Retirement planning involves the process of determining retirement income goals and deciding the necessary means to achieve those goals. The long-term nature of retirement planning makes mutual funds a good fit for meeting retirement income goals. However, tactical plays like sector or thematic funds cannot work because of high volatility risk. The same goes for narrowly defined funds like large caps. This is where diversification of portfolio reduces the risks involved.
Best Mutual Funds for Retirement Planning
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If you are willing to invest in Mutual Funds for Retirement Planning, here are some best investment options:
| Fund Name | AUM (Crores) | 1 Year Returns (%) | 3 Year Returns (%) | 5 Year Returns (%) |
| Mirae Asset Emerging Bluechip Fund | Rs.8,839 | -13.09 | 0.11 | 9.44 |
| Kotak Standard Multicap Fund | Rs.26,049 | -19.09 | -1.68 | 5.31 |
| Axis Long Term Equity Fund | Rs.19,632 | -10.36 | 3.51 | 5.72 |
| ICICI Prudential Balanced Advantage Fund | Rs.24,834 | -10.35 | 1.64 | 5.41 |
| SBI Small Cap Fund | Rs.3,280 | -13.49 | 0.21 | 8.04 |
(Data as on 19 May 2020; Source- Value Research)
Related Article: Best Mutual Funds for investments
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1. Mirae Asset Emerging Bluechip Fund
This fund has delivered a scorching 17.79% (direct plan) since inception. The professional management has been successful in bringing a wealth of experience to the table.
| Returns | 1 Year (%) | 3 Year (%) | 5 Year (%) |
| Fund | -13.09 | 0.11 | 9.44 |
| Benchmark | -20.89 | -2.21 | 2.37 |
If you would have invested Rs.2,00,000 in this fund for 5 years, the accumulated corpus would have been Rs.3,13,986.1 (Considering the 9.44% CAGR, as on May 19, 2020)
- The fund has invested 53.7% and 42.19% of its assets in large caps and mid caps respectively, giving the fund manager a fair leeway to move between companies according to market conditions
- Mirae Asset Emerging Bluechip has outperformed its benchmark (Nifty Large Midcap 250) over the past 1, 3 and 5 years
- On a 1-year basis, it has dipped in line with the benchmark, avoiding the under-performance shown by many of its peers
- Investors with a long-term horizon will in fact, find this to be a good entry point into a spectacularly well-managed fund
2. Kotak Standard Multicap Fund
Kotak Standard Multicap Fund, earlier known as Kotak Select Focus is a veteran of the mutual funds industry. It has delivered 5.31% over the past 5 years and 12.19% over the past 7 years, outperforming its benchmark (Nifty 200) over both time periods by a significant margin.
| Returns | 1 Year (%) | 3 Year (%) | 5 Year (%) |
| Fund | -19.09 | -1.68 | 5.31 |
| Benchmark | -20.94 | -2.99 | 2.31 |
If you would have invested Rs.1,00,000 in this fund for 5 years, the accumulated corpus would have been Rs.1,29,523.35 (Considering the 5.31% CAGR, as on May 19, 2020)
- With an AUM (Assets under Management) of Rs.26,049 crore this is a mega-fund, having built wealth for thousands of investors over time. Its long-established track record also makes it ideal for retirement
- At present, the fund manager (Ms.Harsha Upadhyaya) has moved heavily into large caps (72.62% of the portfolio) to protect investors from election-related volatility
- However, the fund manager has the leeway to swerve dramatically in the opposite direction, depending on market conditions and valuations
- On the basis of sectors, it is overweight financials and underweight tech stocks and FMCG
3. Axis Long Term Equity Fund
This is an Equity Linked Savings Scheme (ELSS) which seeks to generate long term capital appreciation by investing in companies with strong growth & a sustainable business model.
