Are you looking forward to the golden era of your life? Yes, we are talking about your retirement. A period where you are free from all the burdens of family and work responsibilities. A period where you have the time and resources to pursue your passion truly. But to be able to live a comfortable life post-retirement, you must ensure that you have a significant retirement fund in your kitty. Mutual funds can act as a great source to help you create wealth for your retirement. Mutual fund investments have the potential to deliver inflation-beating returns. Let’s understand some of the key benefits of using mutual funds as an instrument for retirement planning over other investment options:

Unlike other investment products, there is usually no restriction on mutual fund investments for making any part or complete withdrawal at any given point of time. If you want, you can even discontinue your investment in a particular fund and switch to another mutual fund as and when you like. Hence, mutual funds provide better flexibility than various other pension plans. 

Tax efficiency
Mutual funds are more tax-efficient than pension plans. It must be noted that pension income or annuity income is added to the section of ‘other incomes’ and is taxed as per an individual’s existing tax slab. However, in the case of equity funds, long-term capital gains (LTCG) of up to Rs 1 lac are exempt from tax, beyond which, LTCG on equity funds is taxed at 10%. In the case of debt funds, LTCG is taxed at 20% after indexation, i.e. discounting the gains for the impact of inflation. Indexation helps to reduce one’s tax liability on debt funds to almost nil.  

Mutual funds have the upper hand over most investment options when it comes to transparency. In the case of mutual fund investments, you can easily keep track of charges deducted by the AMC (asset management company), where your money is getting invested, and other things. 

Mutual funds not only help one take equity exposure for better returns, but they also help them reduce the risk through diversification of the investment portfolio. Suppose you have an investment horizon of twenty to thirty years. In that case, you can accumulate a significant retirement corpus through Systematic Investment Plan, also known as SIP, in mutual funds. All in all, you should consider making mutual funds the centrepiece of your retirement planning.

The earlier you realise the importance of investing, the better position you will be in when you actually retire. Remember, every individual has different investment goals and objective. Hence, there is no perfect fit for all investors. Investments do not follow the concept of ‘one size, fit all’. As an investor, you must ensure that your investments are in line with your financial goals, investment tenure, and risk appetite. You can also seek the services of an expert or a financial advisor if you want guidance in your investment journey. Happy investing!