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Know What is Retirement Mutual Fund & how to calculate it

5 Mins 11 Nov 2021 0 COMMENT


Rishi is in his early 30's. He earns a reasonable amount consistently and is financially sound. He planned for the trip he always wanted to take, for a house and his child's higher studies. But one of the definite stages of his life was yet unplanned. Rishi realized that he was missing out on planning for his retirement. He wished to maintain the same lifestyle even after retirement and thus invest accordingly. On asking for advice, he learned about the availability of mutual funds designed specifically to meet the needs for planning for retirement.

What Is A Retirement Mutual Fund?

Retirement mutual funds are open-ended retirement savings plan that can help you save for your golden years. To ensure growth while treading carefully, these funds invest in a mix of equity and debt instruments. A lock-in period applies, which can last up to five years or until retirement, whichever comes first. The main goal of a retirement mutual fund is to provide a steady income after retirement. This mutual fund can help you build your retirement fund while aiming to beat inflation.

Purpose of Retirement Mutual Funds

Retirement mutual funds are designed to provide investors with a steady flow of income during their retirement years. If you invest in one of these funds, then you do it to plan for your retirement years. These funds invest in a mix of debt and equity instruments to ensure that you get good returns while at the same time securing a part of your investment. Depending on your requirement, returns can be generated as monthly annuities or as a lump sum.

Ways to Invest in Retirement Mutual Funds

There are two ways of investing in retirement mutual funds: you can either make a lump-sum investment or go via the Systematic Investment Plan route.

a. Lump-Sum investment:

A one-time investment, also known as a lump-sum investment, is when an investor invests a large sum of money all at once. Individuals with a healthy cash reserve and a higher risk appetite usually prefer this method.

b.  Systematic Investment Plan:

SIPs entail investing a set amount of money each month until the investor achieves their investment goal. SIPs are better for first-time investors because they instil the habit of investing and build a fund pool over a long period. It enables new investors to leverage their wealth without putting their finances at risk.

Additional Read: ICICI Direct- How to plan for a relaxed retirement?

How To Calculate Your Retirement Corpus?

Calculating how much money you'll need when you retire is the first step in retirement planning. It is essential because it is the foundation for selecting the best retirement plans. Here's a detailed guide to figuring out how much you'll need for retirement-

I. Calculate how much money you'll need to live when you retire:

Step one is to find out how much you spend regularly. Then, split your expenses into two parts (fixed expenses and variable expenses). Expenses like food, groceries, medicine, clothing, and so on will continue even after you retire, but costs like work travel, professional attire, education loans, personal loans may not. Calculate the expected expenses after considering these factors.

II. Calculate your expected retirement income:

Include all sources of income that you expect to earn after you retire. This income could come from your properties, a pension scheme, or a pension from other sources such as EPS, for example.

III. Calculate how much more money you'll need:

That is a relatively simple step. Simply subtract the anticipated income from the expected expenditure. The amount thus obtained will serve as the foundation for your retirement planning.

IV. Consider the future value of the additional income you'll need:

You must account for future value because, while the other requirement may appear small today, it will inevitably increase over time due to inflation. Experts typically use 7% for inflation (the long-term average) for accurate forecasting.

V. Decide on the amount of money you'll need for retirement:

To begin, calculate how much your current investment portfolio will increase in value by the time you retire. Next, calculate how much retirement savings you'll need when you reach retirement age, taking into account various factors such as life expectancy, asset values, and expected returns, among others. 

The figures for all the mentioned steps can be easily calculated using the online retirement planning calculator. Using the ICICIdirect retirement planning calculator is easy. You need to provide your current age, age you wish to retire, and current annual income. You are also required to put the percentage value of how much you currently save for retirement. The calculator displays the results as the monthly investment needed to reach the target retirement corpus assuming an inflation rate of 4% and 8%.

Advantages of Buying a Retirement Fund

  • A retirement fund helps you be prepared for your retirement years when you may not have a steady source of income. Planning for your retirement is an essential part of a robust financial plan. Investing in a retirement fund can help reach this goal. 
  • One of the most significant advantages of investing in a retirement mutual fund is the flexibility it offers in terms of how you want your returns. Unlike an NPS product, where you compulsorily have to invest in annuities, this allows you to choose between a pension-like return or a lump sum return. 
  • These plans provide adequate risk management since the investments are split between equities and debt instruments. The equities portion of the investment ensures that you get inflation-beating returns, while the debt portion assures a certain amount of return. With a retirement mutual fund investment, you can rest easy that your retirement will be taken care of. 
  • Investments in retirement mutual funds are eligible for tax deductions of up to Rs. 1,50,000 a year under Section 80CCC of the Income Tax Act. However, note that returns are subject to tax depending on your tax slab. 


Mutual funds allow you to gain exposure to various asset classes and sub-classes, potentially resulting in higher returns. Mutual funds provide a diverse array of investment options to suit multiple investment needs and risk appetites. If you start saving for retirement when you're young, you'll have the most exposure to equity. That includes riskier equity sub-categories like midcap and small-cap funds, which have the potential to generate high returns over time. During our working lives, one of our top financial priorities should be retirement planning. You should also talk to your financial advisors regarding investment in retirement mutual funds for retirement planning.


   1. How do I calculate my retirement fund?

To calculate your retirement fund or the retirement corpus you need, you must first estimate your retirement financial requirements. Once you have arrived at that, you need to calculate your expected retirement income from different sources such as rent, employer’s pension, other investments, etc. Then you subtract this amount from the total money you will need for retirement. Don’t forget to account for inflation. Usually, experts suggest assuming inflation at about 7%. After following these steps, you will arrive at a figure that will estimate the retirement corpus you will need. 

   2. How are mutual fund returns calculated?

Mutual fund returns are calculated depending on the total appreciation of your investment. The Net Asset Value of a mutual fund represents its current market price and can tell you where your investment is at present. You can then subtract the value of your initial investment and calculate the returns. 

   3. How should I invest my retirement fund?

Retirement mutual funds can be an intelligent way to invest in your retirement. Investing your retirement corpus in a retirement fund, either in a lump sum or through a SIP, can ensure that you get inflation-beating returns on your investment. Retirement funds split your investment between debt and equity investments, thereby ensuring risk management and a balanced investment strategy. You can then choose whether you want your returns in a monthly annuity format or as a lump sum. 

   4. Are retirement funds safe?

Retirement mutual funds are subject to market risks because they invest a portion of the amount in equities. However, this can often be balanced out by the debt component. Historically, these funds have given investors inflation-beating returns. 


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