How to create a Rs 1 crore retirement corpus through mutual funds

Financial planning is important as it ensures a smooth present and better tomorrow, that being said while planning finances it is necessary to think about retirement as that's when one needs a financial backup to rely on. There are many ways to create a large corpus till retirement and one of the ways is through mutual funds. One can create a retirement corpus of Rs 1 crore in 25 years but before that let’s have a quick glance at how to create a retirement corpus with mutual funds:

Define your financial goals

To build a retirement corpus, it is necessary to know what your goals are, here your financial goal is to create a Rs 1 crore corpus. Similarly, there can be different goals set by the individual.

According to experts, when one is trying to build a retirement corpus it is important to ask a couple of important questions:

1. How much monthly income will I need to lead a comfortable lifestyle?

2. Provision for any emergency like medical expenses?

3. How much time do you have to save?

4. What rate of return do you need to achieve your goals?

“When one starts to build the corpus, they must decide the asset allocation between equity and fixed income. This initial phase is called accumulation Start investing accordingly through a SIP,” said Manish Mehta, National Head, and Sales, Marketing & Digital Business, Kotak Mahindra Asset Management Company.

Determine investment strategy

The next step is to plan out an investment strategy. This includes deciding how much of the portfolio should be allocated to mutual funds, what type of mutual funds to invest in, and what risk one’s tolerance is.

Anup Bansal, Co-founder, Scripbox explains it with the following example:

Assuming that investors still have 25 years to retire, it gives them the space to weigh more on equity mutual funds. If they do not want to take that approach and wish to create a balanced portfolio, hybrid funds are good options as well.

Choose the right mutual fund and monitor them regularly

Choosing the right mutual fund is crucial when creating a retirement corpus. It is important to consider factors such as the fund's performance history, expense ratio, and the fund manager's experience to make an informed decision.

Bansal says once an investor has chosen a mutual fund, they should monitor it regularly to ensure it is performing as expected. This includes keeping an eye on the fund's performance, changes in the fund's management, and any changes to the fund's investment strategy.

Portfolio Rebalancing

Rebalancing is critical and should be done annually. It helps investors minimise the changes in their portfolio due to market fluctuations and keep their investments on track. Also, as one approaches retirement, they should focus on reducing their exposure to market risk.

“If an investor has invested heavily in equity mutual funds, start shifting the same to debt and liquid assets to ensure that you can receive a stable income inflow post-retirement and that any market correction does not hamper your investments,” said Bansal.

How to create a Rs 1 crore retirement corpus?

Assuming an annual return of 12 per cent from mutual funds, one needs need to invest approx. around Rs 43,041 every month to create a corpus of Rs 1 crore in 10 years. Similarly, they need to invest Rs 5,270 every month to create Rs 1 crore in 25 years.

Note that the annualised return of 12 per cent is an assumption and not guaranteed. Actual returns will vary based on multiple factors.

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