Smart Retirement Planning with Long Term Investments in Mutual Funds

The primary question when you're letting go of your monthly income, a.k.a., retiring, is how shall you sustain your current lifestyle. Fortunately, the answer is simple. Start investing early and in a relatively safe instrument that beats inflation repeatedly. which is why mutual funds (MF) make a better option for intelligent retirement planning.

If invested wisely, this financial avenue can become the mainstay for your golden years. Through MFs, you can invest in both equity and debt-linked stocks where the former promises exceptional returns and the latter provides low-risk exposure at relatively modest returns.

Factors to consider before selecting MFs for retirement

Know that there’s no such thing as the best mutual funds to invest in for long term. Of course, if your investment horizon is 20 to 30 years, you won't pick a short-duration fund. But, from within the funds that have a long maturity, your selection will depend on various factors. Like what? Keep reading to find out.

Investment budget

Avoid investing more than you can afford, but don't underinvest either! Strike a balance since you already know your monthly income and expenses. Looking at your present lifestyle, estimate the amount of money you'll need monthly once you retire, and add 3% to 4% annual inflation to it.

Gathering the current expenses, including EMIs, credit card and utility bills, and much more can help you assess your investment budget.

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Investment horizon

To find some of the best long-term mutual funds for you, figure out how much time you have before retiring. If you have 15-20 years or more, you can invest a significant chunk of your corpus in equity MFs.

Know that while these funds promise exceptional returns, they also promise moderate to high risk.

Therefore, the younger you are, the more you can invest in high-risk MFs. Why? Because you can take more chances when retirement is far away as you can recover your money with heavy appreciation over a long-period or investment horizon.

If your retirement is 5 years away, consider investing in debt-linked MFs like gilt funds, corporate bond funds, banking and PSU funds, etc. These offer lower returns than equity funds but come with low risk.

For people in the middle, meaning 10 years or so from retirement, can opt for a balanced portfolio, where they invest 50-50 of their corpus in both equity and debt funds. The most convenient way to do so is by investing in balanced or hybrid MFs.

Risk appetite

Are you an aggressive investor, or you can’t stomach any risk? Whatever may be the case, the MF economy has something for both. As mentioned above, if you cannot stomach any risk, invest  majority of the corpus in debt-linked MFs, as even these can provide you with a steady income when you retire. Otherwise, park substantial funds in equity funds.

Experts recommend that people investing in MFs for retirement income should consider a balanced MF portfolio. So, invest in funds for a longer time horizon. This way, you will earn returns for longer at the same time offsetting any risk that comes your way, thus fulfilling the goal of smart retirement planning.

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Parting thoughts

Want to start investing in MFs long-term, but with a small amount? Try a systematic investment plan. SIP is an investment vehicle of MFs. And, you can start one at just a few hundred rupees per month.

Looking for a reliable digital portal to apply for MFs or systematic investment plans? Turn to Tata Moneyfy's Mutual Fund app and website. Select from our diverse range of investment options to grow your wealth, and retire in style.