an overview on how retirement planning works. It all begins with investing funds in the initial stages since then you are young, have little liabilities and more risk taking ability. Gradually it gets to maintaining the funds and finally getting the payout and withdrawal option when you need it the most. Mutual funds, as well follow the same path when aimed at retirement plans.    

But, in order to plan your retirement with mutual funds, you need to understand the type of funds that are available, so you can choose them basis your requirement, risk appetite, term of investment etc. Some of the mutual fund types best suited for retirement are:

1. Diversified Equity Funds

Investing into varied kinds of equity funds makes this scheme aggressive. It has potential to get you high returns, but is quite risky as well. Equities perform well in the long run and make a good investment fund if you begin investing at a young age.

    2. Thematic/Sector Funds

These funds get more specific with the sector you want to invest in and also get a little more risky. Suitable for aggressive investor, there’s option of mid-cap, small and very small cap stocks. These funds are sensitive to economic parameters and each year there’s a new leader in performance.

   3. Asset Allocation Funds

Also referred to as life stage funds, these schemes invest in equities at an early stage when you are young and gradually change the portfolio according to your risk taking ability as you age. Asset allocation funds try and reduce your exposure to volatile assets and shift to more stable options, rebalancing the portfolio accordingly.

 4. Systematic Investment Plans

If you are good with investing in equities but need a more systematic and controlled approach, Systematic Investment Plans (SIP) plans are best way to go about it. This keeps the volatility at bay and continues investing regularly a fixed amount, on a predefined date of every month. So when the market falls, you get more units at a lower price and when the market rises, the value of your investment goes up. Thus making the whole affair a win-win situation.

  5. ELSS Funds

ELSS fund is the most favorable scheme for both your retirement plans and tax saving. These too offer diversified equity funds but have lock-in period of only three years and are eligible for tax deductions as well. So both the dividends and the capital gains come tax-free under section 80C. Also being equity linked these tend to bring highest returns with the benefit of tax savings.