Learn how to use mutual funds for retirement planning

Retirement planning is one of the most avoided topics amongst many because they consider it to be a distant financial goal that can be achieved in the later stages of life. However, once they near retirement, they realise they have not invested sufficiently for their life post retirement and fear losing their financial independence. Remember that retirement corpus generation is a culmination of years of hard work and patience.

Retirement is a golden period, and you must be free from all financial stress and worries. For this to happen, you must begin with your retirement planning investments in securities such as mutual funds as soon as you begin your career. And discussed here are some of the important reasons for adding mutual funds to your retirement investment portfolio.

  • Offers flexibility 

Mutual funds endow you with the flexibility to enhance your investment with an increase in your cash inflow and withdraw the invested funds whenever required. If you are well-versed in tracking market movements then you may consider investing in the direct option to save on the commission. Also, you get the flexibility to shift from an underperforming mutual fund scheme to a better-performing fund scheme.

  • Transparency

The Securities & Exchange Board of India (SEBI), the regulator of mutual funds, has come up with various measures that make your investment in the mutual fund of your choice more transparent. Measures like the categorisation of the fund, detailed investment strategies in the fund’s scheme information document (SID) and key information memorandum (KIM), etc., make mutual fund investments more transparent.

  • Diversification

Mutual funds allow you to diversify your retirement investment portfolio. Your fund is invested across varied companies in distinct sectors. Diversification is a crucial investing principle and allows you to strike a balance between reward and risk.

  • Wide choice

When it comes to mutual funds, you can invest your surplus investible in a wide range of schemes according to your retirement requirements. If you are beginning early, you may go for the equity fund scheme of your choice to form an adequate retirement corpus. As you near your retirement goal, you may consider shifting your investments from an equity mutual fund to a debt mutual fund to protect your profits from eroding owing to market volatility.

Measures to build a retirement corpus through mutual funds

  1. Invest in equity mutual funds through SIPs

Once you have computed the amount you require as a retirement corpus, go for the Systematic Investment Plan (SIP) option to create the required corpus. An SIP refers to the mutual fund investment mode where a predefined amount is invested in the selected equity fund on a particular date. An equity fund is a recommended choice to form your retirement corpus because over the long run investing in them may allow you to generate high and inflation-beating returns by a wide margin. In simpler terms, equity mutual fund investment can assist you to form an adequate retirement corpus to counter inflation.

  1. Steadily shift to short-term debt funds as you near your retirement goal

As you approach your retirement goal, you must steadily move your investments in equity to debt mutual funds to protect your investment corpus from depletion owing to volatile market conditions. By shifting to debt funds, you gain the benefit of capital preservation.

Ending note

Building a corpus for your retirement using mutual funds is an easy and simple process. Do get started with this at the earliest because it not just gives your investments more time to grow but even permits you to make relevant changes midway if specific things do not go as planned.  


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