What are Retirement Mutual Funds?

Meet Mr. Oberoi, a retired finance professor with two sons aged 32 and 35. Both his children are well-settled and enjoy the finer luxuries they can afford. On inspecting their respective investments, he learned the following, 

1. The eldest has invested in diverse avenues like stocks, SIPs, insurance policies and an emergency corpus fund. 

2. The youngest primarily invests in mutual funds and other investments for tax savings. 

These revelations startled Mr. Oberoi. He realised that neither of them had planned their retirement. 

Similarly, most people fail to realise the importance of pre-planning their retirement period. In hindsight, retirement planning is a wealth-building avenue that uses the power of compounding to multiply idle savings. Since compounding is directly proportional to time – the longer you invest, the higher profit you gain! 

Still haven’t begun saving for retirement? That’s okay! You can make up for the lost time by exploring the numerous benefits of retirement mutual funds. They’re a category of funds that specifically cater to investors who desire to invest for prolonged periods, often for achieving retirement goals. 

Also Read: How Much Money Do You Need to Retire Comfortably

What is a Retirement Mutual Fund? 

Also referred to as pension funds by experts, these open-ended funds offer a regular source of income post-retirement. Investors can browse various schemes like government pension schemes, life insurance policies, etc. Additionally, mutual funds offer a diverse range of investment options that deliver higher returns that are relatively safer than the national pension scheme (NPS).  

These funds have a 5-year lock-in period that could lead up to retirement. The following are types of retirement mutual funds that fund managers invest in. 

Debt Funds: These are safe funds that deal with debt securities, yielding conservative returns without exposing you to high-risks

Unit Linked Funds: Consists of both debt and equity funds that make it riskier, but it offers higher returns 

Hybrid Funds: Proportionally invests in both debt and equity funds 

(Example: NPS allows you to take out 60% of the funds at retirement and 40% after annuity). 

Mode of Investment in Retirement Mutual Funds 

Like traditional mutual funds, retirement mutual funds offer investors two modes of investment. 

1. One-Time Investment

It allows customers to invest their savings in one lump-sum payment. This mode is preferred by those with higher risk appetites and additional cash corpus. 

2. Systematic Investment Plans

SIPS are a popular investment mode choice for most. It grants investors the power to invest in funds by paying smaller amounts at regular intervals. 

You can start investing with as little as ₹500 per month with the option to increase the amount later.

Advantages of Retirement Mutual Funds 

Easily align your retirement goals with these funds by choosing one that suits you best. However, don’t miss out on the benefits of investing in retirement mutual funds – they could save you a great deal of money! 

1.   Flexible Withdrawals

Unlike NPS, it allows investors to choose a withdrawal mode. So, you can receive the payout as a lump sum or in monthly instalments. 

2. Long-term Investment

These funds were designed for retirement planning. And so, it’s a safe way of accumulating stable returns without exposing yourself to too many risks. 

3. Tax Benefits

Receive tax deductions up to ₹ 1.5 lakhs under section 80CCC of the Income Tax Act, 1961. However, all withdrawals are subject to tax. Before contemplating withdrawing the whole sum post-retirement, factor in the tax deductions. 

4. Avoid Inflation

Typically, these retirement funds offer investors some compensation against inflation. It’s an excellent way of protecting your investments from market inflations. 

Retirement funds, or pension funds, are a reliable and safe mode of investment that provides you with income post-retirement. Over time, these funds will offer you a tremendous return. 

So, ensure to choose the ideal investment plan for your silver years. It’s never too late to begin investing, but remember, the power of compounding is best paired with early investment moves!