Sunday, January 29th, 2023

Retirement Planning: Now no tension of old age, through Mutual Fund, do your retirement planning for the second year


Photo:FILE Mutual Funds

Highlights

  • There are many investment options available in the market in the name of pension plans and retirement plans.
  • There are two phases of retirement planning – first accumulation and second distribution.
  • Accumulation means investing a large amount for your goal by investing slowly

Retirement Planning: It is everyone’s dream to have an enjoyable retired life. But this is possible only if properly planned. As such, there are many investment options available in the market in the name of pension plans and retirement plans, most of which are operated by life insurance companies. Now the question arises whether these investment options will be able to fulfill the purpose of retirement planning? Merely adding a retirement plan or pension plan in the name of a scheme does not prove that the scheme you are buying will be capable of achieving your retirement planning goals.

How to do Retirement Planning

There are two phases of retirement planning – accumulation and distribution. Accumulation means when you invest slowly and raise a large amount to achieve your goal and Distribution means when you earn your living by withdrawing money from the accumulated money from time to time. Since there are different types of mutual funds, they prove to be helpful in both the accumulation and distribution phases as per the requirement.

Accumulation

Both safety and good returns are the requirements of an ideal investment. Equity, debt, gold, real estate, etc., all types of assets should be in the portfolio of any investor so that the portfolio remains balanced. Since retirement planning is a long-term investment, one can try to get high returns by taking a little risk.

If you plan for your retirement from a young age, you have a long time to achieve your goals. In such a situation, more investment should be made in equity mutual funds. The equity market remains volatile during the short term, but it is proved that investing in equities gives more returns than other options in the long term. Also, investing in equities becomes necessary because investing in fixed deposits and post office savings schemes like debt options or gold etc. remains safe, but the returns on it are not attractive.

Inflation tends to increase over time and in such a situation, if the return on investment is less than the rate of inflation, it will become extremely difficult to achieve the investment goal. Therefore, a major part of your portfolio should be invested in equity mutual funds during the accumulation period. Equity mutual funds are categorized into different categories like large cap, mid cap, small cap, sector fund, etc. depending on the type of stocks that the money is to be invested in next.

You should have both large cap and mid cap mutual funds in your portfolio, but investing a higher percentage in large cap mutual funds is better from the point of view of safety. At the same time, it is very important to have debt funds in the portfolio to maintain the balance of the portfolio. As the age progresses and you move towards your goal, you should reduce your investment from equity mutual funds to debt mutual funds to reduce the risk of losing capital.

distribution

The second step in retirement planning is distribution. That is, the capital you have deposited should be invested in such a way that it can give you continuous income. During this time you can not take too much risk, because a little carelessness can prove fatal. But since there is a long life even after retirement, it is imperative that along with safety and liquidity, you also get attractive returns on your investments so that the capital accumulated for this purpose can last a lifetime.

At this time it is very important to have liquid funds, debt funds and equity funds in your portfolio. Liquid funds so that funds are available in case of any kind of contingency. Debt funds will prove to be helpful in balancing the portfolio and the attractive returns from equity funds will prove successful in beating inflation.

The sooner retirement planning is started, the easier it will be to achieve the goal. Also, mutual funds are a long-term investment, so there is no need to look at them everyday like in the stock market. But monitoring the portfolio, reviewing the portfolio from time to time and making changes in the scheme if needed will help in achieving the target.

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