With the increase in longevity, the concern of retirement years has increased. If not saved enough then there are chances that you may outlive your accumulated assets. This will jeopardize the later years of life when you will need these assets the most. Hence, having a good retirement tool to accumulate good corpus is highly desirable.
There are various avenues for long-term investments. There are Pension Plans, NPS, Life insurance, Gold, Real Estate which will come in consideration while you are making a selection. But apart from NPS most of the other avenues are difficult to rely upon for long term investing. Even NPS has its own limitations. On the other hand, mutual funds provide an efficient mean to save for retirement.
What are the benefits of mutual funds which make it more considerable option than any other investment avenue:
1. Exposure to Equity
There is no second thought that in the long term you need equities to grow your wealth. With inflation-beating returns, this asset class has probabilities of reaching your desired goal in a good span of time. But investing in equity is not so easy. If you are keen to invest directly in stocks you need a good amount of expertise to search those right companies which can create wealth for you to sustain your retirement years.Not many of us are able to do that. Also, you need a higher capital to take a good exposure to diversify. This is not viable for most of us. Mutual funds fill this gap wherein you can start investing in equities with as low as Rs 1000 p.m to build a corpus for your retirement year. The other benefit it gives you is that it inherently diversify your money in stocks which you are not able to do while approaching directly.
2. Various Schemes
The other larger benefit of mutual funds is that it has different categories of schemes. There are large cap, mid cap, multi-cap or sectoral fund within equity space. Similar variation one can find towards debt side where money market funds, income fund, gilt funds are present. The presence of different categories help you to create an investment portfolio as per your choice or risk profile. So if you are more aggressive you can have good mid-cap funds but if you want to keep your portfolio volatility low then you can build a large cap portfolio.
3. Lower Cost
One of the main consideration for any long-term investing is the associated cost. Higher cost in your investments impact your returns. When you add inflation and taxes then surely the triple blow cannot be beneficial. That’s why insurance products are not a considerable option. Mutual Funds again fulfill this objective well enough. Firstly, they are quite tax efficient considering the long-term capital gains tax on equities is Nill and on debt it’s 20% with indexation. Secondly there are no upfront cost to investors now. Lastly, the recurring cost i.e. the annual expenses, have got reduced more ever since direct plans are launched. If you work out the accumulation in the long term then the reduced expenses has brought a great deal of difference in the accumulation of corpus. Thus, mutual fund does provide benefit of lower cost to its investors which is vital when investing for long term.
4. High Liquidity
There are many situations you have to deal with while saving for retirement. The scheme you have invested might not perform well. You may have to look at changing your asset allocation at a certain stage. When you are reaching near retirement then you may have to reduce allocation to equities. You may need to withdraw only a part of your corpus at different life stages for different goals.Handling all these situations is difficult if exit from your investments is not easy. That’s where real estate fails and that where mutual funds is preferable. In mutual funds where you can easily redeem or switch your investments. The presence of alternatives within the different categories ensures you don’t have to look for another avenue if any scheme is not performing. This benefit is not present in any other avenue which makes mutual funds a viable means to save for your retirement.
Retirement is a long-term goal. While saving for it, there will be many life stages when your financial situation will change. Rebalancing your allocations and accommodating changes is easy when your investments have high liquidity and low cost. Mutual funds offer that which makes it a preferred avenue for investing. The key is knowing how much your goal is and when you start. The early starters have an advantage of saving more for it while starting late means you may have to delay your retirement. So if you are thinking to save for your retirement then start investing in mutual funds and make your choice more wiser.
The article is first written for money control. View the original here – Moneycontrol
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