Hello Readers!!

Do you earn? And if you do, then do you save? And if you save, do you invest for your goals? And if you invest for your goals, then do you invest for your retirement? And if you invest for your retirement, I just hope you are not among the ones who have their retirement planning depend only on Fixed income return assets!!

No matter how elusive today, retirement will be a reality someday for all of us. Regular earnings will stop but the expenses won’t. Many plans for their retirement but often confine their retirement portfolio to fixed income returns. Because as per them, the retirement pool should be in such kind of investments that gives safety and stability!

Investors also look for investment options for their retirement money that give them a regular income. And all these reasons end up an investor choosing fixed income returns for their retirement money. However, the perspective is not that right.

In a growing economy like India, where inflation continuously trends in an upward direction, and the growing economy gives better tax efficiency in long-term returns, one cannot overgo the benefits of building their retirement portfolio in long-term investment options like Equity mutual funds.

Let us understand in detail why only sticking to fixed income returns for your retirement portfolio is not an ideal option and how investing in long-term investments like equity mutual funds is the best strategy for creating your retirement money!!

Fixed Income Returns Are Not Ample Options………..

Years before, fixed deposits and other fixed-income instruments were considered ideal because they offered returns with an interest rate around 10%-12%, which always remain high from the annual inflation rate. But the scenario today has reversed!

Returns from such fixed income options are now down to a range of 5%-7% a year (pre-tax), and to the opposite, the annual inflation rate comparably trends high than this. Hence, whatever you earn through these options is just eaten away and the real return you are left with is nothing.  

You retire at the age of 60-65 years that means you have more than 20-25 years ahead to live with no income source, obviously as it is your retirement zone. For this long 20 - 25 year life span, you cannot depend on fixed return investments wholly, as these instruments often fail to keep the value of your investments higher than the inflation in long term. That means you need to look for other exclusive and efficient options.

Equity Mutual Fund, Before And After Retirement………

Equity mutual funds although are risky but has all the feature that is necessary for an investment option suitable for retirement planning.

• Retirement planning requires long-term investing and equity mutual funds offer the best returns in long-term investing.
• Retirement planning requires inflation-beating return giving instruments and equity mutual fund offers inflation-beating returns.
• Retirement planning requires tax-efficient investment options, and equity mutual funds are offering tax-saving returns.

All the above points make it clear that equity mutual funds are a good option where an individual should build their retirement money. Thus, it is recommended, to have a dash of equity exposure to your retirement portfolio. Also, you may want to have relatively high equity exposure, at least up to two years before the retirement year.

Not only before retirement but it is also advised to have some equity exposure even after retirement. However, the portion of exposure can be decided based on whether you have a fixed income source or not. Experts recommend if you have a pension income to rely on, you can continue to have more than half your investment pool invested in equity. If your pension is not enough, use your accumulated equity investments to draw a systematic withdrawal plan which can complement any other annuity income you may be receiving.

Now coming to why an investor should choose equity investment for their retirement portfolio!

Equity mutual funds investment has the ability to deliver inflation plus returns and the longer you remain invested, the long compounding effects work and helps in building wealth over a long period of ten-fifteen years.

Once this wealth has been built and you are close to retirement or retired, you can protect the downside on the accumulated corpus by shifting an appropriate amount to debt each year or two, but leave some in equity which will keep growing for the next 20 years as well.

This way you can build your retirement portfolio in an efficient manner that will help you create a good retirement amount, with tax saving, inflation-beating features!

Keep reading our articles for more updates on finance and investment!!

For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).