Efficient Retirement Planning with mutual funds

Published On: 03-Jun-2019

A complete cycle of financial planning consists of the three stages – accumulation phase, wealth creation phase and distribution phase. The distribution phase happens at the end of one’s working life, when the regular monthly inflows cease. The post-retirement phase of life seeks to enjoy those times of life after an entire working life spent in pursuit of accumulating enough wealth. However, more often than not, lack of effective retirement planning may restrict your desires and aspirations, just because you could not accumulate a healthy corpus.

Retirement Planning with mutual funds


Here is how one should undertake retirement planning through mutual funds:

  1. Determining the Required Corpus

It is said, “If you do not know the destination you are moving towards, any road will take you there.” As such, it is always good to know the goal you are aiming at, so that you are also able to track the progress of your financial goal on periodical basis. The first and foremost step in this direction is to determine the amount of monthly expenses for the family expected post retirement, duly accounting for the expected inflation and the reduced purchasing power of money over the years. Due to the prevailing inflation, the purchasing power of the currency reduces over time. You might recall that a Rs. 100 note also used to be a lot more valuable 18 years ago, but as of today, it is only worth Rs. 22 and may not even get you a one-time full course meal as well.

  1. Starting Early to Invest

Empowered with the power of compounding, starting early towards your retirement planning may give you rich dividends. When you start early, the emphasis is on the ‘time in the markets’ and as such, the investments tend to grow effortlessly in the entire process. As such, it is always advisable to start investing at an early age. The table below shows the benefit of starting early and how the portfolio grows exponentially over longer periods:


Amount of Rs. 10,000 invested over

20 year

25 years

30 years

Total Amount invested

Rs. 24 lakh

Rs. 30 lakh

Rs. 36 lakh

Accumulated Corpus

Rs. 1.00 crore

Rs. 1.90 crore

Rs. 3.53 crore

* assuming the investments generate 12% returns per annum

So, the longer you stay invested in the markets, the much larger amounts you may accumulate over a period of time.

  1. Choosing the Right Investment Product

With a long term investment horizon, even investing in equities tends to be a conservative option, as the equity markets, as reflected by S&P BSE Sensex, have given reasonably good returns of 16% CAGR since its inception in 1979, in spite of many financial market hiccups etc. So, while the equity markets may be volatile over short-term, they have greatly rewarded the investors who chose to stay invested across the market movements. Powering the portfolio with a potential of higher returns may be greatly rewarding over long term, as also being highlighted in the table below:


Expected Returns per annum




Total Amount invested

Rs. 30 lakh

Rs. 30 lakh

Rs. 30 lakh

Accumulated Corpus

Rs. 1.90 crore

Rs. 2.73 crore

Rs. 3.97 crore

* assuming Rs. 10,000 invested per month for 25 years

As illustrated above, even an incremental marginal return may also add a lot more to your retirement corpus. Mutual funds also help in making systematic investments, as the investors are free to choose the periodicity and the amount of monthly investment by registering a Systematic Investment Plan (SIP).

  1. Aligning the Asset Allocation with the Changing Risk Appetite

While the investors have a wide variety of mutual fund schemes schemes to choose from, it is equally important that the changes in risk appetite are also aligned with the asset allocation of the portfolio. The risk bearing capacity of the investor tends to reduce with the growing age, and it is considered prudent to slowly shift from aggressive risk profile to a conservative risk profile as the time progresses. Investors may also avail of Systematic Withdrawal Plan (STP) to shift their investments on a systematic basis from one mutual fund scheme to another scheme of the same fund house.

  1. Enjoying the Fruits of the Investments post Retirement

Even when the investment objectives have been achieved, mutual funds allow you to systematically reap the benefits of the investment portfolio, as it offers you the facility of Systematic Withdrawal Plan (SWP) to periodically redeem your mutual fund investments over a period of time. The quantum of such funds may be decided by the investor based on the monthly cash flow requirements.

Disclaimer: The charts/information shared above is for illustrative purposes only and should not be construed as advise. The above is to illustrate the concept of long term investing. There is also a possibility of the expected event not happening or some other unforeseen event that may affect the future performance of asset class. Investors are requested to note that there are various factors domestic and global that can have impact on performance of the asset class mentioned in the article. Information given is available in public domain.