Is it a good time to invest in gilt funds? Are these funds risk free?

In your mid-20s or early 30s, it may appear futile to begin your retirement investments. After all, at this stage, you may have just started your career or maybe busy meeting your short-term goals of travelling abroad, buying an expensive gadget, investing to save up for your home’s down payment, etc. However, consider this from a retiree’s viewpoint, the major regret most have isnot starting their investments early for their golden years. So, here’s a stepwise approach, which you can use to form an adequate retirement corpus.

• Begin investing for retirement at the earliest

The sooner you begin, the lesser contribution you would need to reach your corpus goal for retirement. Starting your investments early even assists in inculcating financial discipline and helps you benefit from the compounding effect. Due to the power of compounding, the gains earned from your investment start yielding returns on their own, which grows to a bigger corpus over a long time. For example, a 30-year-old would require making a monthly Systematic Investment Plan (SIP) contribution of Rs 5,990 at an assumed return rate of 14% per annum to form a retirement corpus equalling Rs 3.29 crore by the time they approach60 years of age. For a 50-year-old, forming the same retirement corpus at the same annualised return rate over a span of 10 years would require a monthly SIP of Rs 1.27 lakh.

• Account for inflation

While computing your corpus for retirement, ensure to consider the inflation rate. As inflation lowers the buying power of money, meeting your same lifestyle expenses in your retirement life would cost significantly more than the money you require to meet those expenses now. Hence, it’s essential to accurately calculate your inflation-adjusted retirement corpus requirement by using an online retirement calculator.

• Purchase adequate health policy

Given the steady increase in India’s healthcare expenses, the requirement to purchase sufficient health coverage is necessary. As your present age is a vital factor determining the premium of your health policy, purchasing health insurance later would cost you a higher premium. Additionally, health policies generally come with a waiting period for specific treatments or surgeries or if you have any pre-existing disease. Buying a health policy early permits you to meet the waiting period on the insurance before the probability of getting such diseases or facing adverse scenarios owing to pre-existing diseases.

• Consider equity investments to form a higher post-retirement corpus

Forming a corpus for retirement is a long-term goal that spans decades. Equity is one of the most favourable asset classes for meeting your long-term life goals as it can overcome inflation and fixed-income assets over the long term by a huge margin. As you approach the age of your retirement, activate Systematic Transfer Plan (STP) in equity funds of your post-retirement investment portfolio to steadily move your investments to a low-risk short-duration debt mutual fund. Doing so allows you to protect your returns generated from equity funds from market volatility. Debt funds come with a higher capital preservation capacity than equity mutual funds.

Ending note

Sooner or later,everyone retires either due to necessity or choice. Thus, retirement planning is a must to accumulate a retirement corpus for your old age days. For this, you must ensure to follow the above-mentioned tips to create an adequate retirement corpus.