The Role of Mutual Funds in Retirement Planning

Retirement planning is the result of the compounding effect of the wise decisions you make across the years before you actually retire. It needs continuous efforts, data-backed decisions, time and money. But why do we need to plan for retirement? It’s simply because retirement is when most of us do not earn an active income. Retirement planning focuses on the following, among other points:

– Creating wealth

– Creating a corpus

– Saving for emergencies

– Investing for returns

– Investing to pursue hobbies

Mutual Fund

A mutual fund covers all these needs. Its system allows you to invest with discipline and build sufficient long-term returns. A mutual fund can be considered a basket of shares of companies in which a fund house invests. The investments are made based on various aspects. Some notable examples are a midcap fund and a hybrid fund (investments in equities and debt).

Let’s understand the role of mutual funds in your retirement planning:

1: Portfolio diversification: A mutual fund helps you diversify your portfolio because of how it invests. A mutual fund invests across sectors, at different stages, and in various asset classes.

2: Combats inflation: Inflation cannot be eliminated in an economy. The central Bank can control it to keep it within certain levels; however, everyone suffers.

But, when investing in mutual funds over a long-term period, you are able to tackle inflation with compounded returns. It gives returns much higher than the inflation rate and keeps your purchasing power intact.

3: Flexible and accessible: Mutual fund investments are flexible. Through an SIP mode, you can start investing monthly at around ₹500 or ₹1000. This reduced barrier allows people to invest across various income levels.

4: Helps you get professional management: Many have a hectic schedule and may not have the necessary time to evaluate companies to build their portfolio. However, a mutual fund is overseen by an expert in financial markets to grow investor wealth.

5: Wealth accumulation and returns: Some mutual funds can provide great returns (even more than 18-20% XIRR in some cases), which can help you grow your wealth.

Hence, mutual fund investments can help improve your portfolio and earn significant returns. They can be the first step to better saving and enjoying your retirement. So read up online to learn more about them, investment knowledge and insights can go a long way in meeting your financial goals with time.

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