Smart Retirement Planning with mutual fund

Usually, for most of us having an EPF or a separate PPF account is more or less our action plan for our retirement. In a world where our everyday lives have evolved from that of our parent’s, these kind of savings have now become very outdated. For the upcoming retiring generation solely retiring on EPF is often looked at as lack of pension after retirement. If one does not accumulate enough wealth for their retirement, there are chances that one won’t be able to sustain themselves post retirement, solely with the interest from income saved.

According to surveys, more than 75% of households in developed countries like United States are investing mutual funds for post-retirement income. So, why are Indian hesitant about such an investment? Let’s see how mutual funds can help you plan your retirement smartly.

1.  While investing for retirement, make sure that you have a reasonable amount of exposure to equities in the initial years of investment, and slowly move them to debt funds or other conventional saving options such as deposits or tax-free bonds. This process of shifting can start even 5 years before 5 years of your retirement, if you have been investing for around 15-20 years. Also, for an investment for as much as 15 years or over, the chances of getting negative returns from the stock market are next to nothing. So, your money stays safe and also equity usually gives inflation-beating returns.

2.  Try to rebalance your fund portfolio each year. This means that you should move around the proportion of debt, equity & gold in your portfolio regularly. A diverse kitty gives much need exposure to different kinds of asset categories like EPF, PPF, and other debt options and of course mutual fund.

3.  If you have mutual funds post retirement, don’t depend on them entirely for dividends, for monthly income. Incorporate the Systematic Withdrawal Plan (SWP) to create your very own annuity plan. These are a very tax-efficient option, if debt funds are held for over a year.

4.  The mutual fund portfolio for your retirement plan can survive without a fancied sector or a particular theme. If you as an investor, do wish for such an exposure, you should limit the same to 10% and should make sure to exit of such theme a few years before your retirement.

Following the above pointers can definitely help you in planning your retirement fund basket without a burning a hole in your pocket.

Author Bio: Harsimran Tikka, a blogger & literature fanatic. Loves doing analysis on any new financial product that comes into market and provides her views. She has written several articles focusing on mutual funds.