Financial planning is crucial as it ensures a better and more comfortable future. Most of the people don’t realise the importance of the groundwork for retirement. People fail to understand that they’ll need a massive corpus as a financial backup to rely on that last for at least 15-20 years of their retirement. Financial advisors say only savings may not be sufficient to cover all expenditures and emergency needs. Although, there are many ways to build an enormous corpus for your retired life, and one of the ways is through Mutual Funds.
Hemant Sood, Founder of FinDoc said firstly, to create a corpus through Mutual Funds, one must figure out his financial goals.
After figuring out your financial goals, you need to ask yourself these questions
-How much monthly income will I require to continue the comfortable lifestyle?
-What your annual spending will look like after the retirement?
-How much time do you have to save?
-Do you need provisions for any future emergency like medical and additional costs?
-What rate of return do you need to meet your goals?
He further suggested that the next step is to choose the right Mutual Fund schemes that go with your targets. While choosing the funds, Hemant Sood advised considering all the aspects such as the fund's performance history, expense ratio, and the fund manager's experience to make an informed decision.
Ravi Singhal, CEO, of GCL Broking said that depending on the age, we can divide the investment journey into three parts
20-35 age: Investors who are starting early should focus on mid and small-cap mutual funds.
36-50 age: Investors in middle age should invest in large-cap and mid-cap mutual funds.
Above 50: And investors who are starting late should focus only on large-cap mutual funds.
Investors who are starting early, should also shift their investment as per the above schedule with their age, recommended Ravi Singhal.
Hemant Sood said that while equity funds are mainly recommended for the long term, you can also select debt or hybrid funds as well.
At the time of retirement, they should gradually move to hybrid mutual funds. They should choose mutual funds with higher allocation in debt after retirement, but not less than 40% in equity to protect their funds against inflation, said Ravi Singhal
The expense ratio is also very important for long-term investment, investors should prefer AMCs, which are offering schemes with low expense ratios.
Wisely and timely rebalancing should be done to minimize the changes in the portfolio due to the market trends and keep the investments on track, said Hemant Sood
The most important aspect of investing either before or during retirement is the asset allocation. “During the time when one is saving for retirement, one should be aggressive and hence invest a larger part of their portfolio in equity, and as one is nearing retirement start shifting capital from equity to debt. Whether one is using index funds or mutual funds or ETFs is not important,” said Vivek Sharma, Director (Strategy) and Head of Investments at Gulaq, the retail advisory arm of Estee Advisors.
Rather than thinking about picking a specific Mutual Fund, the focus should be on starting early and also sticking to doing SIPs irrespective of the market conditions. Also, you must ensure that your savings keep growing as your income grows, added Vivek Sharma.
If you are disciplined with your mutual fund investments, it will take less effort to accomplish the financial goals of a happy retired life in the long run.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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