Mutual Funds

Have you included mutual funds in retirement plan?

Not planning for retirement at an early age is similar to failing financially after retirement. So does it make sense to plan for retirement from an early age?

Of course, yes.

In this blog, we seek to see why is retirement planning with mutual funds an essential aspect of achieving financial independence. Besides, we shall also cover on the ways to prepare for your retirement and the benefit you would get if you use mutual funds as one of the instruments for retirement planning.

Let’s start with the basics of mutual fund retirement plan.

What is retirement planning with mutual funds, and why is it important?

Every one of us wants to look forward to our golden period – a period that is free from work and also responsibilities. While each of us gets time to pursue our passion, seldom people follow diligently during the working life, and thus the golden period also allows people to follow passion and/or hobbies.

But all these activity bear costs and thus there is a need to accumulate a corpus before you end your golden era. A corpus is required to lead life happily without compromising on the requirements. The age is not in your favor during your golden days, and you would not be able to work in the manner you do now. Thus, to be on a safer side, you would want to have a source of income in the form of pension that could take care of your day-to-day living expenses. Thus, the planning for the corpus that you may need once you retire is retirement planning.

Retirement planning with mutual funds is essential for the security of an individual after retirement and also for the financial independence of the person.

Role of Retirement Mutual Funds

If you are a government employee, your financials are taken care of by the government as you get a pension from the government institution. But, if you are in the private sector or are self-employed, you would have to take care of your retirement yourself.

While there are different ways you can save for your retirement, one of the instruments that is gaining attention is a mutual fund. This is because mutual fund as an investment avenue is capable of generating returns that are better than inflation and helps individuals take care of the rising cost of living.

Also Check: Best Mutual Fund for Child Education

How to use mutual funds for retirement planning?

Typically, investors opt for a pension plan while saving for retirement. These plans are undoubtedly a good option but are not superior to mutual funds. If you are planning for your retirement at an early age, for example when you start your job at the age of 25 years, you get a long investment horizon of 35 years. If you have an investment horizon of at least 30-35 years, equities remain one of the favorable investment instruments as equities generate higher returns over the long-term. Thus, to take part in equities, an investor may choose mutual funds that are managed by a professional on your behalf.

While planning for your retirement, which is 35 years from now, it, makes sense that you put to use mutual funds and invest systematically. Systematic manner helps an individual accumulate wealth over time and get the benefit of compounding.

For our novice readers, Systematic Investment Planning (SIP) is an approach whereby an investor invests a fixed sum of money on a fixed date regularly. Let us quickly see an example –

Assume you are 25 years old, and you start a monthly SIP of Rs 2500 for 35 years. The average return on your investment is 12% per annum. Thus, by investing for 420 months, you can accumulate as much as Rs 1.37 crore.

SIP performance of Rs 2500 per month for 35 years

Source: Company reports

Benefits of using SIP in Retirement Mutual Funds

Using the SIP method for retirement planning is an excellent approach as –

  • The amount of monthly contribution is within your budget and can be easily customized based on your monthly income and affordability
  • Inculcates a disciplined approach to investing as the amount gets auto-debited from the bank account just like an EMI (Equated Monthly Installment)
  • Provides the benefit of compounding — money multiples at a faster rate in the long-term than in the short term. Look at the charts below, if you observe, the wealth accumulated in the first five years is only Rs 2 Lakhs (1.35x of invested amount) and the same started to grow at an exponential rate when your investment horizon increases (1.86x in 10 years, 3.83x in 20 years, 13.1x in 35 years).

In 5 years

Source: Company reports

In 10 years

Source: Company reports

In 20 years

Source: Company reports

In 35 years

Source: Company reports
  • Rupee cost averaging – a disciplined approach to investing in both upmarket and down market helps an investor average out the cost of investing. This over the long-term results in superior returns and prevents an investor from timing the market, which we believe isn’t possible.

Benefits of Retirement Planning with Mutual Funds

Following are some of the key reasons why you should choose mutual fund retirement plan

Provides flexibility

Mutual funds are flexible than any other investment instrument. This is because mutual funds can be withdrawn anytime (except in case of Equity Linked Savings Scheme where the amount is blocked for three years). Also, depending on the requirement of the investor, his risk appetite and horizon, the funds can be changed as and when it is necessary.

Tax efficiency

Mutual funds are tax-efficient as compared to pension plans. In the latter, the income is added to other income, and there is no exception. However, in the case of mutual funds, the long-term capital gains are tax-free until Rs 1 lakh. In the case of debt funds, there is indexation benefit that reduces the tax liability to a great extent.


The Securities and Exchange Board of India (SEBI) regulate the mutual funds. This ensures that the funds are transparent and follows the laws of the land. Besides, the mutual fund houses are mandated, by the regulator, to share information of the fund, its performance, and other relevant materials with retail investors every month. This helps investor abreast of what is happening with their money.

Should you have a separate fund for retirement planning?

The simple answer is yes. Every objective is different, and mutual funds work best if linked to a goal. For example, you have to buy a phone, go on a vacation with family, buy a house or plan for retirement, the duration for each of the objective is different, and thus your risk-taking ability for each of these would be different.

Thus, you must plan your investments based on your goals, investment horizon, risk appetite, and the likes.

Also Read: How to Achieve Your Financial Independence with SIP?

To conclude, we can say that retirement mutual funds are the new investment instrument that is gaining all the fancy of the investor as it helps you not only beat inflation but also enables you to accumulate wealth over the long-term. These instruments are great for goal-based investing, especially retirement planning. If you haven’t planned for your retirement, do it now. It’s better later than never when it is about being financially independent in the golden days.

Should you need any assistance, drop in a line at, and our experts shall be there to assist you in your journey of financial well being.

Plan Karo, tarrakki Karo!

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