When you are younger and have fewer responsibilities, you can invest in any means of your choice without worrying and taking relatively even risks, but your responsibilities increase as you age and You become selective in terms of investment. People are usually confused about investing in mutual funds or pension schemes. They are unable to decide which option will prove right for them. So through this article, we are going to give you information related to both, which will make it easier for you to choose a better investment plan for yourself.
Keep in mind while investing for retirement
There are many schemes available in the market that claim to improve retirement. All of them have their own characteristics and drawbacks, due to which investors remain in dilemma and are unable to choose any better for themselves. Keep in mind that retirement plans require you to invest smartly. When choosing plans for retirement and before investing you should consider the following factors –
- How will you manage your budget and invest money in a savings plan?
- Which investment plan will give you more returns.
- Also include your lifestyle and health expenses while calculating sufficient capital during retirement.
- How much loan will you have after retirement, etc.?
What are mutual funds?
A mutual fund is a scheme through which investors’ money is invested in the company’s shares and bonds. These funds are managed by professionals, known as fund managers. The objective of the fund manager is to get the best return on the investment of the investors. Some mutual funds have started offering pension schemes that invest in both debt and equity instruments. You can use SIP to invest in pension schemes at regular intervals.
What is a pension scheme?
A pension scheme or retirement plan provides double benefit to investors. It provides insurance cover as well as retirement corpus. Through the pension scheme you can invest a specific amount of money at regular intervals and make good capital to help you live a financially independent life after retirement. PPF and NPS are the most popular retirement plans, which offer a range of benefits. If you start contributing early in pension plans, you will be able to make more capital for your retirement. You choose the scheme that offers you promising returns as well as other benefits like tax benefits etc.
Mutual fund vs pension scheme, which is better?
An appropriate retirement plan should be chosen based on age and budget. Along with this one should choose retirement plan based on their financial goals and risk.
- You can invest in mutual funds through SIP (SIP). An investment of Rs 10,000 in a diversified mutual fund can help you in creating a retirement fund. After its maturity, you can transfer the amount to a contingent debt fund and then take a systematic withdrawal scheme (SWP) for a regular flow of income or you can also choose a pension plan in a mutual fund. Your investment of 10 thousand rupees can be placed in a diversified equity fund depending on your risk capacity. The plan converts your invested funds to a limited annuity period until the time you retire.
- Most Indian investors usually opt for pension plans for their retirement. Retirement plan is a good option for this, but if it is compared to mutual fund, it can be considered as the second best option after mutual fund. Mutual funds invest for the necessary equity exposure by diversifying your portfolio while reducing risk.
Role of mutual fund in retirement planning
The private sector and self-employed individuals may face difficulties when considering the financial aspects for their retirement. However, retirement planning is essential for all groups of people and mutual funds offer the best for making such a plan. If you can stay invested for 20 to 30 years, then mutual funds are one of the best options for you. You can start investing on monthly basis as per your budget through SIP. It helps to store money in an economical way.
Role of pension schemes
The pension scheme provides you security after retirement and the savings in it helps you to live a financially stable life. Pension schemes like NPS and PPF are supported by the government and they also get tax benefits of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. You should invest smartly in pension plans for your retirement. Any pension plan and mutual fund can serve as your retirement tool, but you should choose the plan that meets your target according to your budget.