Retirement planning with Mutual Funds

Are you planning for your retirement? Mutual funds emerge as powerful investment vehicles for safeguarding your financial future. They offer a dynamic approach to wealth accumulation and growth over the long term. Let's delve into the world of mutual funds, discovering how they can play a crucial role in shaping your retirement planning strategy. From long-term growth to portfolio diversification, let's understand why mutual funds are crucial for building a healthy retirement portfolio.

Why choose mutual funds for retirement planning

Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds and other securities. This collective investment approach provides several advantages for retirement planning –

Savings aren’t enough for retirement
With increased life expectancy and rising healthcare costs, a robust retirement plan is essential. Relying solely on your savings might risk outliving your funds. Investing in high-yield avenues like mutual funds can help build a sufficient corpus for a financially stress-free retirement.

Cushion against inflation
Inflation silently erodes the value of your money over time. For instance, Rs 1,000 left idle today could decrease to Rs 588 in purchasing power over 10 years, assuming 6% annual inflation. To combat this, investing in mutual funds, which have the potential for inflation-beating returns in the long term, is crucial.

Wealth creation potential
Equity mutual funds have the potential for long-term wealth creation. For instance, investing Rs 1 lakh at an assumed 12% annualised returns for 25 years can grow your investment to Rs 17 lakhs, thanks to the power of compounding.

Professional fund management
Experienced Fund managers can aptly monitor and manage your investments as they have in-depth knowledge of financial markets and are experts in analysing and managing investments.

Plethora of options
Mutual funds offer a wide range of choices. Young investors planning for retirement can invest in equity funds. Mid-age investors nearing retirement can consider hybrid funds, which offer both growth and stability. Retirees can explore debt funds for stable returns.

Liquidity
Unlike some retirement products where early withdrawals are not allowed, mutual funds offer liquidity, making it easy for you to access your funds whenever required. Features like systematic withdrawal plans provide retirees with a regular income stream by periodically redeeming units.

Why should you start early for your retirement planning?

Do I need a lot of money to start planning for retirement? Absolutely not. You don't need a large sum to start planning for retirement, but you do need a lot of time to let the magic of compounding work for you. It's okay to start small, but make sure to start early.

For example, if a 25-year-old investor starts investing Rs 5,000 monthly, they could accumulate Rs 3.25 crore by age 60, assuming a 12% annualized return. However, if they delay investing by just five years and start at age 30, they would accumulate only Rs 1.76 crore. This five-year delay results in a missed opportunity to make an additional Rs 1.49 crore. This demonstrates the significant impact of compounding over time.

Starting early allows your investments to grow more, even if you begin with smaller amounts. The longer your money is invested, the more you benefit from compounding, which can significantly enhance your retirement savings.

Also Read: Five smart investment avenues to plan your retirement

Summing up

Mutual funds offer a perfect solution for retirement planning owning to benefits such as long-term growth potential, professional fund management, diversification, and liquidity. By strategically allocating assets and selecting funds aligned with your risk tolerance and investment objectives, you can build a healthy retirement portfolio.

Start planning today for a secure and prosperous tomorrow !!

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.

Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.