Build a Mutual Fund Portfolio After Retirement

If you are at a stage in your professional career when you are about to retire, you might be receiving a lot of phone calls onRetirement planning a daily basis where the tele-callers must be putting in their heart and soul to convince you to invest in some or other retirement scheme. We are sure that you may have planned something for your retirement, like an EPF (Employee Provident Fund) or a PPF (Public Provident Fund) to help you build a decent corpus for your sunset years. should be part of financial planning. And when you are prioritizing your long term goals, you may have to keep retirement planning at the top of the list.

To decide which investment scheme to opt for you may have to first understand your risk appetite. A person’s risk appetite may depend on their income, age, existing liabilities etc. For those who have zero risk appetite and do not wish to take any chances with their finances, such individuals may have to settle with schemes offering low fixed income rates. However, if you are someone who is looking forward to building a retirement corpus through investments in schemes having a diversified portfolio, you may consider investing in mutual funds.

What is a mutual fund?

A mutual fund is a pool of professionally managed funds where the fund manager buys and sells securities in accordance with the scheme’s investment objective. What AMCs and fund houses do is that they collect money from investors sharing a common investment objective and invest this pool of funds across the Indian economy. The money is invested in money market instruments like equity, debt, government securities, treasury bills, corporate bonds,etc.

Securities and Exchange Board of India, the regulatory body of mutual funds here in India defines them as “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document.

Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with the quantum of money invested by them. Investors of mutual funds are known as unitholders.”

Investing in mutual funds after retirement

If you are retired or about to retire and wondering how to go about constructing a mutual fund portfolio, here are a few things to keep in mind:

Invest in a mutual fund owned by an established AMC

Since you are retired (or nearing retirement) and have a limited income source, you need to invest your money in a mutual fund owned by an established fund house. One of the reasons a mutual fund performs positively is because it is in the hands of a reputable fund management that actively buys and sells securities in accordance with the scheme’s investment objective. Hence, consider investing in a mutual fund scheme offered by the reputed AMCs with a proven track record.

Invest in mutual funds that have been consistent performers

Do not get swayed away by a mutual fund that has been the past month or past years' top performer. Investing in such a mutual fund may not be a good idea because the mutual fund scheme that is a top performer today may or may not continue be in the near future. Investors need to understand that they need to do some background check before investing in any mutual fund. Do check whether the fund has been a consistent performer rather than settling with a top performing fund.

Avoid investing in multiple mutual funds

Investors nearing retirement should try and avoid investing in multiple mutual funds. The reason behind this being they will have to track the performance of these funds at regular intervals, a task that may become tedious and unappealing in the long run. It is better if you invest in not more than one or two mutual funds that hold the potential to offer you what you seek through your investments.

Choose from growth option or IDCW option

Investors seeking investment in mutual funds have two scheme options to choose from – growth and IDCW. Whether you should go with the growth option or settle with the IDCW option may solely depend on what your financial needs are. If you are investing in mutual funds to seek regular income then you may opt for the IDCW option. However, those opting for IDCW might lose out on the power of compounding. On the other hand, investors seeking long term capital gains might find growth options a bit more feasible for them.

Now that you are aware about some of the things to keep in mind while building a mutual fund portfolio after retirement, plan on investing? If you feel that you need further assistance with retirement planning, feel free to seek some professional help.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.