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Top 10 Best Performing Retirement Fund


Explain Retirement Funds

What are retirement mutual fund plans?

Many people ask their advisors that why retirement fund is important and the only reason they get is if they want to lead their future with the same lifestyle they need to beat inflation. Therefore, only retirement mutual fund plans can provide them with enough returns in the long run. Retirement mutual funds are one of such few instruments which help the investors to beat the inflation and provide enough corpus for your retirement. Retirement fund changes asset allocation based on the age and risk-taking ability of the investors. So, before investing, you should know how these retirement funds work. If you have started investing in the retirement funds at the age of 25 or below 40 years, these schemes invest in the equity assets. If you attain the age of 45 years, these schemes invest in hybrid form, which means 60% in equity assets and the rest of 40% in debt and liquid instruments. However, if you are above the age of 60 and cannot afford any kind of risk on your investments, these funds will invest the 100% of your corpus in debt instruments.

The retirement scheme aims to provide excellent returns and help build a corpus for your post-retirement requirements. They manage the risk and return very effectively depending on the age as well as the risk-taking nature of the investors.

If you have an investment horizon of at least 20 to 30 years to save for your retirement through mutual funds, then you can generate high corpus from these investments. To know which retirement fund is best, you should look after the long-term returns, alpha and beta of these retirement plans.

The asset allocation of Retirement Funds

How retirement funds work?

The asset allocation of retirement fund mutual funds depends on two parameters; these are risk tolerance of the person and the number of years to retirement. You should choose your retirement fund by age and risk parameters.

  • Equity retirement mutual funds: These funds invest most of their corpus in the equity assets across sectors as well as market caps. These funds also have higher investments in the mid and small-cap companies which have high risk and provide high returns in the long run.

  • Hybrid retirement mutual funds: These retirement mutual fund schemes invest around 60-70% of the total corpus in equity assets and the rest into debt as well as money market instruments. They consist of moderate risk in their portfolio. The money will be invested in these schemes when you attain the age of 45 years.

  • Debt-oriented retirement mutual funds: These schemes invest 80% of their corpus in debt and money market instruments and the rest 20% in equity assets. They have the lowest risk in all the retirement fund categories. Your amount will be transferred in this scheme when you will attain the age of 60 years because you cannot take the risk on your investments.

Benefits of Retirement Mutual Funds

If you think retirement funds and pension plan are the same, then you are wrong. The retirement mutual fund scheme helps you to diversify your financial portfolio as well as risk. This also reduces the risk and helps you to beat inflation in the long run whereas pension plans invest only in one kind of asset which is not efficient for long-term.

  • Diversified risk: Retirement schemes invest according to the risk-taking capacity of the investors and therefore, diversify the risk in equity assets, debt and money market instruments. Equity retirement schemes are considered under the high-risk category, hybrid retirement funds under moderate risk category and debt retirement schemes under the low-risk category.
  • Return: Retirement fund investment offers inflation-beating returns in the long run. So, if you have started investing 30 years ago from your retirement, you can make double of your investments. The average return on a yearly basis of these funds is 10% or more.
  • Long-term investment horizon: Retirement funds are equity funds in nature and investors are advised to stay invested for long-term for higher returns.
  • Tax: Mutual funds are the most tax-efficient investment instruments compared to other pension plans. Income earned on the retirement fund is taxable under the long-term capital ta In the case of equity retirement plan, the long-term capital gain is tax-free up to Rs 1 lakh and in debt retirement fund, which is levied after indexation and most of the time reduces the tax to nil.

Consideration of Retirement Mutual Funds

  • Those who want to invest money for their future and after retirement life can invest their money in the fund for the long-term.
  • Retirement fund in India has a lock-in period of 5 years, so, once you invested the money, you will get it back after 5 years only. So does not consider retirement fund as an emergency fund.
  • The exit load is nil in retirement funds, as they have 5 years lock-in period.

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FAQs

  1. 1. Why invest in retirement mutual fund schemes?

    Right asset allocation is the heart of financial success no matter for what purpose you are saving. Investing in the diversified assets will increase your returns and reduce the risk over the long-term. Retirement fund SIPs will provide you with more benefits compared to lumpsum investments. SIPs help in regular savings and average your cost of investment.

     

     

  2. 2. Who should invest in retirement mutual funds?

    Mutual funds for retirement plans are both long-term and short-term investments depending on the age of the investor. So, if you want to lead your after-retirement life easily and without worrying about the finances, then you should invest in such a fund. if you are still thinking about when to start retirement fund investment, then it is the correct time, start now.

     

     

  3. 3. When can retirement funds be withdrawn without penalty?

    Retirement funds have a lock-in period for 5 years, so you can withdraw your full money after 5 years. As retirement fund is for long term goal, one should keep investing in the retirement fund until they are working.

     

     

  4. 4. When to start a retirement fund investment?

    The early is better in terms of retirement fund investment. You can start investing in the retirement fund as soon as you plan for your retirement. Retirement funds invest your money as per your age and manage risk.

     If you have started investing in the retirement funds at the age of 25 or below 40 years, these schemes invest in the equity assets. If you attain the age of 45 years, these schemes invest in hybrid form, which means 60% in equity assets and the rest of 40% in debt and liquid instruments. However, if you are above the age of 60 and cannot afford any kind of risk on your investments, these funds will invest the 100% of your corpus in debt instruments.

     

     

  5. 5. Can retirement funds be used as collateral for a loan?

    You cannot directly borrow the money from any of the mutual fund schemes, but you can keep these scheme as collateral for loans. An individual can borrow at least 50% of the total value of the retirement fund or any other mutual fund scheme. These loans against mutual funds are known as margin loans.

     

     

  6. 6. How to start a retirement fund investment?

    You can start retirement fund investment anytime irrespective of your age. You only need an account with the mutual fund company, need to complete the KYC and you can start investing directly through your bank account. You can invest with a small amount of Rs 500 monthly as a systematic investment plan (SIP) or invest a large amount at once in the form of lumpsum investment. However, once the amount will get invested, you can withdraw it only after the completion of 5 years of investment due to the lock-in period in retirement funds.

     

     

  7. 7. Advantage of retirement fund vs provident fund?

    • Retirement mutual funds are flexible in nature as they provide different investment schemes according to the risk appetite and investment horizon of the investor. While the provident fund is a central government saving plan which is established to encourage the long-term savings among the residents of India.
    • Provident fund has a lock-in period of 15 years while retirement mutual funds have a lock-in period of only 5 years. So, investors in need of money can exit from an investment after 5 years from retirement mutual fund schemes.
    • Mutual funds can offer you inflation-beating returns in the long run while PPF offers returns @ 8% approximately, which is not enough over a long period. These returns also change as per government policies, but mutual funds totally depend on its asset allocation.
    • PPF is mainly a fixed income investment while mutual funds invest in different asset classes and thus, increase returns and diversify risk.

    All the above points show that retirement mutual funds are more beneficial for an investor compared to provident fund, as it offers higher returns in the long run and also has a shorter lock-in period.

     

     


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Disclaimer: We personally suggest you to start SIP, so you can average your NAV. The above list is not a recommendation of funds, nor does it claim to the only correct way to rank funds. Please check the complete risk document of Mutual Funds and their current exposure to market before doing your investment.

Last updated on 10-Sep-21


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