Everyone dreams of a happy retired life – the day when they can escape the 9-to-5 grind and finally be free to pursue their hobbies and passions. However, what many fail to understand is that to enjoy a secured and comfortable retirement – you need to start planning for it, from an early age.

Just like you plan to meet your other financial objectives – purchasing a home, car, saving for your child's education, you need to plan strategically for retirement. An individual's expenses indeed reduce after retirement – children become financially independent, home and other loans are paid off. However, there are several other expenses post-retirement like planned and unplanned medical expenses, travel needs, daily needs and more.

To lead a financially comfortable life post-retirement, you need a retirement corpus that provides you with a steady source of income, when you don’t receive regular wages. Here, in this guide, we take a look at how mutual funds can help you build your retirement corpus. 

Why include mutual funds for retirement planning? 

Central and state government employees receive a regular pension from their employer post-retirement. So, they are not worried about retirement planning. However, others – self-employed, professional and private sector employees have to plan for retirement strategically.

There are several ways one can save for retirement – PPF (Public Provident Fund), NPS (National Pension Scheme), wealth-generating life insurance schemes, fixed and recurring deposits, post-office savings schemes and more. 

This brings us to the pressing question – with so many investment products out there, why invest in mutual funds to save for retirement? 

The answer is simple – Mutual funds are one of the very few investment products, whose returns can beat inflation. It means the profits generated from your mutual fund scheme will be high enough to help you overcome the inflation, at the time you retire. Hence, it's imperative to include mutual funds as part of your retirement planning.

Very often, when people plan their retirement, they invest in safe, fixed-income investment products like FDs, EPF, PPF and the NPS. While these are good investment options, they do not generate returns that help you beat inflation. 

Since retirement planning involves investing for a long-term – 10, 20, or 30 years, investing in mutual funds is an excellent option. It helps you build an attractive, inflation-beating corpus with equity exposure. Also, by opting for SIP investments, you can create a large corpus with systematic investments.

Benefits of Investing in Mutual Funds for Retirement Planning 

Here are a few reasons why you should include mutual funds in your investment portfolio:

  • Flexible Investments 

One of the reasons why a large number of individuals (especially salaried men) put off retirement planning is that they cannot afford to invest lumpsum at one-go. Investors can get started with mutual funds with just Rs. 500 per month. You can opt for a SIP (Systematic Investment Plan) and invest a small amount regularly for a long period.  

  • Beat Inflation With Higher Returns 

Fixed income-generating plans like bank fixed deposits and recurring deposits are considered risk-free but offer only a fixed percentage of return. On the other mutual funds are market-linked and come with inherent risks. However, when the market conditions are right, mutual funds can generate higher returns compared to other fixed-income plans. Since they make higher returns, it can help in beating inflation.

  • Portfolio Diversification 

You would have heard the saying, “Do not trust all your eggs in one basket.” This saying is very true when it comes to investments. Having a diversified portfolio reduces your risk to exposure and market volatility. When you invest in the stock market directly, it is incredibly challenging to maintain a diversified portfolio with small capital.

With mutual funds, the fund manager pools money from all investors for investing. Hence, as an investor, you enjoy the benefits of portfolio diversification, even with small investments. 

  • Professional Expertise 

Mutual funds are managed by a team of expert fund managers, who have years of experience in the stock market. Additionally, all mutual fund schemes are guided by subject matter experts, who help in identifying the right investment strategies to maximise profits for investors.

  • Tax Savings 

Investing in certain types of mutual funds like the ELSS (Equity Linked Savings Schemes) helps in saving tax. Investments made in ELSS (up to Rs. 1.5 lakhs) qualify for tax-deductions under Section 80C of the ITA. 

Another attractive tax-saving benefit of mutual funds is that gains up to Rs. 1 lakh are exempted from taxes. Note that only LTCG (Long-term Capital Gains) beyond Rs. 1 lakh are taxed at 10%. 

  • High Liquidity 

One of the significant drawbacks of popular retirement savings schemes like PPF and NPS is that your funds are locked-in for a specific period. You cannot withdraw your funds even during an emergency.

On the other hand, mutual fund investments offer high liquidity. It allows investors to redeem their accumulated units with ease. This is especially true for debt funds that have zero exit loads. You can redeem units as and when you need them. 

Several fund houses make it easy for investors to redeem their accumulated funds by offering facilities like debit card withdrawal of accumulated funds, instant redemption during emergencies and more. This presents a considerable advantage to investors compared to other fixed-income instruments that charge high penalties for premature withdrawals.

Make use of a Mutual Fund Calculator for Retirement Planning

A mutual fund calculator is a handy tool that helps you estimate the corpus required for your post-retirement life. This calculator arrives at this amount, considering your current lifestyle. 

