To have a comfortable life after retirement, you require having a retirement corpus along with a steady source of income. While retirement means that you have time to pursue your passion along with family-related responsibilities, this phase of your life comes with the added responsibility of having sound finances. With the changing demographic trends, it becomes imperative that you start planning for your retirement as early as possible. Investment in mutual funds, over a period of time, provides you with excellent market-linked returns, which, in turn, helps you to build a corpus for your post-retirement years.
Understanding the changing demographic trends
According to the economic survey for 2018-2019, India’s population will start ageing significantly in a decade from now because of population growth and rise in life expectancy. From the year 2030 onwards, the society will be characterised by a more ageing population. The economic survey revealed that the population of the elderly—those in the age bracket of 60 years and above—will double from the existing 8.6% to 16% from 2040 onwards. The changes in the demographic trends can have implications like shortage in healthcare facilities for the elderly, including reduction in per capita availability of hospital beds. While the government is planning to pay greater attention to the ageing population in the coming years, you need to understand that the increase in the population of the elderly will have important social and economic consequences. This, in turn, means that you need to have a viable investment avenue for retirement planning. Here, mutual funds can be the best investment option.
Understanding mutual fund investments
Mutual funds are investment instruments that pool money from a group of investors and invest the collected money in diverse asset classes like debts, equities and money-market instruments. Though mutual funds have exposure to equity funds, the market risks are greatly reduced by the diversification of the investment portfolio. If you have an investment horizon of two decades or more, you can consider a Systematic Investment Plan (SIP) to invest in mutual funds. This will help you in accumulating a considerable retirement corpus.
Understanding Systematic Investment Plans (SIPs)
SIPs invests a fixed amount of money at regular intervals into mutual funds. Besides inculcating financial discipline, a SIP will allow your savings to grow with interest compounding each year. The feature of the rupee cost averaging system in a SIP, over a period of time, will help you beat any dip in the market. Rupee cost averaging in a SIP allows you to buy fewer units of mutual funds when the markets are expensive and purchase more when the markets are cheap. When you hold the SIP for a long period of time, it cancels out the impact of market fluctuations. This is known as rupee cost averaging. This is an automated process, which not only protects your investment from market volatility but also ensures growth. While planning for your retirement goals, you can opt for a longer tenor, and avail of higher returns.
On Finserv MARKETS, you can invest in a Systematic Investment Plan with a minimum of Rs 500. Here you can make an informed decision by knowing the returns on your investment using a SIP calculator. What’s more, you can also try the advanced SIP calculator and SIP Need Calculator to understand your investment options in a better way.
Benefits of mutual funds for retirement planning
Here is a list of reasons why mutual funds can be the right option for retirement planning.
In the case of equity mutual funds, long-term capital gains up to Rs one lakh is exempt from taxation. For debt funds, the tax liability is reduced through indexation. Indexation is simply the process of adjusting the purchase price of a debt fund to reflect the effect of inflation on it. SIPs enjoy EEE (Exempt, Exempt, Exempt) tax benefit under Section 80C of the Income Tax Act. This means that the amount you invest along with the accumulated amount and the amount on withdrawal is all tax-free. This is a key benefit of mutual funds which can help you with retirement planning.
Another benefit of mutual funds is that there are no restrictions on withdrawal of your investment, apart from Equity Linked Saving Schemes (ELSS), which have a lock-in period of three years. Further, you can invest in diverse portfolios according to your risk appetite. Here you must remember that market experts suggest taking risks through more equity fund investments while you are young, and then shifting to safer investments like debt funds while approaching the maturity of your investment.
In the face of changing demographic trends, it is essential to start planning for your post-retirement years. Mutual funds can be the best investment plans for your retirement plan. You can consider investing in mutual funds or SIPs on Finserv MARKETS, come with complete transparency, minimal documentation and low transaction costs. Here, your investments are staggered across a vast spectrum of industries thus giving you a diversified portfolio and reducing your risk.
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