Having a sound financial plan is crucial as it guarantees a stable present and a brighter future.
It is vital to include retirement planning in financial planning, as it provides a financial cushion during retirement.
There are various strategies to accumulate a substantial retirement corpus, and one of them involves investing in mutual funds.
By investing in mutual funds, it is possible to create a retirement corpus of Rs 1 crore within a period of 25 years.
Before delving into the specifics of how to achieve this goal, let’s briefly review the importance of creating a retirement corpus using mutual funds.
In order to create a retirement corpus, it is important to establish your financial objectives, such as the specific goal of creating a corpus of Rs 1 crore.
However, it’s worth noting that individuals may have varying goals depending on their unique financial circumstances and aspirations.
Experts suggest that individuals looking to build a retirement corpus should consider asking several critical questions.
1. How much monthly income will I need to lead a comfortable lifestyle?
2. Provision for any emergency like medical expenses?
3. How much time do you have to save?
4. What rate of return do you need to achieve your goals?
According to Manish Mehta, National Head of Sales, Marketing & Digital Business at Kotak Mahindra Asset Management Company, when building a corpus, it is necessary to determine the allocation of assets between equity and fixed income.
This first stage is known as accumulation, and it is advised to begin investing through a SIP based on this determination.
Determine investment strategy
Anup Bansal, the Co-founder of Scripbox, suggests that the subsequent step after determining asset allocation is to devise an investment strategy.
This involves determining the proportion of the portfolio to be allocated to mutual funds, selecting the appropriate mutual fund category to invest in, and assessing one’s risk tolerance. He illustrates this point with an example.
Suppose investors have a retirement horizon of 25 years; in that case, they have the opportunity to lean more towards equity mutual funds.
However, if they prefer a balanced portfolio and do not wish to adopt this approach, hybrid funds are also a suitable alternative.
Choose the right mutual fund and monitor them regularly
Selecting an appropriate mutual fund is of utmost importance when building a retirement corpus.
One must evaluate various factors, including the fund’s past performance, expense ratio, and the experience of the fund manager, to make a well-informed decision.
Anup Bansal advises that after choosing a mutual fund, investors should keep a close watch on its performance and monitor any changes to the fund’s management or investment strategy regularly.
Portfolio Rebalancing
Rebalancing the portfolio is a crucial task that should be carried out annually.
It aids investors in reducing the impact of market fluctuations on their investments and keeping their investment goals on track.
Additionally, as one nears retirement, it is essential to decrease exposure to market risk.
Anup Bansal suggests that if an investor has a significant investment in equity mutual funds, they should consider shifting a portion of their investments to debt and liquid assets.
This will ensure a stable income inflow post-retirement and protect against any market downturns that could harm the investor’s investments.
How to create a Rs 1 crore retirement corpus?
If one assumes an annual return of 12 percent from mutual funds, they would need to invest approximately Rs. 43,041 per month to generate a corpus of Rs. 1 crore in 10 years.
Likewise, investing Rs. 5,270 per month would be necessary to create a corpus of Rs. 1 crore in 25 years.
