Mutual Funds Analyst

Age no bar for investing in mutual funds

  • You can choose to invest through MFs in your 40s and 50s so long as your investments are relevant to your goals and as per your risk appetite.
  • You can choose either hybrid or pure equity funds to meet your goals
  • It is also essential that you cut down on loans — credit cards and personal loans —and unnecessary expenses to start planning for retirement.

Mutual funds (MFs) aren’t just for the young. Assuming you are 40 years old now, you have 20 years to retire. However, the amount you invest today should also take into account your post-retirement lifestyle; considering you have a lifespan of 80 years. It is also important to start early. Let us consider the following: if you needed a corpus of Rs 1 crore by age 60, you will have to save more per month if you started investing at age 40, as against starting at 30 yrs if you had started at age 30. It is also essential that you cut down on loans — credit cards and personal loans —and unnecessary expenses to start planning for retirement.

Three things to consider:

1. The risk factor associated with your investment choices and whether it matches your risk appetite.

2. Consider inflation-adjusted returns; all your investments should yield post-tax inflation-adjusted returns.

3. Ensure a contingency fund for any emergency.

You’re never late

When you are in your late 40s or early 50s, you can still consider investing in equity MFs. short-term aims such as children’s higher education and marriage. Taking a loan or selling physical assets such as land/ property are some solutions, yet these might prove costly and difficult when you intend to begin planning for your retirement. Assuming that these goals are 7-10 years away, it is essential to start investing systematically to raise a sizeable corpus.  For instance, if you need the funds within a couple of years, you could invest in a liquid fund or short-term debt fund. If you have more time to meet your needs, you could invest over 70% of your funds in a diversified equity mutual fund and the rest in a debt mutual fund.

Consider ratio of exposure:

As you approach retirement, your investment pattern must start steadying. For instance, if the ratio of your exposure to equity and debt is 50:50, you could look to progressively adjust it to 20:80 by the time you turn 60 so that your corpus stays unaffected by the volatility in the markets. Depending on the corpus you require you should systematically transfer your holdings in equity to debt instruments to eliminate risk.

For the above example, assuming an average return of 8%, let us consider the example of a SIP in aggressive hybrid funds, with a top-up of 10% every month.

Goal: Rs 10 lakh

Timeframe-10 years

Recommended Fund- Aggressive Hybrid Fund

Rationale- Invests mainly in equities with some exposure to debt for some cushion in case of a market downturn.

Expected rate of return-8% (PA)

Monthly SIP amount for the first year- Rs 3,933

Total amount invested in 10 years- Rs 6,84,180

Final amount- Rs 10,02,912

Thus, as you can see, even in your late 40s or 50s, you can meet your goals comfortably by investing in an aggressive hybrid fund. You can either use hybrid funds or even pure equity funds depending upon your risk appetite, time horizon, and goal.

Share Tweet Send
You've successfully subscribed to IAS for IAS
Great! Next, complete checkout for full access to IAS for IAS
Welcome back! You've successfully signed in
Success! Your account is fully activated, you now have access to all content.