Is Investing in Mutual Funds Beneficial for Retirement Planning?
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If you are a Central Government employee, most of the financial aspects of your retirement are already sorted by the government. But for those of you who are working in the private sector or are self-employed, retirement planning is essential. A mutual fund is one of the few investment avenues that can beat inflation. You must make mutual funds the centrepiece of your retirement planning. In simple terms, a mutual fund pools money from different investors and then invests that money in various equity stocks, debt and money market instruments. In the long run, mutual funds offer excellent returns and help build a corpus for your post-retirement needs.
How To Invest In Mutual Funds For Retirement?
Usually, most investors opt for a pension plan for retirement. That is also a good option but is a distant second to the mutual funds. Mutual funds enable you to have equity exposure, but help reduce the risk through diversification of the portfolio. an investment horizon of at least 20 to 30 years and want to make mutual funds the start of your retirement plan, then systematic investment plan (SIP) will help you accumulate and compound wealth in an affordable manner.
Why choose a Systematic Investment Plan?
Systematic Investment Planning, better known as SIP, is a systematic approach to invest money in mutual funds. Under SIP, you invest a fixed amount in the fund of your choice every month. There is no upper limit to investing via SIP, but it is desirable to set an amount which you can afford easily every month. In addition to instilling financial discipline, SIP helps you learn money management skills, which help further with the planning of your retirement.
You can invest as much as you are comfortable with as there is no minimum requirement for investment in SIP. You can switch between equity and debt instruments with the help of a systematic transfer plan. This helps you reduce your risk exposure as you gradually age. Through the ELSS route, you can save on your income tax liabilities every year as the contribution to ELSS is tax-deductible under Section 80C of the Income Tax Act.
Benefits Of Planning Your Retirement With Mutual Funds
While many of you will be tempted to opt for a pension plan instead of mutual funds for your post-retirement financial requirements, the fact remains that mutual funds are a safer and a better option. Here are the reasons you need to know while choosing between mutual funds and pension plans.
Flexibility
Mutual funds are more flexible than pension plans. There are no restrictions on making any partial or entire withdrawal at any given point of time. If you feel, you can discontinue your investment and change to another mutual fund as and when you like.
Tax Efficient
Mutual funds are more tax-efficient as compared to pension plans. Pension income is added to your other incomes for taxation, and there is no exception. While in case of equity mutual funds, long-term capital gains are tax-free up to Rs 1 lakh, and in case of debt funds, it is levied after indexation, which most of the time reduces the tax to nil.
Transparency
Mutual funds are more transparent as compared to pension plans as you can easily access all the information that you want regarding a mutual fund. Post-retirement life requires you to have a stable source of income to be able to continue your lifestyle. With the help of mutual funds, you can easily plan for a secure future and minimise the risks involved.
Conclusion
You may invest in direct plans of equity funds and ELSS through an asset management company. However, you could consider investing through a broker for regular plans of these mutual funds.You could invest in equity funds and ELSS through online platforms.
Also read- Importance And Benefits Of Life Insurance
