Funds For The Future

Retirement planning is a crucial aspect of ensuring a financially secure future. In India, where the population is witnessing a significant demographic shift, individuals must adopt strategic approaches to build a retirement corpus. The money you earn today may not be worth that much after a few years. The long-term inflation rate in India has varied over time. From historical data, the average inflation rate in India over the past few decades has been around 6-7 per cent. Simply put, in 10 years’ time you will require approximately Rs 17 lakhs to have the same purchasing power as Rs 10 lakhs has today. So, it is imperative that investors plan their retirement corpus accordingly and start putting together a retirement plan which is inflation-proof. 

Understanding Retirement Planning -Retirement planning involves making informed financial decisions to safeguard one’s lifestyle during the golden years. It is crucial to start early and adopt a disciplined approach. In India, retirement planning has gained prominence due to the evolving pension landscape and increasing life expectancy. While traditional instruments like the Employees Provident Fund (EPF) and the National Pension System (NPS) exist, individuals are exploring additional avenues to enhance their retirement savings. One of the options that are gaining popularity over the past few years has been investing in retirement-oriented mutual fund schemes.

Enter Retirement-Oriented MF Schemes - Retirement-oriented mutual fund schemes are purpose-built investment vehicles designed to cater to the retirement goal of an individual. These schemes offer a unique blend of equity and debt investments, providing growth potential and stability simultaneously. They are typically structured with a lock-in period, thus encouraging investors to stay invested for the long haul. At present, there are 26 retirement solution-oriented schemes. They manage investors’ assets worth Rs 20,000 crore. Around 27 lakh investor accounts or folios are associated with such funds. 

Asset Allocation and Dynamic Strategies - One of the key features of retirement solution-oriented mutual fund schemes is their dynamic asset allocation strategy. These schemes automatically adjust the proportion of equity and debt instruments based on the investor’s time horizon. In the early years, when there is a higher risk appetite and longer investment horizon, the allocation leans towards equities for potential growth. As retirement approaches, the allocation gradually shifts towards debt instruments to preserve capital and provide stability. Alternatively, investors can also consider investing in hybrid schemes, wherein the corpus is distributed across multiple asset classes. Historical data shows that over a decade and more, such type of offerings has delivered attractive risk-adjusted returns. Basis one’s risk profile, an investor can choose the type of hybrid offering they wish to invest into. 

Benefits and Tax Efficiency -Retirement-oriented mutual fund schemes offer several benefits. To begin with, they provide investors with a disciplined approach to retirement planning by aligning investment strategies with retirement goals. Regular investments through systematic investment plans (SIPs) further enhance the potential for wealth creation. Secondly, these schemes may offer tax benefits under Section 80 C of the Income Tax Act, allowing investors to claim deductions on investments made within the specified limits. Thirdly, these schemes are specifically designed to cater to retirement goals, providing a focused approach to building a retirement corpus. The investment strategy is aligned with the targeted retirement age, ensuring a gradual shift towards more conservative investments as retirement approaches. Fourthly, these schemes typically invest in a mix of equity and debt instruments, offering diversification benefits. The allocation between asset classes helps balance growth potential and stability, mitigating the impact of market volatility.

Selecting the Right Offering - When considering retirementoriented mutual fund schemes, investors should evaluate various factors. These include the fund’s historical performance, the expertise and track record of the fund manager, the asset allocation strategy and the expense ratio. It is essential to align the chosen scheme’s risk profile with personal risk tolerance and investment horizon.

Monitoring and Review - Regular monitoring of the retirement-oriented mutual fund scheme is crucial. Investors should review the fund’s performance, changes in asset allocation, and progress towards retirement goals periodically. Adjustments can be made based on changes in personal circumstances or market conditions to ensure the retirement plan remains on track.

Final Take - Retirement planning in India demands a proactive and systematic approach to secure a financially stable future. Retirement solution-oriented mutual fund schemes offer a compelling investment avenue, combining growth potential and stability. By understanding such types of offerings and incorporating them into a comprehensive retirement plan, individuals can enhance their chances of achieving their retirement goals and enjoying a comfortable post-retirement life.

The writer is Founder and Director, HMG Capital Services Pvt. Ltd. ∎  Email : hmgwealth@gmail.com