Human beings have to work through their career to earn the money that gives them their necessities. All of them have some savings or plans which are destined to help them out once they retire. The most common way to secure some income is through retirement plans. The main reason behind this is the huge contrast that a retired life has a working career. It is also important to think about one’s retirement way ahead of time so that they may take some risks and dabble in different kinds of investments.
These days many people are talking about retirement through mutual funds. So, we thought of explaining it to people in greater details.People want to retire with a sane mind. So, they use the different retirement plans for insurance companies. They pay the premium on a monthly or yearly basis for a certain period of time. Then the companies pay the person the whole amount of money after they retire. They may even opt for a monthly pension to have a steady income. The investment has to be done on a risk factor and according to the requirement of the person.
What are Mutual Funds?
Mutual funds are a type of investment in which several people invest their money and it forms a pool. Then that money is invested in securities such as stocks, market instruments, and other similar assets. The main aim of investing in a mutual fund is to have profit on the initial amount that the person invested.
Just like this, even the mutual funds are made in a way that they will provide you with some money when you retire. But the period goes on till someone retires. Most mutual funds have a lock-in period of 5 years in which the person cannot withdraw the money. If they are in urgent need then they may have to pay a penalty. People who are young are more likely to invest their money into riskier things. But more and more people are definitely looking into retirement plan with mutual fund. They may think that the profit margin is much higher than the usual retirement plans that they are getting from insurance companies.
How to plan the investment in a retirement mutual fund?
As a youngster, many people do not pay head to retirement. But they definitely should. But as these funds do have a shorter period of time, people may choose to start quite late. They need to decide the number of funds that they are going to invest in. People can go for a mix of equity funds, debt funds, real estate funds and even gold funds. The option can be quite diverse and the person may choose a long-term fund to lengthen the duration. After the mutual funds mature, the person may again invest the money into some funds that they like. If they want to skip the risk then they may definitely keep it safely in their bank.
In the mutual funds, you have to decide a minimum amount of money that you want to invest on a monthly basis. These days some funds also let you choose the age that you want to retire in. This is great for younger people who may want to retire at an earlier age while having some money in their hands. Retirement saving funds let you save till you retire and then they add their interest to it. The amount is quite good after the number of years that you spend on it. Many people choose to invest through a SIP in their mutual funds. The procedure is more systematic and the person is accountable.
Why should someone invest in retirement mutual funds?
The word ‘risk’ scares many people away. They have a wrong notion of the investment market and they think that they may lose their money. But if they invest in a reputable company, then they will be able to keep track of their money. So, let us see some reasons to invest in the mutual funds:
- Mutual Funds are Flexible: Mutual funds as an investment is quite flexible when compared to retirement plans. In mutual funds, you may invest as much money as you want on the monthly basis. A person may also choose to withdraw their money in the middle of their investment period and the company doesn’t charge any penalty.
- Mutual Funds are quite transparent: When someone is investing in the mutual funds they can choose a scheme or schemes that interest them. So, they are actually aware of the real risk factor even before they start with it. Companies also help in analyzing the risk factor of a person and then advise them on an investment. With time people may choose to bring a change in their mutual fund and lower the risk factor.
- Mutual Funds are Tax Efficient: You may have heard that many people actually invest in mutual funds to get some tax benefits. In some cases, there can indexations of 10% or 20% but further calculations often reduce them more. But in pension schemes, they always become taxable to a certain extent.
- Mutual Funds may provide a regular income: In most pension plans the person will need to take out the whole amount if they want to take some money out of their investment. But in case of mutual funds, investment personal finance, they wouldn’t need to do so. They may withdraw certain amounts from monthly, quarterly or even yearly basis while continuing to invest. Even if they surrender there aren’t any extra charges.
The choice of buying or investment in a certain type of thing definitely depends on the consumer. If they think that it is the right time for starting a retirement mutual fund or a pension plan they should talk to a financial advisor. This is mainly recommended for people who have never dealt with mutual funds. Even the companies help in explaining the truths about mutual fund and they also debunk the myths. In conclusion, we can say that investing in mutual funds can be a right step for planning the retirement.