You need to enter variables like – your current age, the age of planned retirement, regular lifestyle expenses, predicted inflation rate and the expected returns from your investments. Using all these variables, the retirement calculator helps you arrive at the amount you need to build for enjoying a financially stress-free retirement. Using this figure, you can choose the right mutual funds to help you build this amount. 

Factors to Consider while Picking Mutual Funds for Retirement 

  • Opt for Specialised Retirement Funds 

There are certain types of mutual funds like pension funds that are specially designed to aid in retirement planning. You can opt for these funds to achieve long-term capital appreciation. 

Alternatively, you can also opt for growth funds. As the name implies, growth funds help you build your invested principal. Growth funds allocate your funds in the stocks of companies that give above-average returns, helping you build your capital in the long-run. 

  • Go for Income Funds if you’re looking to Supplement your Income 

Income funds provide investors with an alternative source of income. These funds invest in money-market instruments like bonds that offer dividends. If you're looking to supplement your post-retirement income with an additional revenue stream, income funds are a good option.

  • Consider your Risk Tolerance

Before you choose a mutual fund scheme, you need to consider your risk tolerance. All mutual fund schemes indicate their risk levels. Choose a plan that best fits your risk appetites.

  • Opt for Mutual Funds with Low Expense Ratio

The expense ratio is the fee levied by the AMC (Asset Management Company) for managing your funds. While choosing a mutual fund scheme, make sure to compare expense ratios to pick a fund that has a low expense ratio. Even a small difference in expense ratios can help you increase your return over the years.

  • Get the Help of a Financial Advisor

If you’re finding it challenging to zero in on the right mutual fund, you can seek the help of a professional financial advisor. The advisor goes through your investment portfolio, your income levels and helps you choose the right mutual fund for retirement planning. 

Best Mutual Funds for Retirement Planning 

Here, we list out some of the best performing mutual funds in India that you can use to build your retirement corpus. Before you choose any fund from this list, make sure to analyse the features of the plan, understand the investment objectives and underlying risks, and select the plan that best fits your requirements.

Retirement Planning Mutual Funds for Investors with High-Risk Appetite 

These funds are ideal for investors in the age bracket 25 to 40 years, with an investment horizon of 10 to 15 years. 

S.No. Fund Name 1-Yr Returns 3-Yr Returns 5-Yr Returns
1 Aditya Birla Sun Life Banking And Financial Services Fund – Growth 11.6 8.9 10.9
2 DSP BlackRock Natural Resources and New Energy Fund – Growth -6 -1.8 8.8
3 Franklin Build India Fund – Growth -0.5 3 5.5
4 IDFC Infrastructure Fund – Growth -4 -3.1 1.8
5 Sundaram Royal and Consumption Fund – Growth 9.3 6.4 10.5


Retirement Planning Mutual Funds for Investors with Moderate-Risk Appetite 

These funds are ideal for investors in the age bracket 41 to 50 years, with an investment horizon of 5 to 10 years. 

S.No. Fund Name 1-Yr Returns 3-Yr Returns 5-Yr Returns
1 Aditya Birla Sun Life Frontline Equity Fund Growth 3.4 5.3 5.3
2 Essel Large Cap Equity Fund Growth 6.2 5.8 6.4
3 JM Core 11 Fund Growth 5.3 8.8 8.8
4 Nippon India Large Cap Fund Growth 1 7.2 5.7
5 SBI Bluechip Fund Growth 6.9 6.2 6.4


Retirement Planning Mutual Funds for Investors with Low-Risk Appetite 

These funds are ideal for investors above the age of 50, who are looking for safe mutual funds to invest in. 

S.No. Fund Name 1-Yr Returns 3-Yr Returns 5-Yr Returns
1 Aditya Birla Sun Life Short Term Opportunities Fund Growth 8.7 7.2 7.9
2 ICICI Prudential Short Term Fund Growth 10.5 7.6 8.2
3 Nippon India Short Term Fund Growth 10.1 7.2 7.7
4 PGIM India Short Maturity Fund Growth -0.5 3.9 5.8
5 UTI Short Term Income Fund Growth -2.8 3 5.3


*Note that returns from these funds are subject to change based on market fluctuations. Make sure to choose funds based on your investment goals. 

#Data as on February 2020


Secure the Golden Years of Your Life with Mutual Funds 

To enjoy the sunset years of your life without any financial worries, you need to have a significant corpus that you can rely on. With the help of the right mutual funds, you can build a large corpus that will help you enjoy your post-retirement years to the maximum. Minimise the risks involved and secure your future with the right mutual fund investments.

Invest wisely and enjoy a secured retirement.