Financial Planning: Mutual Funds as an Investment for Retirement Plan

A mutual fund is a professionally managed investment fund that collects money from investors to secure their investments. Usually, retailers or institutions invest in this firm. Mutual funds have advantages and disadvantages compared to direct investment in individual securities. A professional fund manager manages it. As a procedure, once it pools the money from the number of investors who share a common objective. Next, it invests in equities, money market institutes, bonds, etc. every investor will have their own units in holdings of the fund. The total income, which generates by this, will be distributed amongst the investors after deducting certain defined expenses.

Retirement plan selection:

Earlier, retirement planning meant investing in small saving schemes like the Public Provident Fund (PPF), the National Saving Certificate Scheme, and the Employee Provident Fund (EPF). They also bought traditional insurance policies. Later in 1964 came the mutual funds, when UTI launched, but this rarely used for retirement planning. Things started changing slightly with the advent of private sector mutual funds. Now they are changing fast. Before investing, some questions you need to ask yourself. How many years left for your retirement? How much money will you need at retirement? What is your risk-taking ability? What is the monthly income that you will need for your lifestyle? Once you have answered these, planning becomes simple. The mutual fund products you need no matter what your risk-taking ability is, no matter what your investment horizon or how much you invest.

Choosing the best insurance cover for retirement:

One can choose equity funds for capital appreciation, gold funds for securing future, or debt funds for regular income. In terms of risk, you can choose funds, safe or with low risk or you can invest in funds that are highly risky or even choose hybrid funds that are both equity and debt and are moderate at risk. It is general that mutual funds are the lowest cost options compared to any other unit-linked insurance plans and structured products.

Things you should know while you plan to invest

  • Start early:

This means the retirement plan that you will build would most likely be your last goal after others such as your children’s education or buying a house or making a living. Starting early gives the freedom to take risks. Equities give higher returns than other assets like debt, gold, real estate in a long run. Starting early would also help you to save less to get the same corpus. Suppose you start at 25 you will pay a certain amount to let us keep Rs.9600 which returns around 6.3 crores at retirement if the rate is 12%. If you delay it by 5 years, you will have to save almost double the amount every month for the same corpus.

  • know where to invest:

The market is flooded with the campaigns that try to trick you with their plan and make you believe that you get everything that you need after retirement. Make sure that you do not fall prey to such tricks by the marketing agencies.  Know about the mutual funds, because most of them do not distribute regular income in form of interest. The track record might show that they will provide regular incomes but there are no guarantees for it. The funds will be distributed following the profits that are obtained by the individual portfolio. Hence if there is no profit made by that portfolio there are chances of no dividend paid.

So, think wisely about which mutual plan that you will be choosing since it has both advantages and disadvantages. They are highly successful in creating long-term profits, but certain plans will end up failing to pay regular incomes. Choose accordingly based on how much interest and the maturity services that a mutual plan provides. Also, look for mutual funds, which are tax-free. Hence, with a good knowledge of mutual funds, it can be a great choice for a retirement plan.

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