5 Mutual Fund Utilities That are Useful for Retirement Planning

Mutual Funds, with assets now exceeding Rs. 23 trillion, are fast evolving into the savings instrument of choice for retail investors across the country. A lot of this growth has been driven by the informative “Mutual Funds Sahi Hai” campaign which is making waves across the country! Although a lot of people still lean towards PPF and Life Insurance to fulfil their Retirement Planning needs (accumulation as well as income distribution), many are starting to realise the unique merits of making retirement-specific investments into Mutual Funds. Here are five unique Mutual Fund utilities that are specifically useful from the Retirement Planning perspective.

Systematic Investment Plans

With an industry book now exceeding Rs. 7,000 Crores a month, SIP’s or Systematic Investment Plans need no introduction. SIP’s, by themselves, are a very useful tool for Retirement Planning. You can start off with as low Rs. 500 per month just to make a beginning and increase your outlay as your income grows. SIP’s in highly volatile funds can be very useful from a Retirement Planning standpoint, as you’ll really reap the rewards of Rupee Cost Averaging and Compounding if you can keep it running for a few decades.


A few Asset Management Companies now offer a “SIP plus Insurance” feature, wherein you are provided with a free of cost life insurance cover that can go as high as 100 times your monthly instalment, by the 3rd year of your SIP. For a monthly investment of Rs. 50,000 that’s a substantial sum of Rs. 50 Lakhs. Since, for most individuals, Retirement Planning is a joint goal for oneself and one’s spouse, this feature can be useful to safeguard a certain corpus for your dependent spouse’s retirement goal, in case of an unforeseen eventuality.

SIP Step Up

Nowadays, most Asset Management Companies offer investors the option to “automate” their annual step-up amounts, either as a percentage of the previous year’s SIP amount, or as a fixed rupee sum. Step ups can be invaluable from the Retirement Planning perspective, as they ensure that your savings keep pace with the increase in your annual income. Over long periods of time, automated step ups can make a huge difference to your final retirement corpus, without hurting your pocket. Consider this – starting with just Rs. 5,000 per month at the age of 25, you can actually accumulate more than Rs. 25 Crores by stepping up your SIP amount by Rs. 5,000 per annum!

Systematic Transfer Plans

When you’re very close to your retirement (say 3-4 years away), your priority will change from return generation to securing your corpus. In doing so, you’d want to alter your asset allocation strategy from largely equity-oriented to largely debt-oriented. For this “de-risking” exercise, STP’s or Systematic Transfer Plans can come in extremely handy. Essentially, an STP in this case will be a standing instruction to the AMC to transfer a fixed rupee amount from equity funds to safer debt funds every month. A staggered de-risking will help you average the exit costs of your units, thereby ensuring that you don’t end up booking out of equities all at once, at or near a market bottom.

Systematic Withdrawal Plans

Systematic Withdrawal Plans or “SWP’s” can be extremely useful for generating a steady, tax efficient stream of post-retirement income. Having completed your accumulation phase, you’d want to draw upon your corpus after you retire, in order to fund your day to day expenditures. An SWP (which is like a reverse-SIP) is a standing instruction to your AMC, to liquidate a fixed rupee amount every month and transfer it to your account on a fixed date. By starting an SWP from your corpus, you can actually (technically) continue paying yourself a salary after retirement, instead of relying in unpredictable income streams like dividends to fund your day to day expenditures.