ARE THERE ANY MUTUAL FUNDS PLANS THAT ARE SUITABLE FOR RETIREMENT PLANNING?
There are readymade retirement plans from Mutual Funds like Retirement Saving fund etc., these invest in equity and debt instruments as per the scheme related document, generally these have 3.5 to 5 years lock in and have exit load of 1% for withdrawal before 60 years.
We suggest to device your own retirement plan instead of buying a readymade retirement plans in the market. You can use these readymade plan as add ons and they can be part of your entire retirement planning.
If you start early and cannot set aside lot of money for retirement, no problem, you can start SIP, systematic investment plans are best ways to get benefit of compounding without much dent in your expenses. As a thumb rule start SIP in equity and put lump sum in debt or balanced funds. Use this technique during accumulation stage. Review the investment regularly, increase the amount when you get raise in salary and you can also add a part of bonus during the year.
When you make your retirement plan you should add a good mix of debt and equity instruments based on age. The thumb rule is 100 minus age should go in the equity funds. The debt funds which you can use are FMP’s, Pension plans etc.
During the distribution stage one can also invest in monthly income plans these give regular monthly income however this amount is not fixed and therefore cannot be used to invest entire corpus.
In addition to above, there are many benefits of planning retirement through Mutual Funds.
- Flexibility: Each retirement plan is unique to the person. You can have an exclusive tailor-made plan using MF alone. To implement those plans mutual fund offers flexibility. It offers variety in terms of method of investment SIP, STP, SWP, MIP. You decide on tenure, contribution, and target corpus and asset type to make your own retirement corpus generation plan.
- Tax Optimization: It has best tax advantages as on today, all the gains are coming under capital gains taxation, so you claim indexation benefits and in equity tax free after 12 months. On the debt mutual funds you get indexation benefit under Long Term capital Gains tax. If you plan Systematic Withdrawal Plan, you can have tax free withdrawals also.
- Product Variety: You can select products based on a theme, sector, debt, equity balanced and everything you can think of. Now increasingly mutual fund houses are offering Portfolio Management Services. You can select products for retirement based on your age…..like if you are under 35 years age you can pick aggressive funds and so on and so forth and you can customize your plan.
- Expert Manage your Money:If you invest in direct bonds or direct equity you need to keep track of timing and safety and security of these investments. You can do same investment through mutual fund and you have product variety like debt, equity, balanced, sector MF, thematic MF. The best part is professional fund managers regulated by SEBI manage your funds. There are actively managed funds where professionals will take calls on buy and sell on the bonds and stocks in the interest of generating good returns and ensuring safety.