New Delhi [India], April 26: Securing your retirement years needs proper planning right from a young age. By starting with a smaller investment in your 30s, you can create substantial wealth for your golden years. But what is one of the suitable ways to start investing with minimal amounts and accumulate wealth over the years? The answer is retirement mutual funds. In this blog, we’ll understand how you can plan for your retirement years with these funds and what factors to consider while selecting the retirement funds to invest for the long term.

What are Retirement Mutual Funds?

You must have heard of different types of mutual funds, like equity funds, liquid funds, and hybrid funds. But there are mutual funds that are tailor-made for retirement investment goals. Retirement funds are the type of solution-oriented mutual funds that have a minimum lock-in period of 5 years or can be redeemed earlier if you attain the retirement age.

These mutual funds are good for long-term investment purposes as your invested money grows with the power of compounding. The professional fund manager takes care of the collected money and smartly invests across stocks and bonds to create a balance between risk and return. In later years, the fund keeps its focus on capital preservation and shifts investments towards lower-risk assets such as bonds.

Once you achieve your retirement age, you can choose the option of regular payouts at fixed intervals, say monthly, helping you sail through your golden years without any financial burden.

Investing in retirement funds is very simple, like any other mutual fund. You can start investing through the monthly SIP of as low as ₹500 (or the lump sum mode) by opening a free demat account with SMC Global Securities.

How to Construct a Retirement Plan?

To build a solid investment plan for your retirement life, you need to first calculate how many years are left to turn to 60. If you are close to your retirement age, then you need to invest a higher amount and vice versa. Choose the monthly investment amount based on your current income and the expected amount you need after retirement.

Another important thing to consider while calculating the suitable retirement corpus is the expected inflation rate, as it is very important that your savings grow in line with inflation. Also, consider the expected returns you can get from the retirement funds before making an investment. Finally, do keep in mind your current monthly expenses and calculate how much you need in your old age to maintain the same standard of living.

Factors to Consider While Selecting Retirement Funds

Selecting the right retirement fund is very important so that you can create a required wealth within your risk-taking capacity. Here are 6 factors you need to consider before investing in a retirement fund:

Explore Different Types of Funds

Retirement funds are of different types based on their creation of an underlying portfolio of stocks and bonds. There are pure equity plans, aggressive hybrid plans, and conservative plans. Equity plans can provide high returns but at the cost of high risk, whereas hybrid ones can have a balanced portfolio with a moderate level of risk. To know the top retirement funds and stocks to invest now, you can explore the financial blogs on SMC Global Securities.

Know Your Goals and Risk Appetite

After understanding the different types of retirement funds, you need to select the one that matches your goals and risk tolerance. If you are near your retirement, then choosing a conservative plan is more appropriate to avoid excessive risk. If you are in your early 30s, then you can choose to invest in equity plans, as they can increase your investment amount many times.

Analyze the Past Performance of Fund

Before investing in a mutual fund, it is important to analyze the fund’s past returns generated in the last 5 or 10 years. Additionally, you also need to look at the fund’s key ratios, such as alpha, beta, and sharpe ratio to gauge the risk-adjusted health of the fund.

Consider Liquidity Before Investing

Retirement funds are subject to a 5-year lock-in period. So, always consider your financial position before making an investment decision. If you want to redeem your mutual funds at any time, you can also go with equity, hybrid, and debt funds to achieve your retirement goals and maintain the current liquidity.

Analyze the Cost of Investing

Evaluating the total cost of investing is very important as you have to invest for a long period. The higher investment cost can erode the returns and create a hurdle in your wealth-creation journey. So, you can consider a retirement fund with a low expense ratio to keep your redemption amount high.

Focus on Long-Term Investment Period

Though investment in retirement funds is locked in for 5 years, it paves the way for your long-term investment goals. For a substantial retirement corpus, you can consider investing in retirement funds for 10 years or more to achieve the benefit of compounding over the period.

Conclusion

Old age is considered a new phase of life, which needs to be relaxed and financially secure. The road to a happy retirement life stems from your young age, and you should make the right choices and continuously invest to grow your wealth. Retirement funds are one such instrument that can be part of your financial plans to benefit from expert-curated diversification and disciplined investing.

Disclaimer: This article is only for informational purposes and does not intend to advise or recommend any sort of investment or platform.