5 crores by retirement: Creating a tailored mutual fund strategy for your golden years

Mutual funds can play an important role in your retirement portfolio as they provide higher average returns over the long term compared to traditional investment options like fixed deposits. They also provide diversification which reduces overall risk. Here are some tips for creating a tailored mutual fund strategy focused on retirement.

Start early and invest regularly

The sooner you start investing for retirement, the more time your investments have for compounding. Starting in your 20s gives you the benefit of nearly 40 years of compounding returns. Investing just ₹5,000 per month in equity mutual funds from age 25 could grow to a corpus of over ₹5 crores by age 60, assuming 12% average mutual returns per annum.

Investing regularly through Systematic Investment Plans allows you to build your corpus through rupee-cost averaging. Stay disciplined about investing every month, without fail. Setting up automatic transfers from your bank account takes the manual work out of SIPs.

Review and rebalance your portfolio

Review your mutual fund portfolio at least every six months and rebalance it annually. Rebalancing involves reallocating money across funds to maintain your original desired asset allocation based on your risk appetite and changing life situation.

For instance, allocate higher amounts to equity mutual funds when you are younger and have a higher risk appetite. As you get closer to retirement, rebalance towards more debt funds to protect your capital. Review your portfolio weights and make adjustments as needed.

Utilize ELSS for tax savings

Equity-linked savings schemes (ELSS) carry the benefit 80C deductions . The lock-in period is only 3 years, compared to longer lock-ins for other 80C options like PPF. The lower lock-in coupled with equity flavor makes ELSS a preferred choice for retirement savings.

Invest your annual Section 80C limit of ₹1.5 lakhs in ELSS mutual funds. The tax savings will enhance your overall investing capacity. Opt for ELSS funds from diversified categories like flexi cap or focused funds based on your risk tolerance.

Harness the power of equity for long term

Equity as an asset class has historically delivered the highest inflation-adjusted return over long tenures of 10 years or more. While equity is risky in the short run, its risk reduces significantly over longer periods. Equity MFs are the easiest route for retail investors to tap into the wealth creation potential of equity.

Have at least 60-70% of your retirement portfolio in equity funds during your accumulation phase. Use SIPs and STPs to steadily build your equity exposure. Shift to lower risk balanced and debt funds as you approach retirement. Maintain 15-20% in equity even after retirement for beating inflation.

Have sufficient corpus for your goals

Estimate how much monthly income you would need to sustain your desired lifestyle after retirement. Factor in major expenses like healthcare, travel, house help etc. Account for inflation to arrive at the future value of the corpus you need.

A corpus of ₹5 crores today will be worth around ₹11 crores after 25 years at an average inflation of 6%. Have clear goals for the size of corpus you need to accumulate. Choose your mutual funds and investment strategy accordingly. Monitor your corpus periodically to ensure you are on track.

By starting early, investing regularly, focusing on equity and retirement funds, and having a prudent withdrawal strategy, you can build a golden retirement nest egg and reap all the benefits of mutual funds. Review your portfolio periodically and make adjustments as needed to stay on track for your corpus goals.

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