The time after retirement is a zealously awaited period in millions of people’s lives. Yet, what often surrounds retirement is the gloom of insufficient funds. With savings often insufficient to fully enjoy this period, there remains a hunt for options that offer higher returns and are flexible and affordable. While numerous options exist, mutual funds remain a preferred choice.
With the flexibility to choose any amount, time and duration for investment, investors can even calculate their returns. The SIP calculators are a common example of this. Providing insights for logical data-based decision-making, you can easily plan your retirement with mutual funds. Curious how? Let’s find out.
Why Consider Mutual Funds for Retirement Planning?
Predicting economic scenarios in the years following retirement, one can anticipate changes in market values. Considering the current situation of rising prices of entities, medical costs and decrease in interest rates on deposits, effective retirement planning is of utmost importance. But why consider mutual funds for the same? This is because it offers promising results. Here is the breakdown of benefits you can expect:
- The general fund deposits offer specific returns after a certain period. With no flexibility for partial withdrawal on need, these schemes seem a fine option for protection against inflation in coming years. However, mutual funds offer higher returns that allow more returns compared to other schemes. They also allow systematic withdrawal to meet the necessary or regular expenses.
- Government savings schemes and FDs are commonly associated with the loss of hefty amounts in taxes. In these schemes, the taxation occurs at the income tax rate of investors. However, in mutual funds, the taxation method varies. It depends on the taxation period and hence generates a lower (around half) of the taxes than conventional methods.
- Mutual funds are generally overlooked by the public owing to associated risks. However, there exist options to combat the problem. The hybrid funds offer capital protection to help safeguard the hard-earned money while also providing returns. Another advantageous option associated with mutual funds includes the easy ability to switch among different schemes, allowing guaranteed higher returns.
- The lower rates of interest are awarded on deposit schemes. With these rates, the returns are minimal compared to the initial deposit. The situation is reversed when considering mutual funds. With a higher rate of returns and compounding effects, the funds are worthy enough to be used and planned for the future.
- The National Pension Scheme for government employees requires mandatory investment of funds in an annuity plan from LIC. With around 40% investment being required, the returns are comparatively lower. Meanwhile, the investment of the same amount in mutual funds offers higher returns with no usage restrictions.
- Investing in SIP provides the benefits of dollar-cost averaging and compounding, ensuring steady growth of your money.
How to Use Mutual Funds for Retirement Planning?
Using mutual funds for retirement requires early planning. If you are into it, proper research will indicate the potential of higher returns through mutual funds. Diving deep into the details, you will also come across a friendly tool for mutual fund investment, which is SIP. Further, the use of the SIP calculator will allow insights into predictable returns and ease decision-making.
Investment: Completely referred to as a Systematic Investment Plan, SIP requires monthly or periodic investment. The amount is to be automatically debited from the account for investment. The deposit into a mutual fund plan is flexible, allowing the investor to pause or resume at any time. Further, the inability to pay does not levy any fee or penalty, keeping the investors stress-free.
However, there exists a limit to the flexibility, which is three months. After this duration, the SIP stops and has to be reapplied with a new registration. Investors can also use the SIP calculator to understand the expected funds based on their investment or compare the different schemes to choose the best one for them.
Withdrawal: At the time of retirement or even before, depending on your necessity, you can withdraw the funds. SIP offers flexibility for withdrawal, with the remaining balance being resumed for compounding. The higher returns can now be chosen to withdraw completely or partially, as needed. SIP can also be used to get periodic returns, like monthly returns.
Note: There are other mutual fund investment plans offering worthy returns that are more suited for an individual. The appropriate options depend on numerous factors unique to the individual. It is recommended to go through the available options thoroughly before choosing a specific one.
Final Thoughts!
Retirement planning is essential to ensure a tension-free life. Meeting the necessary family expenses after retirement while also using the funds on yourself requires a well-thought-out decision and a finely chosen investment plan. With the numerous benefits of mutual funds along with the option to easily tackle the associated risks, choosing the appropriate scheme like SIP for retirement planning is essential. Ensure that you have detailed information with an accurate futuristic perspective before making any decision.
