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How to save for retirement and children’s raising expenses?

Siddhi Sharma
/ Categories: Mutual Fund, MF Unlocked
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How to save for retirement and children’s raising expenses?

Every individual has different types of financial goals and in order to achieve these goals, there should be an adequate financial plan. Financial planning is a very crucial aspect of every individual’s life in order to survive in this world. Everyone seeks to be financially independent post-retirement and have peaceful sunset years. However, preparing a financial plan is not an easy task, and working according to a financial plan can be difficult for some people as everyone cannot afford to pay for the preparation of a financial plan. So, mutual fund offers scheme, which ends up causing stress about future financial goals. Majorly, a financial plan is needed in case of retirement and children’s education expenses, where the finances may take a hit if not planned appropriately. 

Solution-oriented funds are offered by mutual funds. The portfolio of these funds is generally designed in such a way that investors can achieve their specific goals related to retirement and children’s education as well as marriage. As per Association of Mutual Funds of India (AMFI), assets under management (AUM) of solution-oriented funds have increased from Rs 18,057.07 crore (Retirement Fund AUM - Rs 9,799.67 crore and Children’s Fund AUM- Rs 8,257.40 crore) June 2020 to Rs 26,532.05 crore (Retirement Fund AUM- Rs 14,741.61 crore and Children’s Fund AUM- 11,790.44 crore) as of June 2021. That is the total AUM of solution-oriented funds, which have risen by 47 per cent in just one year.  

Types of solution-oriented funds: 

Retirement fund: To cater to the individuals’ retirement planning goals, various asset management companies (AMC) offer retirement fund. This fund assists the individual and provides a financial plan by preserving & creating a corpus for retirement. Investors with higher risk tolerance can invest in equity while investors with lower risk tolerance should invest in debt. And, investors willing to invest in both instruments can invest in a hybrid scheme. Generally, investors should invest in equity in their earning stage and when investors’ age is nearing retirement, then they should switch to debt. This will ensure higher returns with capital preservation. These funds generally have a lock-in period of five years as these funds are shaped for long-term goals. 

Children’s fund: With the increasing cost of education, a financial plan for children’s education has become vital. Without an adequate financial plan, it’s very difficult to educate our children these days. In order to educate our children, there should be proper financial assistance. Children’s fund helps investors to create a corpus for their children’s education expenses. Investors should invest in these funds when either child is yet to be born or just after the child is born. This will help investors accumulate corpus till the child attains the age of schooling. These funds can also help investors accumulate the corpus for children’s marriage expenses, which is another big financial burden that every parent has. Investors can invest in equity, debt & hybrid schemes according to their risk tolerance, needs, and goals. These funds generally have a lock-in period of five years. 

The following chart depicts the top three funds on the basis of five-year return along with their AUM: 

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