How to become rich: Equity mutual funds is the way to go, say experts, if you want to retire a wealthy person
How to become rich: Equity mutual funds investment ensures the growth of your investment which fixed income plans like PPF, NPS, EPF don't offer, say experts.
How to become rich: Mutual funds investment has gained popularity among the Indian middle-class because such investments have a unique feature of converting, so to say, small drops of water virtually into an ice-berg! Yes, small amounts invested for the long-term have this effect on your bank account. When it comes to retirement-related investment, people mainly think of Public Provident Fund (PPF), National Pension System (NPS) or EPF (Employees Provident Fund). Most of these investors know that these plans have a risk-free investment. As per the investment experts, retirement funding is a long-term investment and while investing for retirement, one should allocate some portion of his or her fund to equity mutual funds. Equity mutual fund allocation would help the investor to ensure that his investment actually grows by leaps and bounds.
Speaking on the benefit if some portion of the retirement fund is allocated to equity mutual fund, Balwant Jain, a Mumbai-based tax and investment expert said, "The fixed income products will get you fixed return but will not ensure any growth to your investments." Jain said that with increased life expectancy the risk of living longer has become a fact of life and therefore the period for which your retirement corpus should last has gone up substantially over the years. Though one cannot take a risk with his investment after retirement then risk and rewards go together. All the fixed income products will get you fixed return but will not ensure any growth to your investments. With inflation and taxes, the fixed income products do not get you decent returns in the long run.
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Batting for equity mutual fund investment while investing for a retirement fund, Jain said, "For ensuring the growth of your investments you should invest in equity products. I am not advising you to invest in direct equity but one should invest part of the investment in the equity mutual fund products after taking care of liquidity requirements and regular monthly income."
On ration in which a person should invest in equity mutual funds while investing for retirement fund Kartik Jhaveri, Manager — Wealth Management at Transcent Consultants said, "There is no such thumb rule for fund allocation in equity mutual funds. However, more is your age lesser is the risk you need to take as your period of income is lesser. But, in general, we advise people to allocate 40:60 ratio to equity and fixed income plans." He said that the risk appetite of the investor also matters and hence the ratio of equity may go up or down on the basis of the risk appetite of the investor.
But, Balwant Jain gave a thumb rule to this fund allocation problem citing, "The asset allocation between debt and equity is a difficult question to answer but as a thumb rule, 100 minus your age can be the component of equity in your portfolio. One should follow this pattern if one does not have any other regular income and still have some risk-taking ability."
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