The significant surge in healthcare costs, increasing trend of nuclear families and higher life expectancy is likely to encourage more investors to invest in these funds, according to a release by ICRA Analytics.
The growing awareness has led to a surge in the number of folios, which has increased by 17.44% in the last five years to 29.36 lakh in July 2024, up from 25 lakh in July 2019. The number of schemes has also increased from 21 in 2019 to 29 in 2024. The average compound annualized returns on these funds stood at 26.21%, 12.97% and 14.09% for a 1-year, 3-years and 5-years period respectively.
“Investors show interest in retirement funds as they are managed by specialised fund managers and are tailormade taking into consideration the risk-taking capacity, investment horizon and financial goals of an individual. The fund manager typically allocates the fund across multiple asset classes namely equity, debt and sometimes real estate, which results in portfolio diversification and mitigates the risk factor,” said Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics.
“The lock in period discourages investors from withdrawing money too soon resulting in the growth of retirement corpus. Hence, such funds can be considered as a good option for planning retirement,” he added.
The rising awareness of the importance of financial planning and the need to build a corpus for retirement is encouraging investors to opt for retirement mutual funds in a big way. “Retirement funds come with its unique set of advantages. It offers flexibility to investors giving them the advantage of choosing from different asset allocation strategies depending on the risk tolerance and his/her long-term investment objective. They are less risky compared to that of a pure equity fund. Managed by professional fund managers, such funds follow a disciplined investment approach which results in significant wealth appreciation and preservation. The investor is able to enjoy the power of compounding by staying invested for the long term and through systematic investments is able to build a significant corpus over the working years,” Kumar said. “It is imperative that one has a well-thought-out retirement plan which is in sync with his risk tolerance, investment horizon and investment objective as regular income will cease to exist post-retirement. Taking into account the higher price levels, increasing healthcare costs, increasing trend of nuclear families and higher life expectancy, retirement funds is expected to gain traction in the coming years,” he added.
A retirement mutual fund is a specialised solution-oriented mutual fund whose objective is to ensure that the investor has a comfortable and secured post-retirement life. Such funds have exposure to both equity and debt where the equity segment fosters wealth appreciation while the debt segment ensures wealth preservation and stability. A retirement mutual fund helps provide a regular stream of income when one retires and there is no regular monthly income and come with a lock in period of 5 years or till retirement.
