Do I Need Too Many SIPs to Retire Easy?

When it comes to retirement benefits, many of us think that having a pension plan in palace is the best bet. However, there are certain factors that must be kept in mind before choosing any plan for retirement. In the case of central or state government employees, the monetary aspect related to retirement is already taken care of. What this essentially means is that for private-sector employees and for people who are self-employed, there are many other factors that need to be taken care of which make having a beneficial retirement plan in place an essential reality. Many people also seem to undervalue the importance of Mutual Funds when it comes to retirement planning and the need to have a significant corpus in place by the time they retire. Mutual Funds in India are fast emerging as a mode of retirement planning, especially so when the accrued benefits supersede the risks involved. While planning for retirement, it is essential that a plan should be in the place that works in accordance with your risk appetite. Generally, it is not advisable for you to have a high-risk venture or a lop-sided investment mix if you are planning to retire. This is why equity instruments must not form the bulk of your retirement plan investment. Focussing only on debt securities is also not advisable as despite being safe if you invest 100% in debt and none in equity, then the assured returns may not match your expectations or your financial goals and targets. The key, therefore, is having a balanced, hybrid investment plan, which allows you to invest preferably in both equity and debt instruments at a pre-decided rate or percentage so that stable returns are ensured at a low rate of risk.

Take a SIP Each for Every Stage of Retirement  

The importance of SIP (Systematic Investment Plan) lies in the fact that SIPs ensure a disciplined and regular contribution towards the retirement fund. Such an approach means that you can go on to build a significant corpus by the time of plan maturity or termination of the plan period. A SIP comes with no upper limit or threshold value of the upper contribution, although there is a certain minimal lower cut off limit on the contribution. You can start planning with as low as Rs500 per month. The dividend factor depends on the multiplication of the amount invested in SIP over the whole term of plan maturity and this is what yields the significant returns after maturity.

Taking a SIP for every stage of retirement is therefore essential as it ensures regularity of investment at all times for each stage of retirement. This staggered approach of SIP means that a person can enjoy multiple benefits even while the plan is yet to mature and the can opt for regular benefits or lump sum payouts, if and when required. This approach also offers a major benefit of acting as a hedge against inflation. This can be understood in a better manner from the fact that by the time a person retires, the cost of the living index would have undergone a major change and the factor of inflation may seem to bat down on the accrued plan benefits. This is why investing in a mutual fund for retirement benefits through SIP is required. This makes the saved corpus immune from the effects of inflation and ensures that the overall benefits offer sufficient coverage in times of need. In fact, mutual fund investments are famed for offering protection against inflation and as such are gaining a reputation for offering retirement benefits of a highly secure nature.

One SIP for Retirement

One of the key advantages of investing in Mutual Funds for retirement planning is the fact that although your investments are exposed to equity options, yet the prospects for diversification come in handy in such a situation. The fund managers will ensure that your investment portfolio is diversified into various equity channels as well as into various debt instruments so that the overall stability of returns is ensured. Such a diversified portfolio allows you to reap rich dividends while ensuring that the risk involved stays within low levels and does not impact the multiple gains that you are bound to receive. 

How does it work?

As stated, a SIP works primarily on the basis of the factor of regular contribution and management of monthly monetary allocations. This can be understood by the following examples:

Case 1 – Take the example of a person A, who is self-employed and contributes on an irregular basis owing to existing liabilities and the cyclic nature of monthly income. When his pocket permits, he invests Rs.5000 to the retirement fund option and at other times, there is no contribution. Therefore, it can be said that he does not have any SIP in place for his retirement. Now, assuming that the plan period is of 20 years and the annual average of the contribution is Rs.30,000. Therefore, by the time of retirement, the built-up corpus will amount to Rs.6,00,00 roughly.

Now consider that the same person A works through a SIP and contributes Rs.5000 regularly on a monthly basis, the same corpus will be Rs.1,200,000 i.e. double the previous figure, given the annual average contribution is Rs.60,000.  

Case 2 – Let us take another example of a person B, who is about 30 years old and plans for an investment horizon of 30 years i.e. until he reaches the age of 60. Let us assume that he starts a SIP contribution of Rs.10,000. The contribution is regular and he diligently sets aside this amount from his monthly income. Assuming that the returns are 12% p.a., and the SIP investments continue for another 30 years, the corpus by the time of his retirement will be approx. Rs. 3.50 Cr. 

These two examples show how a SIP works best for retirement planning, where the investment horizon is roughly around 20-30 years. By the time of retirement, the corpus becomes significantly high for covering all the needs and requirements of the investor. 

Tradebulls offers a significant platform for all kinds of planning regarding retirement benefits through SIPs. For further information and to know more about SIPs in Mutual Fund investment, click on the mentioned link: