Plan your retirement by investing in the right mix of equity and debt

If you are thinking of retirement planning, your aim should be to build a retirement corpus that will last you a lifetime. That is because once you retire you will be living on limited income. That’s because your flow of income will come to a standstill as you won’t be getting your monthly salary which was your financial backbone. This is why one should prioritize on building a wealthy retirement corpus so that they never run out of money.

How to plan for your retirement?

The key to building a commendable retirement corpus is to start early. If you wish to build a corpus of Rs. 1 crore to secure your sunset years, you cannot start planning for the same when you are 45 years old. Remember, the golden period is a time where you will be mostly free from all the liabilities and responsibilities. It is a time where you can plan to go on a world tour with your spouse or buy a weekend home by the countryside.

If you already have an Employee Provident Fund account opened in your name, every month a fixed amount from your salary must be allocated to the fund. However, the returns that you will be get from your EPF may or may not suffice your retirement needs. Such individuals can consider making mutual funds an integral part of retirement planning. What mutual funds do is that they pool money from investors sharing a common investment objective and invest this pool of funds to achieve a common investment objective. Till now, mutual funds have offered way more returns than any other conservative schemes, sometimes offering as high as 20% annual returns. They also offer active risk management by investing in a diversified portfolio of securities.

Plan your retirement with the right mix of equity and debt mutual funds

The reason to invest in both equity and debt is to allow your investment portfolio to remain rightfully diversified. If you are young and have at least 20 to 30 years in hand before you retire you can have the standard 80:20 ratio where 80% is invested equity while the remaining 20 percent is invested in debt. While picking equity funds one must ensure that they invest in a scheme that has the potential to offer capital appreciation over the long term. One of the most sought after equity schemes are ELSS because they come with dual benefit. Equity Linked Savings Scheme (ELSS) is an open ended equity scheme that comes with a tax benefit. Since you are going to have to pay taxes as long as you earn, investing in ELSS can help you save tax and earn capital gains over the long term. Since ELSS predominantly invests in equity and equity related instruments, the underlying securities of an ELSS fund may be able to help the scheme perform over the long term.

Investing in debt funds is essential because debt funds offer the necessary cushion and much deserved liquidity to your portfolio. Debt funds may not offer returns as high as equity schemes, but they ensure that you earn stable returns with minimum investment risk. Since ELSS comes with a predetermined lock-in period of three years investments in debt funds can be easily liquidated in case of a financial emergency.

To ensure that you are able to achieve the retirement corpus, consider starting a monthly SIP in mutual funds. Systematic Investment Plan ensures that you save and invest a fixed amount at regular intervals. Year after year if you increase your SIP investment by 10% you might be able to achieve a corpus larger than you expected.