| Returns | 1 Year (%) | 3 Year (%) | 5 Year (%) |
| Fund | -10.36 | 3.51 | 5.72 |
| Benchmark | -20.94 | -2.99 | 2.31 |
If you would have invested Rs.2,00,000 in this fund for 5 years, the accumulated corpus would have been Rs.2,64,128.81 (Considering the 5.72% CAGR, as on May 19, 2020)
- The fund has outperformed its benchmark over 1, 3 and 5 year periods. There are 36 stocks in the fund’s portfolio with primary investments in Finance, Services, Automobile and Technology sector
- The manager has invested heavily in the large cap companies (75.3%) which pacifies the degree of risk involved in the scheme
- Since it is an ELSS, the investments are eligible for tax exemption up to Rs.1.5 lakh in a financial year. Investors who are ready to lock their funds for 3 years can opt for this fund
4. ICICI Prudential Balanced Advantage Fund
A balanced advantage fund is treated as an equity fund for tax purposes but it uses derivatives to reduce the actual equity exposure below the 67.9% threshold required for an equity fund. This allows investors to enjoy the benefits of equity taxation without taking some of the risks that come with equity. ICICI Balanced Advantage Fund is one of the oldest and most successful funds in this category.
| Returns | 1 Year (%) | 3 Year (%) | 5 Year (%) |
| Fund | -10.35 | 1.64 | 5.41 |
| Benchmark | -16.60 | 0.62 | 3.30 |
If you would have invested Rs.1,00,000 in this fund for 5 years, the accumulated corpus would have been Rs.1,30,139.48 (Considering the 5.41% CAGR, as on May 19, 2020)
- It has delivered 5.41% annualized returns over the past 5 years meaning that money you put into it 5 years ago would now have multiplied 2 times over
- A balanced advantage fund must not only deliver returns but also reduce risk. In ICICI Balanced Advantage, the fund managers (including the highly respected Sankaran Naren) have reduced the effective equity exposure of the fund to 67.9%, vastly cutting down on investor risk in the election year. They have also reduced the maturity of the fund’s debt holdings significantly, reducing the risk of rising interest rates
- Investors in this fund will find a lot of risk taken care of by its highly experienced fund managers. Interestingly, the fund has been sitting on a cash pile equivalent to about 2.9% of its portfolio which may be utilized post elections
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5. SBI Small Cap Fund
SBI Small cap Fund aims to provide the investors with long term capital growth and liquidity of an open-ended scheme while investing in a diversified portfolio of equity stocks. For investors who believe in the market wisdom of high risk fetching higher returns, this fund is one of the best options for retirement planning.
| Returns | 1 Year (%) | 3 Year (%) | 5 Year (%) |
| Fund | -13.49 | 0.21 | 8.04 |
| Benchmark | -33.04 | -16.07 | -3.56 |
If you would have invested Rs.2,00,000 in this fund for 5 years, the accumulated corpus would have been Rs.2,94,410.21 (Considering the 8.04% CAGR, as on May 19, 2020)
- The fund has clearly outperformed the returns delivered by its benchmark with a significant number over a period of 1, 3 and 5 years
- With an aggressive investment stance, this fund has invested 75.79% of the total assets in small cap companies
- Fund managers have used a bottom-up approach for selecting stocks from small cap companies. The top sectors of asset allocation include Engineering, FMCG, Finance, Cons Durables and more
- Considering the degree of risk involved in small cap funds, it is suggested that the funds should be kept invested for at least 5 years in order to accrue good returns
Also Read: Best Small Cap Mutual Funds 2020
Advantages of investing in Mutual Funds for Retirement
Before you select a suitable investment option, here are some advantages of investing in mutual funds which must be considered:
- Flexible Investments
Mutual Funds come with the Systematic Investment Plan (SIP) option which allows the investors to start with a single investment of Rs.500. There are two styles of investment- Lump sum and SIP. In case of lump sum investments, the investors pool their capital in the form of a large investment at an opportune moment. These are suitable for investors who are ready to invest a larger amount in the market. On the other hand, a SIP is a smaller investment made at regular intervals which anyone and everyone can make conveniently
- Higher Returns than other Fixed Income Plans
Fixed Deposits and other income plans are safe but they formulate under a fixed percentage of return. However, Mutual Funds are market linked instruments which do not work with fixed returns percentage. When there are bullish market conditions, mutual funds tend to deliver higher returns than other fixed income plans
- Diversification
Mutual Funds potentially grants the investors an access to numerous stocks without the need to select and purchase them individually. Diversification in the portfolio reduces the exposure to a particular sector which in turn reduces the volatility of the investor’s portfolio. But, it is to be noted that over-diversification is not healthy for a mutual fund
- Professional Management and Oversight
