Retirement planning is crucial, yet 40% of urban Indians have not made any retirement investments. This can severely impact the corpus needed to fund your retired life. Planning early and investing regularly in the right investment avenues is key to building a retirement corpus. Mutual funds, with their proven long-term wealth creation potential, can form the core of your retirement planning strategy.
Why start early?
Retirement planning is a long-term goal, hence, it is prudent to start as early as possible. Starting late leaves you with fewer years to accumulate funds. Your investments get less time for compounding to work its magic.
For instance, if you start investing Rs. 10,000 per month at age 30 in mutual funds that deliver 12% annual returns, you will accumulate around Rs. 3.8 crore by age 60. But if you start at 40, with the same monthly investment and returns, your corpus will be just Rs. 1.7 crore. The 10-year delay reduces your accumulated corpus by more than half!
This illustrates why starting early is crucial for retirement planning. Investing over longer tenures allows your money to grow exponentially thanks to the twin engines of compounding and systematic investments.
The ideal investment mix
While investing for the long-term, it is important to have a diversified portfolio of equity and debt. Pure equity investments are ideal when starting early, thanks to their high growth potential. As one approaches retirement, debt and balanced funds help reduce volatility and risk.
Here’s an ideal mutual fund investment portfolio mix for retirement planning:
Equity funds
To start with, allocate 80-90% to equity funds. Choose a blend of large cap, mid cap, small cap, sectoral, and thematic funds. Equity funds carry higher risk but also deliver inflation-beating returns over long tenures of 7+ years.
Debt funds
Allocate 10-20% to debt funds initially. Choose safe options like banking, PSU funds and short duration funds. As retirement approaches, increase allocation to 40-50%. Debt funds provide stability and a steady income.
Balanced advantage funds
They dynamically manage equity and debt allocation based on market conditions. Allocate 10-15% to balance funds. Increase allocation closer to retirement.
Index funds
Allocate some portion to index funds tracking the Nifty or Sensex. Being passively managed, they offer market-linked returns at low costs.
International funds
Allocate 5-10% to international funds focused on US, Asia, or emerging markets. This provides geographic diversification.
Review and rebalance this portfolio annually based on changing asset allocation needs and risk appetite.
Systematic investment is the key
Starting a monthly SIP is the easiest way to kickstart your retirement investments. SIP instills discipline, cuts market timing risk, and powers compounding. Assuming a 12% annual return and 30-year tenure, a monthly SIP of just Rs. 5,000 can grow to a corpus of Rs. 1.74 crores! The key is to continue the SIPs, irrespective of market ups and downs.
Choose your funds wisely
Selecting the right mutual funds to invest in is crucial. Analyze historical returns across market cycles, portfolio composition, fund manager pedigree, and expense ratio. Stick to funds with a consistent long-term track record from fund houses. Investing through a reliable mutual fund advisor can also help identify funds aligned to your goals.
It’s never too late to start
The ideal age may be 30, but it’s certainly not too late to start, even in your 40s and 50s. Starting now allows your funds 15-20 years of compounding.
The key is to save, invest as much as is feasible and remain invested for the long-term. Seek expert help in realigning your portfolio with your retirement savings. Focus on reducing risk and increasing stable income sources.
With some planning, discipline, and a long-term horizon, even delayed starters can build a healthy retirement fund with mutual funds. The key is to make mutual funds the backbone of your retirement investing strategy.
