The popularity of mutual funds is hard to ignore. With options to invest in a lump sum and via a SIP (Systematic Investment Plan), they shine as one of the best options suited for different investor profiles. However, when it comes to retirement, mutual funds are often only seen as a supporting hand and not the primary investment vehicle. Many investors still rely on government-backed and employer-sponsored pension plans for their golden years.
The truth is that mutual funds can be used as a sustainable retirement plan. Here’s why:
- They offer a hedge against inflation: Mutual funds can provide inflation-beating returns. For instance, the average rate of return in equity mutual funds is more than the average inflation rate in the country. This ensures that your money does not lose its worth in the future and your golden years are spent comfortably.
- They are suitable for all investors: While government employees have a pension to fall back, private employees may or may not have access to an employer-sponsored retirement plan. In this case, the responsibility to build a retirement fund falls on the employee.
Mutual funds provide easy solutions to all income groups and employees of different sectors. You can pick a mutual fund that matches your risk appetite and goals and invest accordingly. Mutual funds can also be used by housewives. They can offer financial security to everyone.
- They offer liquidity and flexibility: Unlike traditional retirement plans, mutual funds provide a greater level of liquidity and flexibility. You can select the amount, frequency, and mode of contributions, whether in a lump sum or via a SIP.
- They are tax-efficient: Mutual funds can save tax under Section 80C of the Income Tax Act, 1961. In addition to this, long-term capital gains from equity mutual funds are taxed at 10% on interest earned above Rs. 1 lakh. Short-term capital gains on equity funds are taxed at 15% on interest earned above Rs. 1 lakh. In the case of debt mutual funds, short-term capital gains are added to your income and taxed as per the income tax slab if redeemed within three years. Long-term capital gains from debt mutual funds are taxed at 20% after indexation.
You can use different permutations and combinations and invest in various types of mutual funds to save tax, such as Equity Linked Savings Schemes (ELSS). On the other hand, retirement plans are simply taxed per the income tax slab you fall into. So, there is little scope to save money if your overall taxable income is high in retirement.
To sum it up
Mutual funds are a great retirement strategy. Moreover, with options like solution-oriented retirement funds, you can comfortably use them to create a steady retirement income stream. The Tata Capital Moneyfy app offers multiple mutual fund options and a safe and convenient platform to manage your investments. You can check it out and start investing for your future years.