Mutual funds are professionally managed by fund managers who have years of relevant financial market experience and they are supported by a team of subject matter experts who help pick investments and strategies that help maximize profits for the scheme’s investors
- Taxation
Investments in Equity Linked Savings Scheme (ELSS), which is a type of Mutual Fund, qualify for tax deduction benefits of up to Rs. 1.5 lakhs under Section 80C of Income Tax Act 1961. However, there is a lock-in period of 3 years which makes it suitable for the investors who are willing to keep themselves invested for this duration. And, another attractive feature of investments in Mutual Funds is that the gains up to Rs.1 Lakh are exempted from tax deductions in the financial year and only Long Term Capital Gains Tax (LTCG) of 10% above ₹1 lakh will be levied
- High Liquidity
Mutual funds allow the investors to invest in or redeem their invested amount from the funds with relative ease. This is especially true in the case of debt funds many of which have zero entry and exit loads and can be redeemed easily as and when you need them. Moreover, a few fund houses also have unique schemes that allow benefits such as instant redemption and debit card withdrawal of your mutual fund investment in case of emergencies. This is a contrast to popular fixed rate alternatives such as fixed deposits that have high premature withdrawal charges
How to invest in Mutual Funds
There are different methods through which one can invest in mutual funds:
- Offline mode – Visiting the nearest branch office of the fund house and investing in the desired scheme. You must carry all the required documents such as Identity Proof, Address Proof, Cancelled Cheque, Passport size photos, PAN Card and KYC Documents handy. You can also invest offline through a broker. However, this would then be a regular fund and not a direct fund. Think of it like a charge brokerage which gets deducted from the total investment amount.
- Online Portal – If you want a hassle free mode of investing with no commissions and brokerage, you can choose websites like Paisabazaar.com which allow the investors to compare more than 1,700 funds at one platform instead of visiting the website of each Asset Management Company (AMC) and then searching for numerous funds. You can select the fund in which you want to invest, look at the details and compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment
To get a descriptive understanding of how to invest in mutual funds, Click Here
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Frequently Asked Questions
Q.1: Are returns from mutual funds guaranteed?
A. No. Mutual funds are market linked instruments, hence returns are not guaranteed. That said, over time, capital markets have created significantly more wealth than any other investment route currently available in the country.
Q.2: Which are the best mutual funds to invest in India?
A. Mutual funds are good investments as long as the investor chooses a fund that suits their unique investment needs. On average, equity mutual funds offer the highest returns however, these investments require significantly higher risk tolerance as compared to debt or hybrid schemes that offer potentially lower returns but at the same time require considerably lower risk tolerance on the investor’s part.
Hence, the best mutual funds to invest in India would depend on multiple factors including investor’s risk tolerance, potential returns as well as investment time horizon.
Q.3: What are the different types of mutual funds and how do they differ?
A. There are three major categories of mutual funds – equity, debt and hybrid. Equity schemes invest mainly in equities and equity-derivatives, while debt funds invest in debt schemes such as bonds and money-market instruments. Hybrid schemes on the other hand invest in both equity and debt/money market investments.
Also Read: Debt Funds- Types, Benefits, Best Debt Funds for 2020
Q.4: Which is better, mutual funds or ULIPs?
A. Mutual funds are pure investment instruments whereas ULIPs provide dual benefits of insurance and investments. According to most experts, the combination of insurance with investment makes ULIPs an inherently poor choice as they provide low life insurance benefit along with potentially low investment benefits.
Thus, from an investment perspective, mutual funds with their potentially higher returns, superior transparency and excellent flexibility score above ULIPs.
Read More: ELSS vs ULIP: Which one should you invest in?
Q.5: How can I invest in mutual funds?
A. All a potential investor needs to start investing in mutual funds are a free investment account, an Indian bank account and KYC documents such as Aadhaar, PAN etc. At present investors also have the option of completing the online eKYC that can be completed from the comfort of their home with minimal paperwork.
Q.6: What is an ELSS?
A. Equity Linked Saving Scheme (ELSS) is a category of equity mutual fund which provides tax benefits upto Rs. 1.5 lakh under section 80C of the Income Tax Act, 1961. ELSS is the only investment option in the tax saving category which can potentially provide highest returns and comes with lowest lock-in of 3 years.
Read More: Tax Saving Mutual Funds: Best ELSS Funds