Pension plans from insurance companies, National Saving Certificate (NSC), Employee Provident Fund (EPF) and Public Provident Fund (PPF) are the savings instruments that come to mind when planning for retirement. Many of us don’t even make adequate plans for retirement and end up depending on our daughters and sons. However, if you are not averse to taking a bit of risk with your money, mutual funds are a great investment for your retirement years. The earlier you start saving for your superannuation, the more corpus you’ll have when the time comes. Though there are retirement-targeted mutual funds, you may also opt for a regular equity, debt or hybrid fund on a long-term basis for wealth creation.
Why Mutual Fund?
Here are some of the reasons to consider mutual funds for retirement planning:
- Low cost: Mutual funds do not require high inputs. Most retirement funds need an input of just around Rs. 1,000 per month. However, choose a fund that has limited fees and charges such as entry and exit load, fund management charges, etc.
- Beat the inflation: As you grow older, inflation could also rise, making the cost of living higher by the time you are 60 years old. This means that you need to invest in an instrument that also grows at par with the inflation rates, or better. Growth mutual funds are ideal under such a situation.
- Liquidity: If your fund does not have a lock-on period, you can liquidate your fund and withdraw money whenever you want. It takes less than 2 days for the amount to be credited to your account once you sell of the units. Lock-in periods are usually as short as 3-5 years, unlike pension schemes such as PPF that has 15-year lock-in period.
- Tax efficient: Short-term gains (less than 3 years) on equity funds attract a tax of 15%, while short-term debt fund gains are added to your regular income and taxed as per the income tax slab you fall under. On equity funds, there is no tax on long-term capital gains, but long-term debt fund gains are taxed at 10% without indexation and 20% with indexation.
Choosing the Best Retirement Plan
Before you buy a mutual fund, you need to do some research to find the fund that is the most suitable for you. The things you need to keep in mind while doing the research are:
- Years left for retirement: If you are in the early years of employment – that is, between 22 to 35 years, then you may want to choose a moderate risk fund with steady investment growth and appreciating returns. The older you grow, the more aggressive your investment might need to be, to ensure that at the end of the day you will have enough money to beat inflation during retirement. You may want to plan your savings in such a way that you can live comfortably after your employment years.
- Risk tolerance: As an investor, you may have a risk level that you are at ease with. Some people are overcautious, some are prudent, and many more are aggressive risk takers. Choose a fund that has a risk level of your standard.
- Fund goal: Depending on whether you are looking for investment growth or stable savings, you could go for equity funds, debt funds, hybrid funds, growth funds, value funds, etc. There are several options in the mutual fund market. You could mix and match portfolios and fund types to achieve the right level of diversity, capital increase and steady income.
- Fees and charges: Compare the exit and entry loads, management fees, redemption fees, etc. between different funds before buying one. If the fund size is small with limited Assets under Management (AUM), then the charges are likely to be higher.
Top Five Funds for Retirement Planning for Investors Between 25 and 40 Years of Age
| Product Name | Category | 1 Year | 3 Year | 5 Year | Fund Value of Rs.10,000 Invested Per Month (5 Years) |
| Aditya Birla Sun Life Small and Midcap Fund – Growth | Equity | 13.97% | 22.94% | 28.01% | Rs.11,72,257 |
| Canara Robeco Emerging Equities – Growth | Equity | 13.24% | 20.25% | 30.21% | Rs.12,33,265 |
| Franklin India Prima Plus – Growth | Equity | 10.93% | 11.77% | 18.77% | Rs.9,44,288 |
| HDFC Balanced Fund – Growth | Equity | 11.59% | 12.97% | 19.10% | Rs.9,51,705 |
| Mirae Asset Emerging Bluechip Fund – Growth | Equity | 12.54% | 21.95% | 30.39% | Rs.12,38,390 |
Top Five Funds for Retirement Planning for Investors Between 41 and 50 Years of Age
| Product Name | Category | 1 Year | 3 Years | 5 Years | Fund Value of Rs.10,000 Invested Per Month (5 Years) |
| BNP Paribas Mid Cap Fund – Growth | Equity | 6.37% | 14.17% | 23.53% | Rs.10,56,239 |
| Kotak Select Focus Fund – Regular – Growth | Equity | 10.46% | 15.40% | 20.60% | Rs.9,85,995 |
| L&T India Prudence Fund – Regular – Growth | Equity | 11.00% | 12.88% | 18.69% | Rs.9,42,499 |
| Mirae Asset India Equity Fund – Regular – Growth | Equity | 15.23% | 15.64% | 20.57% | Rs.9,85,301 |
| SBI Magnum Multi Cap Fund – Growth | Equity | 15.48% | 15.91% | 20.84% | Rs.9,91,611 |
Top Five Funds for Retirement Planning for Investors Between 51 and 55 Years Age
| Product Name | Category | 1 Year | 3 Years | 5 Years | Fund Value of Rs.10,000 Invested Per Month (5 Years) |
| Aditya Birla Sun Life Balanced 95 – Growth | Equity | 9.97% | 12.32% | 16.72% | Rs.8,99,433 |
| Franklin India Balanced Fund – Growth | Equity | 9.79% | 10.07% | 15.88% | Rs.8,81,633 |
| ICICI Prudential Balanced Advantage Fund – Regular – Growth | Equity | 10.24% | 10.45% | 14.22% | Rs.8,47,348 |
| Mirae Asset India Equity Fund – Regular – Growth | Equity | 15.23% | 15.64% | 20.57% | Rs.9,85,301 |
| SBI Bluechip Fund – Growth | Equity | 13.65% | 13.17% | 17.98% | Rs.9,26,773 |
Top Five Funds for Retirement Planning for Investors Above 56 Years of Age
| Product Name | Category | 1 Year | 3 Years | 5 Years | Fund Value of Rs.10,000 Invested Per Month (5 Years) |
| Aditya Birla Sun Life Balanced 95 – Growth | Equity | 9.97% | 12.32% | 16.72% | Rs.8,99,433 |
| Aditya Birla Sun Life Short Term Opportunities Fund – Regular – Growth | Debt | 5.72% | 7.88% | 8.79% | Rs.7,43,528 |
| DSP Blackrock Credit Risk Fund – Regular Plan – Growth | Debt | 5.71% | 8.31% | 8.74% | Rs.7,42,643 |
| ICICI Prudential Balanced Advantage Fund – Regular – Growth | Equity | 10.24% | 10.45% | 14.22% | Rs.8,47,348 |
| Mirae Asset India Equity Fund – Regular – Growth | Equity | 15.23% | 15.64% | 20.57% | Rs.9,85,301 |