Retirement Mutual Funds – Concept, Purpose, Benefits, Investment Process & moreLast Updated Date: May 11, 2022
As the name Retirement Mutual Funds sound, it is recommended to all those people who want to plan something for their retirement age.
In this blog, we’ll talk about this most necessary mutual fund option and how it supports you.
Retirement planning is an extremely crucial thing for every individual who wants to live his/her rest of the life to the fullest. Maybe, your retirement age is probably 20 to 30 years away.
But often, life takes you through unpredictable curves. It can be full of ups and downs. That’s why early planning is essential.
Even though you’ve sufficient wealth to oversee your futuristic financial position, you should still care for your life after retirement.
To better support your family without any stress, it’s a pretty good decision to start investing in mutual funds.
Now you might wonder, all mutual fund schemes appear similar! Of course, they look similar, but few are dedicated to a specific purpose, such as retirement mutual funds.
What is a Retirement Fund?
Retirement funds or pension funds are an investment scheme for every individual who wants to secure a few portions of his earned money for the future.
Under this scheme, investors either invest a lump sum amount in their retirement funds or choose SIP plan to invest per month.
Once you reach your retirement age, these funds start giving you a regular income source with interest until your demise.
People who invest in these funds receive around 11% rate of interest per annum (the rate of interest can vary as well).
Though, the biggest advantage of these funds is that these funds don’t depend on any stock. Hence, you’ve no need to worry about market fluctuations.
These mutual funds predominantly invest in low-risk components, such as government securities. In this way, retirement funds provide you with stable returns at minimal risk.
That’s how retirement funds prove to be the best option for investors to ensure a financially healthy future.
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Purpose of Retirement Mutual Funds
As said, any retirement mutual fund’s primary objective is to ensure a financially healthy future of the investor.
Under this scheme, the investor, after his retirement age, receives a steady source of income with added interest.
Hence, you can also assume it as a deferred pay which ensures financial security to the individuals.
Though, these funds don’t make you wealthier but pile up sufficient funds so you can easily cope with daily expenses. But it is also up to you how much you wish to collect funds for the future.
Not all retirement mutual funds are the same. Few schemes offer you a lump sum amount of the funds once you reach your retirement age.
Whereas, few schemes provide you returns monthly or annually. So make sure you note down this most critical thing before choosing the retirement plan.
Suppose, the fund house offers you a monthly annuity returns at a fixed rate. In this way, the investors can receive finance with added returns either per month or per annum.
On the other hand, if you choose a lump sum payment option, the fund house will disburse the total invested amount at the time of your retirement along with interest rate you’ve received overtime on these funds.
Find details of other Types of Funds here
Who should invest in Retirement Mutual Funds?
Retirement mutual funds create a stable income source for an investor once he crosses his/her retirement age.
That’s why these investment plans are highly recommended for every individual concerned about their life after 50 or 60s.
Retirement mutual funds are less risky and deliver you a relatively higher rate of returns. Hence, these funds seem to be a way better option as compared to other mutual fund schemes.
Once you enter in the senior citizen category, these funds come forward as your companion to give you financial support.
Though, it’s also become essential first to make a clear pattern of your life expectancy. Suppose if your age is only 20 or 30, no wonder you can invest in retirement mutual funds.
But if your age is around 40 or 50, you should invest solely on debt components as these are less risky and offer you relatively a better return.
Similarly, if you are 50+, you can park your money in mutual fund plans that invest in both debt and equity components. So you can capture a higher return at moderate risk.
However, apart from these investment plans, you can also invest in retirement schemes officially launched by the government. In such schemes, you get the advantage of both debt and equity returns.
At the time of retirement, the retiree can also withdraw 60% of their invested amount along with interest from these funds. The remaining 40% you can receive as an annuity payment.
Benefits of Retirement Funds
Let’s have a look at the major advantages of this retirement scheme so that you can come up with a well-informed decision. The advantages include-
A risk-free investment plan
RMF is one of the most popular types of mutual fund schemes. The primary reason that makes this investment the first-choice for many of us is their low-risk profile.
However, few retirement plans also offer you further option to choose.
Such as, within these funds, you can invest in government securities, equity component or debt components based on your risk-appetite and cravings for returns.
Retirement mutual funds offer you flexible payout options. You can withdraw the entire fund in lump sum amount; else you can also choose a monthly annuity option.
Though, few retirement plans also offer you deferred annuity plan under which you get the added advantage with the higher corpus.
Best for the long-term goal
Investors with a short-term goal should stay away from this mutual fund plan. As the primary purpose, any retirement mutual fund provides you with better financial support once you cross retirement age.
That’s why it’s a long-term investment option. However, if you have further plans after retirement, you can use these funds for further investment purposes.
Retirement mutual funds ensure full support to investors. Such as, through life insurance cover these investment schemes support the insurer in their unfortunate times.
If the investor dies before their retirement age, these funds bear the financial loss. In case of a medical emergency, the investors can also withdraw the lump-sum amount from their retirement funds.
Investors do not need to worry about inflation. Retirement mutual funds are less prone to this unpredictable and unwanted market affair.
Since these mutual funds don’t invest in a stock that is prone to market volatility affects, one can confidently invest in these retirement plans.
Find details of all types of Debt Funds here
How Should you Invest in Retirement Mutual Funds?
Investing in retirement mutual funds is quite simple. You can opt one from the following two ways to start investing in this mutual fund scheme.
You can choose SIP (Systematic Investment Plan) or Lump-Sum investment plan. Let’s have a look at how-
SIP – The SIP or Systematic Investment Plan allows you to invest a certain amount in your retirement plan every month like an EMI.
It’s a flexible option for investors with lower annual income. You can keep investing RMF through SIP till your retirement age.
Lump-Sum Investment – It is also known as one-time-investment. At the present moment, if you have a good amount of fund, then you can invest it entirely in retirement mutual fund.
But make sure you have a higher risk appetite or sufficient balance in your account because in a very rare condition you can also lose money in these funds.
Though, both the above-stated investment options have their own ups and downsides.
Suppose, you invest lump sum amount in retirement mutual fund, here you can pile up a higher return on your invested amount until your retirement age.
But, it comes at a certain degree of risk too. You can also lose money due to many reasons.
On the other hand, if you choose SIP, you invest in a budget. Currently, if you don’t have a great bank balance, you can pile up a great fund to support yourself after retirement.
Though, by opting the SIP option, you don’t get the benefit of huge interest. Still, you securely invest in retirement mutual funds.
Retirement Mutual Fund – Conclusion
Retirement mutual funds are undeniably an excellent option for investors who want to feel secure about their life after retirement.
Even though you’re earning well from your job or business, you should still invest in retirement mutual funds. It’s the best way to ensure a strong financial position in future.
Age is the biggest factor to take into account when you are planning for investment.
Right now if you’re 30+, of course, it’s the best time to invest in the best mutual fund scheme. RMF offers you higher-return at a lower risk. You also get life insurance benefits with these funds.
In case of a medical emergency or after your demise (before retirement age), these funds will support your family as well.
Altogether, RMF proves to be a great mutual fund scheme for retirement.
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