Retirement planning is all about determining retirement income expectations and narrowing down the means to achieve the targeted income. Since retirement planning is essentially planning for the long-term, mutual funds fit the bill as far as investment options for meeting the income goals are concerned. However, one cannot invest in any available mutual fund category to generate the desired income. The best mutual fund investments for retirement planning are those that offer diversification to the portfolio and reduce the risks involved.
The key to good retirement planning through mutual funds is to ensure right asset allocation. Often, while selecting the best mutual funds for retirement planning, investors ask these questions, where to invest, how to invest, how much to invest, etc. Here, we will address these questions and share some of the best mutual funds that investors can choose for retirement planning.
As a first step, investors must identify the suitable mutual funds and the proportion in which to invest in each within the overall portfolio. There are various mutual fund categories ranging from long-term to short-term and high-risk and low-risk. An investor can choose a ratio in which to assign funds into mutual fund categories. While deciding the ratio, age is one of the most significant aspects to be considered.
Mutual fund selection should change according to the different life stages of an investor. For a young investor, it makes sense to invest in equity-oriented funds as compared to a middle-aged investor who should try to choose a hybrid fund with a mix of equity and debt investments. Similarly, as one grows older and nears retirement, debt mutual funds become the safer choice.
Mutual fund selection also depends on individual risk-taking capacity. Often, young investors have a higher risk tolerance and therefore invest a significant portion in equity funds as compared to older investors who would prefer debt funds.
Here, we will cover some of the top-performing mutual funds for different investment time horizons. Investors can select these based on personal investment time horizon and by weighing their risk appetite against the mutual fund’s risk rating.
If your age falls within the 50-60 years bracket, you are almost near your retirement or may have already retired. By this time, you may have already formed a retirement corpus but if you would like to add to this corpus, you can invest in short-term mutual funds. These funds are mostly debt oriented and allow liquidity while providing sufficient income potential. Since debt funds carry lower risk levels, you can comfortably invest in these to ensure continued income while retiring.
Short-Term Mutual funds are open-ended schemes that have a maturity period between 15 to 91 days. The maturity period generally varies as per the maturity period of the underlying assets or investments. These funds primarily invest in high-quality assets that carry low risk. These make for an ideal investment choice for those who are risk averse and require higher liquidity.
Kotak Bond Short Term Fund is a debt mutual fund scheme that invests 96.46% of its corpus in debt. Of this, 42.28% is allocated to Government securities and 54.18% is invested in very low-risk securities. The fund’s performance has consistently beaten the category average returns.
| Inception Date | May 02, 2002 |
| Expense Ratio (Direct) | 0.34% |
| Fund Manager | Deepak Agrawal |
| Suitable For | Investors who want to remain invested for 1-3 years and are willing to explore alternatives to bank deposits. |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 7.53% | 8.11% | 7.82% | 7.67% | 8.23% |
This scheme from IDFC AMC aims to generate returns through investments in debt and money market instruments. The fund portfolio is primarily a mix of short duration debt and money market instruments. The average portfolio maturity is anchored around 2 years. The fund aims to generate optimal returns over the short to medium term.
| Inception Date | December 14, 2000 |
| Expense Ratio (Direct) | 0.30% |
| Fund Manager | Mr. Suyash Choudhary |
| Suitable For | Investors who are looking to diversify their portfolio with a mix of short duration debt and money market instruments. The average portfolio maturity does not exceed around 2 years. |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 8.09% | 8.18% | 7.99% | 7.70% | 8.31% |
If you are currently in the age group of 40-50 years, retirement is not far off and you will have limited time to ensure sufficient funds are available for retirement. Therefore, in this life stage, it makes sense to opt for medium duration funds. These funds can be a mix of equity and debt or equity funds that carry medium to low risk levels.
Medium duration mutual funds can be large-cap equity funds. This category can also include aggressive hybrid funds that mainly invest in a combination of equity and debt securities. These are ideal investment options for those who have a medium to low risk appetite, especially individuals who are between 40-50 years of age and planning for retirement.
