Retirement is a stage where most individuals are off their 9 to 5 job and living on a fixed income. Hence, it is essential to keep retirement in mind while financial planning. You are going to need more money later than you need now because growing age brings its own share of illness and health issues. So if you do not have a good health plan, you will have to make sure that you build a decent corpus which can suffice you in your sunset years.
If you haven’t yet started saving for your retirement, we recommend that you start because you are going to need a lot of money when you retire and if you want to potentially get close to that figure, you need to start investing. If you are someone who doesn’t mind giving their investment a slightly aggressive approach, you may consider investing in solution oriented funds like retirement mutual funds.
You can invest in mutual funds for building retirement corpus because they are professionally managed funds. It is the duty of the fund manager to buy and sell securities to meet the scheme’s investment objective. So investing retirement funds makes sense because these funds are managed by professional fund managers who usually tend to score profits for investors.
If you have decided to invest in a mutual fund scheme for retirement planning, there are two investment options – you can either make a lumpsum investment or start a SIP.
What is SIP?
Systematic Investment Plan (SIP) is a systematic investment approach that offers disciplinary investing. It is because this that SIP also tends to inculcate the habit of regular investing among investors. When you invest in mutual funds via SIP, you instruct your bank to allow a predetermined amount to be debited on a fixed date of every month and this amount is electronically transferred to your retirement fund.
Retirement Planning with SIP
Systematic Investment Plan can be ideal for someone who is planning to build a retirement corpus. That’s because when you invest in a retirement fund through SIP, you are regularly investing which is the key to wealth creation. Also, when you make a lumpsum investment, you are putting your entire investment amount at stake. Remember that mutual funds are exposed to market risk and returns from these investments are never guaranteed. On the other hand, when you start a SIP you are investing smaller amounts at fixed intervals. Hence, only the amount that you invest monthly is getting exposed to the dangers of equities.
Also, when you invest regularly for the long run, your investments become powerful enough to beat inflation. This would not have been possible if you left your money parked in the bank. Also, regular investing via SIP also paves way for benefiting through compounding. An investor’s rupee cost averaging also reduces. How? Let us explain you this – when you invest at regular intervals you are allotted mutual fund units depending on the fund’s existing net asset value (NAV). When the NAV is low you are allotted more number of units, thus bringing down your rupee cost average.
Now that you some of the benefits of clubbing retirement planning with a systematic investment plan, are you going to invest in these solution oriented funds? We suggest that before you make any investment, do some research about the fund. Check for the fund’s CRISIL ratings, the AMC that runs this fund, its past performance and whether the fund has managed to outperform in the past. Do a routine checkup of the retirement fund so that you get a fair idea whether the fund is worth investing. After all you are investing for retirement and it is necessary to do adequate decision and take an informed decision.