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Future cannot be predicted but it can be planned!

The very thought of retirement could be scary if the finances have not been planned right.

Is it possible to plan finances for the future when there would be no income but the same or even more expenses?

Actually, it can be way easier than what it looks like. One can be retired and still lead the same lifestyle without worrying about the money inflow. What is required is the right planning at the right time and understand that retirement planning is no more synonymous with the investment in pension funds only. In fact, with the emergence of lucrative mutual fund schemes, a whole new arena has opened for the investment in a vehicle that guarantees long term wealth creation while helping beat inflation.

When should one start financial planning for retirement?

The ideal time to start saving for retirement is as soon as one starts earning.

What factors should one consider before investing in retirement corpus?

  • Is the person self-employed or salaried? Salaried one mostly has a forced retirement plan in the form of Employee Provident Fund (EPF) as the EPF rules require all employees to contribute 12% of their basic income to retiral savings, which include the Employee Provident Fund and the Family Pension Fund.
    However, the self-employed ones are themselves responsible for building their retirement kitty; and this requires them to be proactive and more disciplined in their financial planning.
  • Number of years left for one’s retirement
  • Estimation of the money required at the time of retirement
  • Risk appetite

The answers to these questions will make your investment journey smoother and worthwhile.

Now, the next question is where should one invest?

There are traditional options including Public Provident Fund (PPF), the National Saving Certificate Scheme, Employee Provident Fund (EPF) and even insurance policies. These options mostly come with a major drawback i.e. with the return of close to 8%, they in most cases neither beat inflation nor maximize wealth creation for retirement.

This is where mutual funds come into the picture which are low-cost wealth creation options that beat inflation too.

Why are Mutual funds a better bet than traditional instruments like pension plans?

  • Investment in mutual funds is more flexible as there is no restriction on complete or partial payments in between, implying that one can withdraw money partially or fully at the hour of need without any penalty.
  • Mutual funds offer a lot of options depending on your requirement and risk appetite. You can invest in equity funds for capital appreciation, debt funds for regular income or gold funds for securing your future. In terms of risk, you can choose safe or liquid funds, highly risky sectoral funds or moderately risky hybrid funds that invest in both equity and debt.

Tax benefits associated with mutual funds

Less than 1 year 1-3 years More than 3 years (LTCG)
Equity 15% Tax applicable 10% above ₹1,00,000 capital gains 10% above ₹1,00,000 capital gains
Debt Based on Individual’s Tax Slab Based on Individual’s Tax Slab 20% Tax applicable with benefit of indexation

It can be safely said that if you can be disciplined in your investments in mutual funds, you can build a stress-free, tax-efficient and flexible financial future.