Mutual funds offer investment opportunities for individuals with different financial objectives. Investors can invest their money in various instruments, such as equity funds, debt & liquid funds and more, for capital appreciation. Some specific funds also offer retirement solutions through retirement mutual funds, where you receive regular income in your retirement years to enjoy and maintain your lifestyle without compromises.
The retirement fund offers several benefits, such as low-risk investment compared to equities and inflation-beating returns.
Understanding retirement mutual funds
Tailored specially for retirement solutions, retirement funds offer a safer investment venue with significant capital gains over a longer duration. Retirement mutual funds invest in various instruments such as equity-oriented, debt-oriented and hybrid funds. An investor can choose the funds depending on their financial objective and requirements.
You can choose equity-oriented funds if you plan higher returns over the tenure, but on the downside, equity fund investment can be riskier than other funds.
Debt-oriented retirement mutual funds offer safer investment opportunities since they invest in government and corporate bonds, treasury bills, money market instruments etc., which provide stable returns during market fluctuations. However, the returns on debt funds are relatively lesser than equity funds.
To have a balanced investment for your retirement planning with mutual funds, you can choose a hybrid fund that invests in debt and equity instruments to deliver balanced returns. Through portfolio diversification, hybrid funds offer a safer venue for your money.
Reason to choose retirement mutual funds
Mutual funds offer flexibility to invest your money through lumpsum investment or Systematic Investment Plan (SIP), where you can invest your money in parts every month. Investing money regularly in retirement mutual funds helps you generate a large corpus.
After retirement, you can withdraw the lumpsum amount to meet your expenses and maintain your lifestyle. Some advantages of retirement mutual funds include the following:
1. Capital gains
Since retirement funds invest your money for longer durations, you get considerably high capital appreciation through the power of compounding. However, you should start investing in your retirement funds early to have maximum benefits. When planning your retirement investment, you can use a retirement fund calculator tool online to estimate the corpus you generate in these funds and plan your finances accordingly.
2. Hedge against inflation
Retirement funds are excellent for beating inflation and keeping your money from devaluating. They offer a decent return over the period to help you save more and enjoy better capital appreciation.
3. Tax savings
You can also save taxes on your retirement mutual funds as an investor. Your contributions towards the retirement funds are tax-deductible for up to a limit of ₹1.5 lakhs under Section 80CCC of the Income Tax Act, 1961.
4. Portfolio diversification
Investing in retirement funds diversifies your portfolio, making it immune to market fluctuation to reduce losses and maximise benefits.
Depending on the investor’s requirements, these funds offer the convenience of lump sum withdrawal or a Systematic Withdrawal Plan (SWP).
Retirement mutual funds are one of the most preferred ways to build a significant corpus for your retirement. They offer safer investment venues and low-risk capital gains over the period. However, when planning your retirement, go through various funds and choose the one that aligns with your investment objectives.