Though traditional investment schemes may seem a feasible tool for retirement planning, they don’t really prove effective against growing inflation. This is why investors should put their trust in mutual funds for building a solid retirement plan.
The reasons why mutual funds are the best tools for retirement planning
The mutual funds aim at meeting the needs of investors with different risk profiles. Different mutual funds are designed keeping in mind different deciding factors like investment horizon, risk capacity and investment amount of investors.
The following features make mutual funds the best tools for retirement planning:
- Capital Appreciation:When compared to most asset classes, in the long run, equities offer capital appreciation. The best performing mutual funds have continued to outperform the market and have earned higher annualised returns for over a decade now. This makes mutual funds a fruitful platform of making investments.
- Tax Efficiency: When compared to most other savings schemes, mutual funds tend to be more tax efficient. The equity mutual funds investors can enjoy tax exemption on the long-term capital gains and the dividends earned on them. In terms of debt funds, the long-term capital gains are taxed and at 20% and with the growing rate of inflation, indexation will further lower the capital gains tax significantly.
- Systematic Investment Plan:Sip is undoubtedly a very effective choice for smooth retirement planning. Not only do SIPs enable the investors to plan their retirement early but also lets them enjoy the benefits of compounding to create wealth. The habit of a regular and disciplined approach towards savings and investing in SIPs make the task of retirement planning easier for the investors. The flexibility of investing, zero restrictions on payments and withdrawals makes it a feasible option for retirement planning.
- A Diverse Options of Investment: A mutual fund investor is offered with a huge variety of investment options with varying risk levels and cost of investment to meet their financial goals. The growth fund options offer capital appreciation, the income funds help meet financial needs while the balanced funds ensure optimisation of asset allocations and the monthly plans offers regular income and growth in capital.
- Systematic Transfer Plan:STPs allow investors to move a designated amount from a type of scheme to another under the same AMC. This helps them to rebalance their portfolio before retirement and protects their accumulated capital by switching from equity funds to debt funds, balanced funds or simply monthly income schemes.
- Systematic Withdrawal Plan:SWPs allow investors to withdraw a fixed number of units on a regular basis. This plan aims at offering a flow of regular income without incurring income tax. The feature that allows an investor to withdraw money regularly makes it suitable to meet the financial needs of life after retirement.
Retirement planning is crucial for leading a comfortable and independent life after retirement. Avail the assistance of our top financial experts and advisors and select mutual funds that will be effective in retirement planning.Follow Us: