Securing Your Retirement Through Mutual Funds

Retirement and pension plans are identical. Whenever someone thinks about saving for retirement, the pension plan is the first thing that comes to their mind. However, with time, mutual fund schemes are treated as one of the finest retirement schemes which are better to manage and more flexible way to save for the retirement. This article delves deeper and talks about how mutual fund investments can be used towards better and tax saving and retirement planning.

But before getting into the details, one must know that retirement planning with best mutual funds schemes has three phases – accumulation of funds, preservation, and distribution. In the accumulation stage, funds are invested in the different portfolio according to investor’s risk profile and time prospect towards retirement. The preservation and distribution phase, however, go parallel with each other and these stages come at the age of retirement. In both these stages, the investor first preserves the accumulate fund which also earns him income in his retirement days.

To be precise, the money in mutual funds is first accumulated and in the latter part, it gets distributed in the form of monthly income to the investors after their retirement. Securing your retirement through best mutual fund investment schemes is flexible, convenient and can be initiated online with mere few simple clicks. In addition to this, there are a variety of mutual funds available, you just have to decide on the asset allocation you want to invest in, and make an investment portfolio consisting of all the low risk and high-risk funds.

Since mutual funds investment for retirement is a long-term investment, so you must invest in diversified equity fund that is a combination of large and mid-cap funds. In case of debt, always choose the long-term debt option. For gold allocation, there are gold ETFs and other long-term gold savings fund available for investment. You may also consider investing in different real-estate portfolios if this domain is flamboyant.

Why are mutual funds better than any other retirement plans?

Gone are the days when retirement savings was more about investing in pension plans, fixed deposits, etc. Today investing in best mutual funds scheme has become the most common type of investment. Though it is subject to market risks, it also claims to provide the largest benefit to the investor in the long run. Other benefits of mutual fund are:-

1. Mutual funds are flexible in nature. Unlike pension plans, Mutual Funds do not restrict investors for making a regular payment or making complete or partial withdrawals in between. Also, you may withdraw your investments anytime with no penalties.

2. Mutual funds come with tax benefits. Long-term capital gains from equity mutual funds are completely tax-free. In debt mutual fund, it is 10% before indexation and 20% after indexation.

3. Mutual funds are transparent and user-friendly. Here you can choose fund as per your choice. Also, information related to fund managers; associated risks, objectives, etc are publically available.

4. A mutual fund is a disciplined approach to save for your retirement. Investments if made regularly and in the right fund type are likely to earn good returns for the investors.

Note: No mutual fund is perfect for all categories of investors. Therefore to determine the most suitable mutual fund for investment purpose; one must consider three factors - Cash requirement, Time Frame, and Tax efficiency. In addition to this, a thorough research should also be done on the list of advantages of disadvantages associated with each fund type before making an investment.

Earn More Returns on Your Mutual Fund Schemes; Switch To Direct Mutual Funds

Mutual Funds are one of the best investment plans that are professionally managed and can accumulate money from several investors to get various securities like stocks and bonds. Nowadays, investment in mutual fund is more simplified than buying and selling of individual stocks. Mutual Funds can provide you highest returns compared to any other investment schemes.

Mutual Funds can get you to achieve the desired goals and earn returns on your investments, but you must be aware of the type of mutual funds that comes with a certain risk profile and returns. You need to be careful and aware before choosing the type of mutual funds investment to make the maximum returns on your investment.

You can invest in a mutual fund scheme under two ways:

· Through a mutual fund distributors (Regular plans)

· Directly with the funding firm (Direct plans)

Under Regular Mutual Funds, investment is done with the help of a distributor or a channel partner. Investment made from regular distributor or online fund investment comes under regular plans. You need to pay commission in regular plans, which differ across schemes and distributors. Mutual fund does not directly charge the commission, it gets paid from the fund itself and thus it affects your profits indirectly.

Under the Direct Mutual Fund, you get the facility of managing funds in a better way than the experts as you go to the mutual fund house directly for investment. As there is no role of any distributor or agents in direct mutual fund, there is no need of paying any commission or transaction fees to brokers. This is the reason that the expense ratio is less for direct plan when compared to regular plan. Expense ratio comprises of fund management fees, operational, marketing and fund distribution expenses. Lower expense ratios mean less cost and high returns, which is the primary reason why direct plans NAV is higher than regular plans NAV.

Advantages of Direct Mutual Funds over Regular Mutual Funds

Let us go through the advantages of investing in direct mutual fund. Making investments in direct mutual funds have become much easier and stronger than before. Check out the advantages of the same below.