ICICI Prudential Blue chip Fund is an open-ended large-cap equity fund which aims to provide growth and stability to investors. It primarily invests in blue chip stocks of various sectors with an objective to provide diversification benefit to investors.
| Inception Date | November 24, 2009 |
| Benchmark Name | Nifty 50 |
| Fund Manager | Jitendra Arora |
| Objective | To provide long-term capital appreciation through an equity portfolio that is mainly invested in large-cap stocks. |
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 26.59% | 20.08% | 11.68% | 16.74% | 13.43% |
Axis Blue chip Fund is an open-ended large-cap equity scheme ideal for investors who are looking for capital appreciation in the medium to long run. It offers portfolio diversification with a combination of equity and equity-related instruments, predominantly focused on large-cap firms.
| Inception Date | January 1, 2013 |
| Benchmark Name | Nifty 50 Total Return |
| Fund Manager | Shreyash Devalkar |
| Objective | Long-term capital appreciation through portfolio diversification comprising equity and related securities of large-cap firms. |
| 1-Year | 2-Year | 3-Year | 5-Year | 10-Year |
| 20.51% | 22.59% | 17.33% | 18.49% | 14.37% |
The scheme’s objective is to maintain a balanced portfolio to provide high annual returns and capital appreciation to investors. The fund invests 73.65% in Indian stocks of which 47.18% is invested in large-cap stocks. 14.2% is allocated to mid-cap stocks and 2.68% in small-cap stocks. The fund also invests 20.85% in Debt instruments of which 9.97% is in Government securities, 10.88% is invested in very low-risk securities.
| Inception Date | January 1, 2013 |
| Benchmark Name | CRISIL Hybrid 35+65 Aggressive Total Return Index |
| Fund Manager | Shridatta Bhandwaldar,Avnish Jain, Cheenu Gupta |
| Expense Ratio | 0.78% |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
| 49.06% | 19.45% | 14.88% | 15.67% | 15.08% |
The fund aims to generate capital appreciation combined with regular income from a portfolio mix of equity & equity related instruments and debt and money market instruments. The fund invests 74.62% in Indian stocks of which 47.29% is in large-cap stocks, 12.91% is in mid-cap stocks and 4.96% in small-cap stocks. 12.5% of funds are invested in Debt of which 6.56% is in Government securities, 5.94% in funds that invest in very low-risk securities.
| Inception Date | July 29, 2015 |
| Benchmark Name | CRISIL Hybrid 35+65 Aggressive Total Return Index |
| Fund Manager | Harshad BorawakeMahendra Kumar Jajoo Vrijesh Kasera |
| Expense Ratio | 0.45% |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
| 55.04% | 17.64% | 14.90% | 16.14% | 14.00% |
If you are in your 20s or 30s, retirement is far off and you can have a longer duration to plan your investments for generating income/savings for retirement. Therefore, you can opt for long-term funds since these are equity-inclined and have chances of performing well in the long run.
Long-term mutual funds are ideal for meeting one’s financial requirements of distant future goals, like higher education, buying a home, retirement-related expenses, etc. Therefore, young investors who are looking to grow their wealth for retirement can invest in long-term mutual funds. Long-term mutual funds usually come with a time horizon of more than 10 years and are equity focused.
L&T Nifty 50 Index Fund belongs to the L & T Mutual Fund umbrella. This scheme was launched on 15-Apr-2020. It adopts a passive investment strategy and invests in stocks that comprise the Nifty 50 index.
| Inception Date | April 15, 2020 |
| Benchmark Name | Nifty 50 |
| Fund Manager | Praveen Ayathan |
| Objective | The primary objective is to achieve returns in tandem to the Total Returns Index of Nifty 50 index. The scheme aims to minimise performance difference between its returns and the benchmark index. |
Historical Returns of the Fund (annualised)
| Since Inception |
| 57.82% |
HDFC Index fund – Sensex plan is an open-ended scheme that replicates S&P BSE SENSEX Index. The Scheme is passively managed with stock investments in a proportion that is similar to their weights in the S&P BSE SENSEX Index.
| Inception Date | January 01, 2013 |
| Benchmark Name | S&P BSE SENSEX |
| Fund Manager | Mr. Arun AgarwalMr. Krishan Kumar Daga |
| Objective | To fetch returns that are equivalent to the performance of the S&P BSE SENSEX Index, subject to tracking errors. |
Historical Returns of the Fund (annualised)
| 1-Year | 2-Year | 3-Year | 5-Year | Since Inception |
| 56.06% | 17.20% | 15.32% | 16.59% | 13.47% |
For the purpose of retirement planning, an investor can invest in mutual funds either as a lump sum investment or through Systematic Investment Plans (SIPs). Most experts suggest the second mode of investment since it helps in inculcating good financial discipline and allows investment to be spread over a longer time period. This provides exposure to different market conditions. Most mutual funds allow a minimum SIP investment amount that can be as little as Rs. 500. An investor also has the option of switching between equity and debt investment within a mutual fund investment done through systematic transfer plan.
Mutual funds make for an ideal investment choice for retirement planning since they offer a variety of investment categories as per risk, time, and expected returns. Investors must carefully carry out retirement planning to ensure that they are financially covered after attaining retirement.
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