The Hindu Business Line : Build retirement assets thru MFs

Some people may jokingly call retirement the world's longest coffee-break, while others may, more plainly, define it as when work becomes a lot less fun and fun becomes a lot more work.

An ordinary investor who is on the verge of retirement, however, may well relate closely to this very remarkable statement: "It's nice to get out of the rat race, but you will have to learn to get along with less cheese".

If you are an investor, one who is armed with NAV tables and performance worksheets, there will be a strong case for you to use mutual funds in order to build your retirement assets. Now, there is nothing new in this, you will argue, pointing out clearly to the many articles you have read in the papers and the talk shows you have watched on the telly. However, right at this moment, there is need for us to revisit the reasoning.

Pension reforms

Even as you are reading this, the case for MFs (in the context of retirement) is becoming stronger. Here's why. One, pension reforms are not making much headway in India and pension funds are nowhere near reality. Two, the last three years or so have proved that equity funds, if managed well, can deliver a lot in terms of actual wealth creation. Three, there is greater variety in the funds space than before and a discerning investor can use various combinations of products to get the best out of professional fund managers.

Consider one of those relatively early products, say, one started by a private-sector fund house. Take, for instance, Birla Advantage Fund, which has been around for over a decade. Market dynamics have changed, the universe of stocks has grown, the Sensex has soared... its fund managers, beginning with Bharat Shah, have changed too! But if you had invested in BAF in those very early days and have held your commitment, you would have made a neat pile by now.

This is just to point out that over an extended stretch of time, MFs have generally tended to create value for their unit holders.

Whether you are happy with an overall, post-tax 15 per cent return from your equity fund (or unhappy, considering that you actually hoped for 25 per cent!) is a completely different issue and we are not discussing it right now.

Before we end, let us check out the US retirement scenario, something we have done once earlier. Anyone who intends to create solid, high-quality retirement assets in this country may want to know that "retirement nest eggs" have reached $14.5 trillion in the US, a good 40 per cent increase since 2002. This data is taken from a report released by Investment Company Institute.

Now, to put all this in perspective, three smaller elements may be considered. First, retirement assets now mean over one-third of all household financial assets.

Second, individual control of retirement assets is an unbroken trend. Third, MFs form a critical part of this, handling roughly 50 per cent of the defined contribution plans.

Will this give you enough to chew on, at least till you read next Monday's column? Is there scope for improving your asset allocation in line with your current goals?

Does this prompt you to re-work your own retirement planning? You find the answers.

Feedback may be sent to nilanjan@thehindu.co.in

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