Many Indians are unprepared for retirement and may need to continue working in their 60s and beyond. Not all enjoy the benefits of a steady pension in their retirement years. For some who do, their pension maybe insufficient to support their daily needs.
Whether you retire at age 58 or choose to work until 70, you are likely have many years ahead. Your career will then conclude and your children may not be around anymore. Hence, you need to prepare yourself for the next couple of decades.
Retirement is not supposed to be stressful. Many of us expect to have a blissful retirement. But your dream can turn into a nightmare if you don't plan properly or if the financial market goes awry.
Post-retirement income from investments, cost of living, and health care expenses can change unexpectedly, it is important to be ready and know how to adapt to those changes after leaving the workforce.
A primary reason for retirees being unprepared is a lack of planning and saving in their younger years. Thus, beginning the retirement investment process at a young age often pays off in the long run.
[For additional reading: 10 Reasons Why You Need A Financial Plan]
You can plan for retirement through several financial products. Several financial providers offer retirement specific products. While some may be ideal for your retirement, others may not. Hence, you may be better off investing in vanilla products.
Insurance companies offer annuity and pension products as well as market-linked retirement plans, through Unit-Linked Insurance Plans (ULIPs).
Mutual funds offer retirement funds, which are eligible for a tax-break under Section 80C of the Income Tax Act. Funds such as Franklin India Pension Fund, UTI Retirement Benefit Pension Fund, Reliance Retirement Fund and HDFC Retirement Savings Fund help you to save taxes under Section 80C.
You can even invest towards retirement through the National Pension Scheme (NPS) and Provident Funds—Employee Provident Fund (EPF) and Public Provident Fund (PPF).
[For additional reading:
Can NPS And PPF Help You Retire Comfortably? Find Out Here…
Can You Rely On EPF For Your Retirement? Know Here...
5 Deterring Points About National Pension Scheme]
But, finding the right investment product for retirement is the final step in your retirement roadmap. You need to first setup a fireproof plan for retirement.
Create a fireproof plan for retirement
Blindly investing in the so-called “best” retirement funds or pension plans will lead you nowhere, unless you have a plan in place.
The sooner you begin planning and making serious efforts to secure your retirement future, the greater your chances of achieving it. It is never too late to plan. Analysing your current financial situation and creating a plan is good at any stage of your life, but preparing for retirement gets more difficult the longer you wait to start saving.
[For additional reading:
Why You Must Streamline Your Finances Before You Retire
Will The Retirement Fund Last Till My Last Breath? Know Here...]
First, you need to set a goal and then chalk out a plan to retire comfortably. Analyse your finances, determine your retirement income needs, calculate the gap, and finally, design and implement a plan to get there.
Calculate the retirement corpus you require to meet your needs. This is the first step in any retirement plan. You can use this Retirement Calculator to determine a projected outflow based on your current expenses. This will give you an estimate of the corpus you need. This retirement calculator will help you understand how much wealth you need to garner before retiring. You can plan for it accordingly.
All you need to do is provide some basic inputs such as your retirement age, life expectancy, inflation, expected return on investments, your current portfolio size, and expected retirement expenses. The retirement calculator will then highlight how much you need to save each month to ensure you have sufficient funds to live a fulfilling retired life.
You may also watch the below video on how to calculate your retirement corpus:
Calculating Your Retirement Corpus
Picking the best mutual funds for retirement
In the
retirement planning process, you would come to realise that equity is the best route for long-term wealth creation. Hence, equity as an asset class cannot be ignored to achieve financial goals over a decade away.
While fixed income products may be safer and offer fixed returns, they are unable to outpace inflation. Hence, you need equity to create the additional inflation-beating returns.
Watch this video and learn how to allocate assets for your retirement portfolio:
Allocating Assets For Your Retirement Portfolio
If you have years on your side, equity mutual fund schemes are by far the best product for retirement planning. You can very well achieve the targeted corpus for retirement with mutual funds, provided you stick to your plan and invest diligently. Mutual funds not only help in creating wealth, they are cost-effective and a flexible investment avenue.
So when planning for your retirement , you can choose from vanilla equity diversified funds. Carefully picked equity diversified schemes can help generate superior risk-adjusted returns.
If you are seeking a tax rebate, then you could choose from Equity Linked Savings Schemes (ELSSs) or Retirement savings funds. Investments in these categories of mutual funds are eligible for a tax rebate under Section 80C of the Income Tax Act, subject to an overall limit of Rs 1.5 lakh.
ELSSs come with a lock-in of three years. This is the shortest lock-in period when compared to other tax-saving investment products. Though ideally you should be investing in equity for a period of five years or more.
Under retirement funds, though the lock-in period extends up to five years, an exit load is applicable up to the age 60. This is still acceptable as certain retirement products the investment is lock-in until retirement and offer premature withdrawals only under specific circumstances.
PersonalFN lists down the top mutual funds based on their 3-year rolling returns.
Top Equity Diversified Funds For Retirement
Data as on January 30, 2018
(Source: ACE MF, PersonalFN Resarch)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
Mid-and small-cap oriented funds did well over the past three years, thanks to the market rally. However, these funds can cause the most pain in a market crash. Hence, you need to balance your exposure to mid-cap, multi-cap, and large-cap funds. You may also consider value-style and opportunity-styled funds for your portfolio.
Top ELSS Funds For Retirement
Data as on January 30, 2018
(Source: ACE MF, PersonalFN Resarch)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
ELSSs offer investors the best of both worlds—tax-saving and wealth creation. These funds are also highly liquid when compared to other tax-saving products. Hence, these funds are necessary for your portfolio.
Top Retirement Savings Funds
Data as on January 30, 2018
(Source: ACE MF, PersonalFN Resarch)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
As a few of the retirement funds were launched a few years back, we have considered the 1-year rolling returns. As you can see, equity oriented plans (also known as the wealth creation plans) of retirement savings funds have done better over the past one-year periods. Hence, you need to set your asset allocation accordingly.
To conclude…
When picking the right products, you need to understand the types of investments that are available, and decide which ones are right for you. If you do not have the time, energy, or inclination to do this yourself, hire a financial professional.
He or she will explain the options that are available to you, and will assist you in selecting investments that are appropriate for your goals, risk tolerance, and time horizon. Note that: Many investments like equity-oriented schemes may involve the risk of a loss of principal.
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Editor's note:
The right mix of assets and a disciplined investment approach will help you build your retirement savings. Unbiased financial knowledge is the key to succeed in achieving all your investment goals before and after retirement.
The Retirement Letter, a PersonalFN initiative, offers its subscribers valuable guidance on managing money for their retirement.
If you have a few years to go before retirement, we strongly suggest you sign up for the very popular service - The Retirement Letter. With every monthly issue of The Retirement Letter, we will walk you through the complete journey that can lead you to a self-sufficient and comfortable retirement. In fact, we will handhold you through every step that is crucial to plan your dream retirement. And there’s much more… Subscribe Now, and take your first step towards a dream retirement!
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DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014
About the Company including business activity
Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.
QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.
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- Neither QIS, it’s Associates, Research Analyst or his/her relative have any financial interest in the subject Company , except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF.
- Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
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Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021. Email: info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222
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