Equity mutual funds can help you build your retirement corpus

MUMBAI: I am 32 years old, employed in the private sector and have a monthly income of Rs1,25,000. Of this I can save Rs75,000/ per month. I would like to invest Rs25,000/ per month in the top 5 schemes of mutual funds for a long term period, please suggest for the same. Remaining Rs40,000-50,000, I would like to invest in best pension plan so that I start getting monthly pension at the age of 56 years. Please suggest the amount of pension I will be getting after 56 years and the best pension plan.

Soham D

Answer by Harshad Chetanwala, co founder, Mywealthgrowth

First of all congratulations for thinking of retirement planning at this stage where you have 24 years to go for it. This will certainly work in your favour as those who start early are able to accumulate good retirement corpus with a small investment amount as you give more time to this investment. You will be able to create a retirement corpus of Rs8.39 Cr or Rs7.27 Cr if you invest Rs75,000 or Rs65,000 per month respectively up to your retirement assuming 10% p.a. rate of return. This can comfortably help you to take care of your post retirement monthly expenses along with inflation.

I would suggest you to reconsider your plan of investing Rs25,000 per month in mutual funds and remaining in a pension plan for your retirement. As you have 24 years to invest for your retirement, you can build it through equity mutual funds itself. When you invest in a pension plan, you will be able to withdraw a part of the overall corpus as lumpsum at vesting age and rest has to be invested in annuities. The return on annuities is quite low and it also have an impact on overall liquidity at that stage. Hence, the suggestion to invest in mutual funds where you can create retirement plan based on your needs.

You can do SIPs in the accumulation stage and use SWP (Systematic Withdrawal Plan) to take care of monthly expenses post retirement.

Coming to the funds that you can invest, it would be good to diversify your investment across Large Cap, Large & Mid Cap and Flexi Cap funds. You can diversify your investment by restricting the allocation in each fund up to 15% at the time of investment. You can do SIPs of Rs11,000 in HDFC Nifty Index Fund, Mirae Asset Large Cap Fund, Parag Parikh Flexi Cap Fund, UTI Flexi Cap Fund and Canara Robeco Emerging Equities Fund respectively. Along with SIPs of Rs10,000 each in Axis Focused Fund and Kotak Equity Opportunities Fund.

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