Nobody wants to be poor when they’re in their old age, and you don’t want to be one of them. You’re well aware that you’ll need to save for retirement and that mutual funds can help you do so. However, you have a few concerns:

• How much will be enough?
• How many years will you need to invest?
• What’s the ideal plan to get dependable income from your investments?

If you don’t plan for your retirement now, you are planning to fail financially after retirement. Who doesn’t look forward to the golden age of retirement – free from work and family responsibilities? You will have plenty of leisure time to pursue your passions. To live a comfortable retirement, you have to plan before you retire.

Here comes the role of Mutual funds which forms the backbone of your retirement plan.

Role of Mutual funds in retirement planning:

You need to plan for retirement even if you are a worker in the central government or self-employed. While the government takes care of most financial aspects of retirement, self-employed individuals and those working in the private sector need to plan. One of the few investment avenues that can beat inflation is mutual funds. Mutual funds should be the centrepiece of your retirement planning. In mutual funds, money is pooled from many investors and then invested in equity stocks, debt instruments, and money market instruments. Mutual funds provide good returns in the long run and can be particularly helpful when it comes to building a corpus for retirement. Furthermore, mutual fund trackers make it easy to track, analyse, and make investment decisions.

How to invest in mutual funds for retirement?

Retirement investors usually opt for pension plans. These are also good options, but they don’t match the versatility and risk reduction offered by mutual funds. Mutual funds offer equity exposure while reducing risk through portfolio diversification. A systematic investment plan (SIP) helps you to accumulate and compound wealth in an easily affordable manner if you have a long-term investment horizon of at least 20 to 30 years and want to make mutual funds the foundation of your retirement plan. SIP (Systematic Investment Planning) is a method of investing in mutual funds that follows a set of rules. SIP is a monthly investment plan in which you invest a certain amount in a fund of your choice. There is no upper limit to SIP investing, however, it is recommended that you choose a monthly amount that you can comfortably afford. SIP not only teaches you financial discipline but also teaches you money management skills that will help you plan for your retirement. You can use a SIP planner to estimate the periodic SIP amount as per your target corpus for your retirement. Most AMCs and investment platforms provide an SIP planner for investors.

Advantages of planning your retirement with mutual funds:

Even though many of you will be tempted to choose a pension plan over mutual funds for your post-retirement financial requirements, mutual funds are a safer and more effective option. Here are three reasons you need to consider when choosing between mutual funds and pension plans.

The reasons are discussed briefly as follows:-

• Adaptability: A mutual fund has greater flexibility than a pension plan. There is no restriction on how much you can withdraw at any particular point in time. If you feel that your investment isn’t working, you can discontinue it and invest in another mutual fund.

• Tax Savvy: Mutual funds are tax-efficient compared to pension plans. Pension income is added to all other incomes for taxation, and this is the case no matter where you live. Long-term capital gains are tax-free up to Rs 1 lakh in equity mutual funds, but they are taxed after indexation in debt funds, which reduces the tax to nil in most cases.

• Transparency: In comparison to pension plans, mutual funds are more transparent because you can simply acquire all the information you need about them. To be able to maintain your lifestyle after retirement, you must have a steady source of income. You may easily plan for a secure future and minimise risks with the help of mutual funds. However, you must consistently observe performance. You can use a mutual fund tracker. The mutual fund tracker provides a detailed and easy-to-analyse tool for all your investments.