wish for retirement
We all aspire to have an easy and comfortable retirement. Hence, to achieve financial security, most investors are advised to start their investment journey very early in life. Along with easy retirement, many young employees now aspire to retire early in their 40s.
Generally, retirement is estimated to last for 20-25 years under standard circumstances. However, this period increases for investors who opt for early retirement. It is possible that individuals planning for early retirement may engage in consultancy or other types of work after retirement, which pays significantly less.
Time to invest in mutual funds
Investing in mutual funds is considered one of the best ways to build a substantial amount over time. Mutual funds offer a variety of products designed to meet various investment goals, including capital appreciation (growth), capital preservation, regular income, liquidity, and tax-saving opportunities. In addition, mutual funds offer various investment plans such as growth and dividend options to suit the preferences of investors striving towards financial growth and stability.
How much SIP amount is required?
As per the calculations of the Systematic Investment Plan (SIP) calculator provided by the mutual fund, it is estimated that even a 20-year-old can accumulate a huge sum of Rs 5 crore by the age of 45. This feat is possible with an expected return rate of 12 per cent.
Someone who wants to start their mutual fund investment journey at the age of 25
Effectively, in the upcoming 25 years, from the age of 20 to the age of 45, a 20-year-old investor has the potential to secure a significant sum of Rs 5 crore. The monthly SIP amount required for this ambitious goal is fixed at Rs 26,500. This amount includes an investment expenditure of Rs 79,50,000 and an estimated return of Rs 4.23 crore (Rs 4,23,37,330 to be precise). Further, if an individual wishes to start the mutual fund investment journey at the age of 25, with the goal of retiring with a corpus of Rs 5 crore by the age of 45, the monthly investment commitment increases to Rs 50,000. However, in case the mutual fund scheme generates better returns, the expected financial milestone can be achieved even earlier.
Selection of Fund
For your financial goals, it is important to create a strategic investment plan. To achieve your goal, it is advisable to have a balanced portfolio consisting of both equity and debt instruments. To begin with, consider investing a large portion of your investments in equity mutual funds. These funds have the potential to provide substantial growth opportunities over time. Also, it is important to set up an emergency fund of around Rs 15 lakh. This can be achieved by investing in safe debt instruments like fixed deposits (FDs) or debt mutual funds.
For example, if you want to accumulate a target corpus of Rs 1 crore in the next 5 years, it is essential to start a monthly Systematic Investment Plan (SIP) in diversified equity funds. It is advisable to start the SIP with an amount of around Rs 1 lakh. Additionally, it is advisable to diversify your investments into large-cap, mid-cap and small-cap funds depending on your risk tolerance.
Some mutual fund options to consider
Here are some mutual fund options to consider: Nippon India Large Cap Fund, HDFC Top 100 Fund, UTI Nifty 50 Index Fund Direct, Tata Small Cap Fund Direct, Kotak Multicap Fund, Franklin India Smaller Companies Fund, SBI Contra Direct Plan-Growth, Nippon India Growth Fund Direct-Growth, Quant Small Cap Fund, ICICI Prudential Bluechip Fund Direct-Growth, Mahindra Manulife Multi Cap Fund – Direct Plan, Parag Parikh Flexi Cap Fund, SBI Large & Midcap Fund Direct Plan-Growth, Axis Multi Cap Fund, and others
Funds specifically selected based on their track record and performance
These funds are specifically selected based on their track record and performance. Do not forget to regularly monitor the performance of your investments and make adjustments as needed according to your financial goals and risk appetite. Apart from this, one can also invest in the National Pension Scheme, which comes with tax exemptions. You must keep in mind that after reaching maturity, it is absolutely necessary that you allocate at least 40% of the total amount to annuity plans under NPS.
A constant source of income after retirement
NPS is designed to provide you with a constant source of income post retirement. Also, there is a provision where you can choose to invest the entire corpus, up to 100%, in an annuity plan. To enjoy tax-free withdrawals, it is important to put 40% of the corpus in an annuity, allowing you to get the remaining 60% without any tax implications.
Investment Options
Investors have the option to invest in mutual funds directly without the help of a distributor/agent through a ‘Direct Plan’. Conversely, they can also choose to invest in MF schemes with the help of a distributor/agent, which is known as a ‘Regular Plan’.
Both direct and regular plans are same mutual fund scheme
Both direct and regular plans are components of the same mutual fund scheme, which share the same portfolio and are managed by the same fund manager. The returns of any direct mutual fund are always higher than the regular version of the same mutual fund. The main reason for this difference is the ‘expense ratio’. The expense ratio for direct plans is lower as compared to regular plans. This lower expense ratio in direct plans leads to higher returns for investors.
Net Asset Value of Direct Mutual Funds
The net asset value (NAV) of any direct mutual fund is always higher than the regular version of the same mutual fund. The NAV represents the value of one unit of a mutual fund and is determined by dividing the total assets owned by the fund by the number of outstanding units. A higher NAV in a direct mutual fund indicates better performance and potentially increased returns for investors when compared with a regular mutual fund.