· The expense ratio is lower in direct mutual fund than regular mutual fund as there is no role of intermediaries or distributors and you don’t have to pay any transaction fee or commission to them, which makes higher returns for investors

· The investor gets high returns on his investment in direct plans in long term and it becomes beneficial for the investor if invested in retirement plan to get the benefit of 15-20 years

· The Net Asset Value (NAV) is higher in direct mutual funds than regular mutual funds

· The investor earns 25 to 75 basis points higher in direct equities when compared to regular plan that is 0.25% to 0.75% more returns per annum

· The funds are managed by professionals in a better way to yield more returns

Some tips on Selecting Direct Mutual Funds

· As direct plans are cheaper, one should not consider low price as a criterion for fund selection

· Always select a fund with a good track record

· Select funds in consideration with your risk profile

· Funds should be from diversified fields to lessen the risk

· Keep an eye on stable funds rather than high return funds to reduce the losses at the time of economic failure

How do I buy a Direct Plan?

Direct Mutual Fund can provide higher returns compared to regular mutual fund plans. However, many of us do not know how to invest in mutual funds directly. Until recently, making an investment in direct mutual fund was far from simple. Nowadays, online investment advisers come with the convenience of one time registration and give recommendations about the best possible funds to assist you buy any direct mutual fund of your choice.

Is Lump Sum Investment in Mutual Funds a Good Option?

The option of investing in mutual funds has been gaining popularity among investors in India recently. The biggest issue with mutual funds for Indian investors has been that they invest in the equity and debt markets which are evidently subject to risks.

However market risks haven’t deterred investors to invest in mutual funds and the investments in this investment tool has been rising steadily. Lump sum investments are usually made in equity mutual funds thus for the purpose of this article mutual funds means equity mutual funds unless otherwise mentioned. Any investor knows that all kinds of investment tools are subject to the inherent terms and conditions of its governing factors. Lump sum investment in mutual funds is also a good option depending on a few factors; please find them discussed below: 

1. Use the P/E ratio as benchmark: New investors usually wait for the right time to buy (invest) and the right time to sell (redeem) mutual fund units but one should understand that it is next to impossible to determine the best time to do so. However to judge the market you can use the Price/Earning (P/E) ratio of a mutual fund as a benchmark. P/E ratio is valid for equity mutual funds and a fund’s P/E is calculated on the basis of its portfolio. Remember, when calculating a fund’s P/E for investment, one should consider its earnings from the last four quarters. If the fund’s P/E ratio is low then the chance of earning a profit from it is more, i.e. an equity mutual fund of SBI mutual funds with a P/E of 15 may fetch you better earnings than an equity mutual fund of the same fund house with a P/E of 22. 

2. Be in it for the long-run: If you are investing a large amount in equity mutual funds, then maintain your investments for a long tenure. The disadvantage of being short-sighted with lump sum investment in mutual funds is that if the market corrects itself significantly you will suffer a terrible loss in that moment. However with time the market and your mutual fund portfolio will stabilize by bottoming out (i.e. by stopping to fall any further). This is why it is recommended by experts to invest lump sum in an equity mutual fund only after evaluating the fund’s performance over a long period of time and if you invest a large amount in a fund, then be in there for a long haul. 

3. Long-time returns and Low liquidity: Equity mutual funds won’t be able to bring you expected returns on your lump sum investments in a short time of one year. You need to give them at least three to five years or more to outperform your expectations. Also based on the same concept is the low liquidity factor. If you have low liquidity of funds, i.e. you are going to require your funds back in a couple of months or by the end of the year then you need not invest a large amount in equity mutual funds. It’s better to put your money in a debt fund like liquid fund or an ultra-short-term fund. 

4. Patience pays: The saying that patience is the most important virtue is the truest in this case. Equity funds are very volatile which is why their risk is high and the returns in them are high too. Thus, if your lump sum investments face a volatile market in short term you shouldn’t panic and let the fund rationalize so that it offers you good returns in long term.

5. Go Hybrid: It is understandable if you are not sure of the right amount of time for which to invest your lump sum investment in equity mutual funds. The solution to this problem is a hybrid mutual fund which has an STP (Systematic Transfer Plan). In a hybrid mutual fund, your investments are invested in a liquid fund or an ultra-short term fund where it is earning good returns but you can get the benefit of long term equity investments too with them through the hybrid fund STP system. STP systematically transfers a pre-determined portion of units from your liquid mutual fund/ultra-short term mutual fund to the equity mutual funds part of the portfolio. Thus it gives you the best of both worlds, investments in short-term funds and long-term funds both. 

Lump sum fund investments are better for long term mutual fund investments. The tenure for large investments shall ideally be as long as possible but at least three to five years so as to give the funds a time to stabilize and provide you good returns on annualized yields. If long term investments doesn’t suit you then it is better to invest in a hybrid fund or a debt fund or a liquid fund however if you are okay with putting in a large sum of money, which you may not need for a decade or so, in mutual funds units (i.e. in mutual funds provided by the fund house SBI mutual funds) then as per experts the returns of this large investment will be high because just like in real life, in the case of mutual funds too, fortune favours the brave.