How Retirement Mutual Funds Can Help You Build A Strong Corpus For Your Sunset Years

Retirement mutual funds come in multiple variants to choose from, and they can be an effective vehicle to invest and grow one’s savings for the sunset years
How Retirement Mutual Funds Can Help You Build A Strong Corpus For Your Sunset Years

Planning for your retirement can be a daunting task. That said, the sooner you start planning for it, the better it will be. According to a Max Life Insurance survey, 59 per cent of respondents estimated that their assets will be depleted within 10 years of retirement, while 86 per cent of people above the age of 50, regretted that they hadn’t started investing for their retirement sooner.

To start with, one should first define his/her retirement goal, like, by what time does he/she plan to retire? How much money would he/she need to lead a peaceful and worry-free life during his/her retirement years? Once this goal is defined, one can go ahead and select his/her investment vehicle, such as a bank fixed deposit, pension scheme, or a retirement mutual fund.

Says Juzer Gabajiwala, director, Ventura Securities: “It works as a retirement solution by offering a choice of asset allocation. An investor can choose any of the options for their investment based on their risk appetite and the tenure of their retirement."

The ideal way towards creating a retirement corpus should be to invest in secure assets with minimum risks. Equity is generally considered more risky in comparison to debt or hybrid instruments, but at the same time, they can generate higher returns in a shorter span of time. So, one can invest in an equity mutual fund if his/her risk appetite is high, and the retirement is a distant goal.

But one should switch the investment into a safer asset, such as debt or hybrid fund, as one approaches his/her retirement.

Retirement Mutual Funds

Mutual funds are tailored for retirement solutions, and they come in multiple variants, such as equity-oriented, debt-oriented and hybrid. They provide investors with multiple options to choose from according to their need. Some are debt-oriented funds, as they mostly invest in safer investment assets, such as government security bonds and other debt instruments, which generate fixed interest rates. That’s why they are considered safer in comparison to equities. Retirement mutual funds come in a hybrid format, which diversifies its investment across assets, such as equity and debt.

Such products help to gain from the growth of equity and also offer a cushion safety from debt.

They usually have a low expense ratio. There are no exit load charges on any retirement fund either, as they come with a certain lock-in period, except the Tata Retirement Savings Fund - Moderate and Progressive plan, where the exit load is 1 per cent if you redeem before 61 months from the date of allotment.

Advantages Of Retirement Mutual Fund

Investing in a mutual fund on a monthly basis can help you build your retirement a corpus over a period of time, and you can withdraw lump sum amounts at the time of retirement. Else, you can also go for a systematic withdrawal plan (SWP) for your monthly needs.

Says Kartik Parekh, co-founder at Gochanakya, a fintech platform, and a Sebi registered Investment advisor and research analyst: “A retirement mutual fund can help accumulate a retirement corpus by taking into consideration the growing inflation. Investors can invest in these funds through lump sum mode or systematic investment plan (SIP). SIP is the most preferred mode of investing, as it helps in accumulating wealth by investing in smaller amounts regularly.”

 Hedge Against Inflation

Investing small portions of your income in a retirement mutual fund can create a solid hedge against inflation, which is the decrease of purchasing power of a currency. Let’s suppose you save in a savings bank account. You will only receive interest earning from your bank. If you invest a portion of your income in equity-oriented retirement mutual funds, you are investing in assets, whose values can go up, as equity has the potential to deliver higher returns among other asset classes.

How They Have Fared

SBI Pension Fund, which is the top offering in the National Pension Scheme (NPS) Tier-I account, is offering a 10.21 per cent return in five years.

Adds Kartik: “In certain cases, retirement mutual funds offer higher returns compared to NPS. This is because NPS has lesser exposure to equity than retirement mutual funds. Retirement mutual funds offer different options of debt, equity and hybrid funds. Investment and withdrawal is an easy and quick process.”

In terms of options, too, retirement mutual funds offer a range of choices. You can choose from among the many retirement mutual fund which you think might generate better returns.

Says Gabajiwala: "An investor can opt for an SWP to meet the requirement of regular cash flow. A retirement mutual fund works exactly like any other scheme except that it has an advantage of asset allocation as per the choice of the investor. In NPS an investor does not have much of a choice in terms of asset allocation.”


Some retirement funds also allow you to avail tax benefits. Your contribution towards the retirement mutual fund is allowed as a deduction up to Rs. 1.5 lakh under Section 80CCC of the Income-tax Act, 1961. However this should not be your criteria for investing in a retirement benefit fund. If you really want to build a decent retirement corpus, choose one with a good long-term track record.

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