Mutual Funds & Retirement Planning

Retirement Planning: Role of Mutual Funds in Retirement Planning

Recently government of India has introduced the New Pension Scheme (NPS) for people of India. Needless to say that, it has generated a lot of interest among people about retirement planning. Right now people of India are discussion daily about their retirement planning.

The market is full of financial products such as Pension Plans, ULIPs, Mutual Funds…etc… from various mutual funds and insurance companies. According to the advise of Finance Gurus, “Don’t sign up for any products with a ‘Retirement’ Tag.”

“Don’t go by the name of the product. Figure out weather the objective suits your purpose.”

The Problem with Retirement Plans (Pension Plans) is that, they are far conservative. Say for Example, NPS. New Pension Scheme will invest only a portion of your total fund in Equity for better returns and the lock-in period is 30 years and on the top of that, it will invest only in Index stocks (Sensex & Nifty) which will limit the number of stocks to 51 only.

NPS is so much safe that, it will allow very little space to your money to grow. Finance Gurus argue that, If you are going to invest for 30 years than why not invest all of the money in Equity? Second thing is that, if we have 30 long years to build the retirement corpus than why don’t invest in mid cap and small cap stocks for first 2 decades? Later on in the last decade we can gradually shift to large cap and debt oriented funds.

This is the reason, Financial Planners advise to invest in Mutual Funds rather than in Pension (Retirement) Plans. Because it is really easy & worth to build the extra ordinary Retirement Corpus with the Aggressive Mutual Funds, especially you have 20-30 years remaining for the retirement.

According to Finance Gurus, “When you have time on your side, you can bet on small and mid-cap stocks. They are risky but in the long run, the risk reduces and the chances of excellent return are more.”

Tips to Build Retirement Corpus by Mutual Funds -

- Use an Equity scheme to build the corpus

- SIP (Systemic Investment Plan) works the Best

- Bet on Blue chip if you want to play it safe

- Index funds work for passive Investors

- Small, Mid-cap schemes means high risk-return

- A Combination of schemes is also possible. Equity & Debt Fund can be the part of your Portfolio.