How women can overcome these unique retirement planning challenges

Mutual funds are preferred by both investors with high, moderate, and low-risk appetites. Apart from this, both young and older investors are investing in these market-linked schemes that have the potential to generate capital appreciation over the long term. While mutual funds have proven to be an ideal investment tool for targeting one’s long-term financial goals, some individuals are even considering them for building a retirement corpus. Retirement planning is an important part of financial planning and all individuals must take it into serious consideration as early as possible. By now we know that the more years we have in hand, the larger corpus we might be able to accumulate to enjoy a stress-free retirement.

Investors who wish to plan their retirement with mutual funds can consider investing in retirement mutual fund schemes.

What is a retirement mutual fund?

A retirement mutual fund falls under the solution-oriented schemes category as they aim to provide financial solutions to those seeking to build a long-term retirement corpus. Such funds usually come with a predetermined lock-in period of five years or till the investor attains the age of retirement (whichever is earlier). Retirement funds usually invest their corpus in both equity and debt-related instruments so which makes them hybrid funds.

Retirement plans generally come in a dynamic plan, aggressive plan, and conservative plan thus allowing retail investors to choose a plan that is in sync with their risk appetite.

  • A dynamic plan tries to balance between equity and debt asset allocation
  • An aggressive plan is more equity-oriented with the remaining of the portfolio is allocated to debt-related instruments
  • A conservative plan on the other hand invests a majority of its assets in debt and the remaining the assets in equity and equity-related instruments

How to plan retirement with mutual funds?

As you will be investing in a retirement mutual fund scheme for the long run, it is better to start a monthly SIP. However, you can also make a one-time lumpsum investment, but SIP makes much more sense. A Systematic Investment Plan or SIP is a simple and convenient way to save and invest a fixed sum regularly in mutual fund schemes. It allows investors to leverage from fluctuating markets and they can average out the cost of purchase through an investment technique known as rupee cost averaging. When the markets are low as so the retirement mutual fund’s NAV (Net Asset Value), investors can buy more units. On the other hand, when the NAV goes up investors buy fewer units. This adjustment of buying of units in quantum with the changing NAV is referred to as rupee cost averaging and allows investors to buy units and leverage even when the scheme is underperforming in volatile markets.

SIP gives mutual fund investors the liberty to invest money periodically (typically every month). Investors who wish to witness their small SIP sums compound over the long term can even benefit from the power of compounding. Investors can even use an online SIP calculator which will show them the total returns earned through SIP investing for a specific investment horizon. For example, if you want to build a corpus of Rs. 1 crore and you have 25 years in hand to achieve this corpus and if you expect the retirement fund to deliver average returns of 10% then you will have to start a monthly SIP of Rs. 8000 should be enough for them to achieve this target.

However, before investing in a retirement mutual fund scheme, investors should talk to their financial advisor who might help them make an informed investment decision.

By Richard