Investing in Mutual Funds Can Form The Backbone of Your Retirement Plan

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Mutual funds play an important role in retirement planning

The government will take care of most aspects of your retirement if you are a Central Government employee. Retirement planning is important for those who work in the private or self-employed sectors. Mutual funds are one of few investment options that can beat inflation. It is crucial that mutual funds be a central part of your retirement planning.

A mutual fund is simply a pool of money from investors that invests in different equity stocks, debt, and money market instruments. Mutual funds can provide excellent returns over the long-term and help you build a wealth for your retirement.

A systematic investment plan (SIP), which is a way to accumulate and compound wealth, will work for you if you have an investment horizon between 20 and 30 years.

Systematic Investment Plan (SIP), for Retirement

Systematic Investment Planning (or SIP) is a method of investing money in mutual funds. SIP allows you to invest a fixed amount every month in the fund that interests you. SIP has no cap, but it is a good idea to set a monthly budget that you can afford. SIP not only helps with financial discipline but also helps you to learn money management skills that will help you plan your retirement.

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Let’s look at an example. Let’s say you are 30 and want to start a monthly SIP worth Rs. 5,000/-. Assuming 15% annual returns for your investment. This is the standard rate for most mutual fund funds, and you keep the SIP for 30 more years. You will have Rs. 60 by the time that you reach 60. It is estimated that 3.46 crores. There are very few investment options that offer such high returns and moderate risk.

The SIP route is a great way to plan your retirement funds. It offers many benefits, including:

  • As there is no minimum investment requirement in SIP, you can invest whatever amount you feel comfortable with.
  • With the help of a systemic transfer plan, you can switch between debt and equity instruments. As you age, this helps to reduce your risk exposure.
  • The ELSS route can help you save money on your income tax liability each year. Contributions to ELSS are tax deductible according to Sec 80C of Income Tax Act.

Example 1.

Actual expenses as per given

  • Current Age (years), 25 Rs. The Rs. 2,000/- SIP
  • Retirement age (years) 65 be equivalent to Retirement create the
  • Current Living Costs Rs.40,000 438,298/- per month. Post Corpus is required for retirement
  • 15% Retirement Rs.6.20 Crs. corpus
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Example 2

  • Current Age (years), 30 Current expenses
  • 65 years of age is retirement. Example: 40,000 per.m. will include Rs.3,000/– of SIP
  • Current Living Expenses Rs.40,000 equivalent to Retirement
  • Complementary Return on SIP: 15% 2.71,536/= p.m. Post Corpus is required for retirement

Retirement Rs. 3.25 Crs. corpus

Example 3

  • Current Age (years), 40 Current expenses
  • 65 years of age for retirement. The Rs. 6,200 SIP
  • Current Living Expenses Rs.40,000 equivalent to Retirement
  • Complementary Return on SIP: 15% 1,98,000/m. post Corpus Required Retirement

Retirement Rs. 2.10 Crs. corpus