Mutual funds: While planning for life post-retirement, one needs to keep the rise in inflation during the investment and post-investment period in mind, say tax and investment experts
Mutual fund investments are exposed to market risk but this risk factor goes down if the time-horizon of an investor is long. According to tax and investment experts, the way debt-instruments like bank FD, Public Provident Fund (PPF), Post Office RD, etc. are finding it difficult to beat the rise in inflation in long-term, it's advisable for the investors to look at equity mutual funds, if the investment perspective is long-term or more than 15 years. In this period, one can expect to get around 10-12 per cent annual return on one's money, which is enough to beat the rate of inflation during the investment period. For those who are going to retire in next 20 years, it is important to get their money work when they are not working. So, how to create a regular monthly income post-retirement should be planned when the earning individual reaches 40 years of age.
Speaking on the retirement planning for those who are about to reach 40 years; SEBI registered tax and investment expert Jitendra Solanki said, "While planning for life post-retirement, one needs to keep the rise in inflation during the investment and post-investment period in mind. Today, a middle class individual needs around ₹40,000 per month to meet its financial requirements post-retirement. After 20 years, keeping inflation growth rate in the range of 6-7 per cent per annum, this ₹40,000 monthly expense will grow up to ₹1.25 lakh to ₹1.50 lakh (as per SBI mutual fund calculator). So, one would need ₹1.25 lakh to ₹1.50 lakh per month after 20 years to meet one's financial requirements."
So, how much one would have to invest and in which instrument to meet this financial requirement post-retirement or after 20 years; Vinit Khandare, CEO & Founder at MyFundBazaar said, “If the amount is ₹50 lakh, the duration is 20 years and the client is expecting 1.5 lakh per month, we will be looking at an estimated rate of return (RoR) from anywhere between 10-12 per cent CAGR. After 20 years, we are looking at a total sum of anywhere between ₹3.6 crores for a conservative investor to 5.3 crores for a little aggressive investor. Post that, if we look at an annual withdrawal rate of 4 per cent, we can expect anything between ₹1.2 lakh to 1.7 lakh, which averages it out to ₹1.5 lakh after balancing the portfolio annually."
That means, one need to invest a lump sum of ₹50 lakh in equity mutual fund for 20 years as it would deliver around 10-12 per cent return to the investor in long-term of 20 years.
On equity mutual funds that an investor can look at while investing ₹50 lakh lump sum to meet one's ₹1.25 lakh to ₹1.5 lakh monthly income goal after 20 years; Vinit Khandare of MyFundBazaar said, “For conservative investors HDFC Balanced Fund and ICICI Balanced Advantage Fund can be a good option to look at while for the aggressive investor Aditya Birla Sun Life Equity Advantage and SBI Flexi Cap can be a suitable investment instrument."