Taking the MF route to secure their silver years

The “MF cult” seems to be catching on, with many now viewing mutual funds as a long-term investment. Thanks to a market that is making new highs day after day, an increasing number of people are getting comfortable with the idea of investing in equity schemes for their retirement. No more confusion in terms of mixing investment and insurance by parking money in expensive unit-linked plans or traditional insurance policies.

Seeking professional help is also a common trend seen across age groups - to set their finances right and enable them to reach their goals.

The other popular schemes which see investor interest in retirement planning are the PPF (public provident fund) and the NPS (National Pension System).

Investing systematically

Raghavan Krishnamachari, 49, General Manager at Seaport Logistics, says “I invest in diversified equity schemes through the SIP (systematic investment plan) route for my retirement and other goals.” He has a term cover and a medical insurance policy to take care of risks.

The case of Harikesh P, 45, is not too different. He is a DGM at Schwing Stetter. “I invest in mutual funds through the systematic route, apart from allocating some money to the NPS as well.” He says that 60 per cent of his salary goes to servicing his home loan EMI.

Raghavan and Harikesh also have some direct equity investments but maintain that it is negligible in the overall scheme of things.

Mutual funds are safer and do not require very frequent monitoring. Some made investment mistakes which could, thankfully, be corrected later on.

Says Ranganathan, 32, Area Sales Manager at Atlas Copco, “I burnt my fingers investing in expensive ULIPs a few years ago and learnt about investing the hard way, even booking losses in some schemes.”

He now invests 70 per cent of his surplus in equity funds and 10 per cent in PPF, of course, after consulting his financial advisor.

Then there is the curious case of the young but conservative investor — Balamurugan Thiyagarajan, 38, GM in a multinational company, who is yet to take the plunge into equity funds. He used to invest only in simple deposits earlier. Over the last one-and-a-half years, though, he has started taking baby steps. Says Balamurugan “I have started investing in debt-oriented mutual funds, balanced schemes and PPF.” He says that once he gains confidence by investing in market-linked products, he will make the transition to diversified equity funds in the next few years. He has started making allocations to the NPS as well.

Retirement planning

Barring Ranganathan, who has one child, all others have two children and some of them support parents too.

So, how do they decide to split the allocation between saving for retirement, while also setting aside funds for their children’s education and marriage?

Harikesh, given his loan constraints and also other goals relating to his children, manages to direct about 10 per cent of his salary to the retirement kitty.

Raghavan Krishnamachari makes a solid 50 per cent allocation for his silver years. Of course, it did help financially that he had a stint abroad for many years, before returning to India.

Balamurugan makes a 20 per cent allocation to his retirement kitty every month while Ranganathan manages to direct 15 per cent of his salary for the goal. Of course, there are several SIPs running for different goals for all these investors. And a portion of it is directed towards retirement.

What is heartening in these interactions is that these people from different walks of life and age groups are clearly aware of the challenges of having to beat inflation and maintaining a decent standard of living after they hang up their boots.

So with the markets on a roll, there is added confidence to invest in stocks, indirectly through mutual funds. They do not hesitate to sound out their financial advisors before deciding on asset allocation and while choosing schemes.

And they are smart enough to avoid products that will take them nowhere. As a result, agents peddling ULIPs and traditional products in order to pocket commissions are a ‘no go’ for them.

So, when do they hope to retire and do finances support the case for calling it a day early?

For all the four professionals, the desired age of retirement is 50-55, after which they want to work “at a pace and time of personal choice” and not to the diktats of organisations.

But herein is the catch: financial planners have advised all of them to work till they turn 60 before opting for retirement, as otherwise it might be tough to maintain a quality lifestyle.

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