Usefulfunds.com

Invest with Confidence

How to invest for Retirement

Spread the love

Many people will have a dream of retiring early from their usual job by the time they are in their 40’s or 50 ’s. but are you really ready to take that step, I suggest you calculate how much money you should have  achieve this Dream

You can use any online retirement calculators available in most of the websites to calculate that amount, you will find huge sum requirement to have a comfortable retirement life. off course, the amount is depending so many factors like your lifestyle, inflation rates, investment returns etc.

But let us use simple calculation if you are 30 year old and now you spend around Rs. 50,000/month, You may have to build retirement corpus of nearly Rs. 10Cr to generate the income you need to meet your expenses.  This is assuming 7% inflation rate, retirement at 60yrs and life expectancy of 85 years.

You may like to read How to earn high from Your Idle cash!

Now when Someone sees Goal amount in some Crores, people will simply give up, and stops thinking about retirement, but in reality, it is very easy to achieve, let me explain how.

 

If we consider above investor for example, who needs 10 Cr in 30 years will have either Fixed Income option, ULIPs options( Mix of insurance and Equity) and Pure Equity oriented Mutual funds/Equity.

  1. Fixed income (Recurring Deposits/FDs/PPF etc):

These investments can fetch around  7 to 8% returns per annum, which means for us to get 10Cr in 30 years, one must invest regularly 70,000rs/Month.  that’s an impossible task to invest 70,000rs for one goal, considering all other expenses and other Goals in life!

Yes, I understand these are risk-free, but they are not going to get you a lot of money. 

  1. ULIPs: They invest most of the money in insurance, which otherwise could have brought by you directly in Term insurance with much lesser premium. They come with minimum 5 yrs lock-in period, which will stop you from switching to other alternate plans if that ULIP delivers poor returns. Since investment is clubbed with insurance you will not be able to judge actual costs and actual returns, you get a very blurred understanding of this. These are emotional Trap.
  2. Pure Equity Oriented Mutual Funds:

The equity asset class is the only investment avenue available in India today which has the potential to grow your money at the rate of 15% to 25% as per previous performance data over a long period of time.

For above example, amount of just Rs.17,600/- per month (SIP) invested in Equity funds which earn 15% return annum, will give you required amount of 10Cr retirement corpus in 30years time, which is quite easily possible to invest for any type of investor.

Yes, market investments are volatile, but many studies and calculations from Indian Markets show that it is nearly impossible to make a loss from your SIP investments in any equity fund for a minimum of four years. Hence for any person who has 5 years and above time for retirement must consider heavyweight with Equity Mutual funds through SIP.

  1. Many financial plans in India clubs investments with insurance, but simple open-ended mutual funds are best. Because when you combine investment with insurance or any other you will not get the best of either.
  2. You can go for Pure Term insurance for covering the risk of life, in case of any unfortunate event.
  3. Don’t panic with monthly investment targets mentioned above, if you can’t afford to save as shown, start a SIP with whatever sum you can manage to save, but do not forget to increase this amount when you get an increment. Stepping up your SIP every year will give miracle results.
  4. Ignore all the noise that happens in Markets, stick to your SIP through market highs or lows, no matter how volatile they are.
  5. Remember No advice in this world holds good for all times, hence Both your retirement targets and Funds you choose requires regular review, at least once a year.
  6. In case if a fund that you choose gave very fewer returns compared to benchmark indices or its peers, do not panic and don’t exit. You may stop future SIPs, and start afresh SIP in another good fund. There will be exit load and tax implication, and the fund may temporally have some problem when it returns to the good rating you may continue with the old fund.

Next which fund to choose and how many to choose and how much in each asset class?

Well, if you are already contributing to PF, through your salary and through your employer, consider that as Fixed income proposition.

For your Equity investment part, you may choose 2 to 3 good equity funds to start monthly SIP.

  • If your time for retirement is more than 10 years, you can consider 1 Multi cap, 1 Mid cap, and 1 Small cap.
  • If you have 5 to 10 years time consider more allocation to Multi cap/Large cap funds only
  • If you have 3 to 5Yrs time, stick to balanced funds.
  • Less than 3 yrs, go for Fixed income only.

You can select Best funds to start in 2019 from this link.

Below are my suggestions for retirement Accumulation of Wealth.

Category

Mutual fund

CRISL Rating

Value research rating

AUM in Cr

3Y

5Y

10Y

Large cap funds

Aditya Birla Sun Life Frontline Equity Fund

Rank #1

5 star

       20,011

11%

15%

19%

Mid cap Funds

L&T Mid cap fund

Rank #2

5 star

         3,196

9%

21%

22%

Small Cap funds

Reliance Small Cap Fund

Rank #3

5 star

         6,900

13%

29%

Friends, please provide your view in the comments below.

If you like this article, please share it with your family and friends

Please read the importance of term insurance plan here


Spread the love

Leave a Reply